13th Jan 2005 07:00
Aviva PLC13 January 2005 PART 2 OF 3 -------------------------------------------------------------------------------------------------------------------- PAGE 10 Summarised consolidated profit and loss account - European embedded value (EEV) basisFor the six months ended 30 June 2004 6 months 6 months Full year 2004 2004 2003 •m £m £m Operating profit 1,174 Life EEV operating return 799 1,496 49 Health 33 61 15 Fund management1 10 (4) 901 General insurance 613 911 12 Non-insurance operations2 8 8 (138) Corporate costs (94) (160) (329) Unallocated interest charges (224) (406)-------------------------------------------------------------------------------------------------------------------- Operating profit before tax, 1,684 amortisation of goodwill and exceptional items* 1,145 1,906 (72) Amortisation of goodwill (49) (103) (37) Financial Services Compensation Scheme levy (25) --------------------------------------------------------------------------------------------------------------------- 1,575 Operating profit before tax 1,071 1,803 (716) Variation from longer-term investment return (487) 779 82 Effect of economic assumption changes 56 (55) (16) Change in the equalisation provision (11) (49) 9 Profit/(loss) on the disposal of subsidiary undertakings 6 (6) (74) Exceptional costs for termination of operations (50) (19)-------------------------------------------------------------------------------------------------------------------- 860 Profit on ordinary activities before tax 585 2,453 Tax on operating profit before amortisation of goodwill (506) and exceptional items (344) (563) 187 Tax credit/(charge) on other ordinary activities 127 (176)-------------------------------------------------------------------------------------------------------------------- 541 Profit on ordinary activities after tax 368 1,714 (113) Minority interests (77) (121)-------------------------------------------------------------------------------------------------------------------- 428 Profit for the financial period 291 1,593 (13) Preference dividends (9) (17)-------------------------------------------------------------------------------------------------------------------- 415 Profit for the financial period attributable to equity shareholders 282 1,576 (310) Ordinary dividends (211) (545)-------------------------------------------------------------------------------------------------------------------- 105 Retained profit for the financial period 71 1,031====================================================================================================================* All operating profit is from continuing operations. 1 Excludes the proportion of the results of Morley's fund management businesses and of our French asset management operation Aviva Gestion d'Actifs (AGA) that arise from the provision of fund management services to our life businesses. These results are included within the life EEV operating return. 2 Excludes the results of Norwich Union Equity Release. Also excludes the proportion of the results of Norwich Union Life Services relating to the services provided to the UK life business. Other subsidiaries providing services to our life businesses do not significantly impact the Group results. These results are included within the life EEV operating return. -------------------------------------------------------------------------------------------------------------------- PAGE 11 Earnings per share - EEV basisFor the six months ended 30 June 2004 6 months Full year 2004 2003Earnings per shareOperating profit before amortisation of goodwill and exceptional items, after tax, attributable to equity shareholders* 31.9p 53.0pProfit attributable to equity shareholders 12.5p 70.0pProfit attributable to equity shareholders - diluted 12.4p 69.8p * All operating profit is from continuing operations. Consolidated statement of total recognised gains and losses - EEV basisFor the six months ended 30 June 2004 6 months Full year 2004 2003 £m £m Profit for the financial period * 291 1,593Foreign exchange (losses)/gains (306) 415---------------------------------------------------------------------------------------------------------------------Total recognised (losses)/gains arising in the period (15) 2,008===================================================================================================================== * Stated before the effect of foreign exchange movements which are reported within the foreign exchange gain lines. Reconciliation of movements in consolidated shareholders' fundsFor the six months ended 30 June 2004 6 months Full year 2004 2003 £m £m Shareholders' funds at the beginning of the period on an achieved profits basis 11,165 9,668Prior year adjustment (413) (364)---------------------------------------------------------------------------------------------------------------------Shareholders' funds at the beginning of the period on an EEV basis 10,752 9,304Total recognised (losses)/gains arising in the period (15) 2,008Dividends (220) (562)Other movements 27 2---------------------------------------------------------------------------------------------------------------------Shareholders' funds at the end of the period on an EEV basis 10,544 10,752===================================================================================================================== -------------------------------------------------------------------------------------------------------------------- PAGE 12 Summarised consolidated balance sheet - EEV basisAs at 30 June 2004 30 June 31 December 31 December 2004 2003 2002 £m £m £mAssets Goodwill 1,052 1,105 1,040--------------------------------------------------------------------------------------------------------------------Investments Land and buildings 607 637 668Investments in associated undertakings and participating interests 149 279 287Variable yield securities 2,799 2,967 2,603Fixed interest securities 9,734 10,098 7,737Mortgages and loans, net of non-recourse funding 1,350 929 776Deposits 744 435 550Other investments 26 34 37-------------------------------------------------------------------------------------------------------------------- 15,409 15,379 12,658 Reinsurers' share of technical provisions 2,699 2,926 2,882Reinsurers' share of provision for linked liabilities 636 579 337Assets of the long-term business 136,613 136,709 123,051Assets held to cover linked liabilities 42,921 40,665 29,538Other assets 10,372 10,829 10,994Acquired value of in-force long-term business 458 488 505Additional value of in-force long-term business 4,355 4,340 3,553--------------------------------------------------------------------------------------------------------------------Total assets 214,515 213,020 184,558==================================================================================================================== Capital, reserves and subordinated debt Shareholders' funds Equity 6,177 6,354 5,636 Non-equity 200 200 200Minority interest 963 953 743Additional retained profit on an EEV basis 4,167 4,198 3,468 Subordinated debt 2,751 2,814 1,190--------------------------------------------------------------------------------------------------------------------Total capital, reserves and subordinated debt 14,258 14,519 11,237 Liabilities Liabilities of the long-term business 121,926 121,125 113,348Fund for future appropriations 7,816 8,443 3,745Technical provision for linked liabilities 43,557 41,244 29,875General insurance liabilities 17,553 17,515 16,031Borrowings 1,666 1,720 2,042Other creditors and provisions 7,739 8,454 8,280--------------------------------------------------------------------------------------------------------------------Total liabilities, capital, reserves and subordinated debt 214,515 213,020 184,558==================================================================================================================== -------------------------------------------------------------------------------------------------------------------- PAGE 13 Segmentation of summarised consolidated balance sheet - EEV basisAs at 30 June 2004 Life and General Life and General related business related business businesses and other Group businesses and other Group Group 30 June 30 June 30 June 31 December 31 December 31 December 31 December 2004 2004 2004 2003 2003 2003 2002 £m £m £m £m £m £m £mTotal assets before acquired additional value of in-force long-term business 180,018 29,684 209,702 177,906 30,286 208,192 180,500Acquired additional value of in-force long-term business 458 - 458 488 - 488 505---------------------------------------------------------------------------------------------------------------------Total assets included in the modified statutory balance sheet 180,476 29,684 210,160 178,394 30,286 208,680 181,005===================================================================================================================== Liabilities of the long-term business (173,147) - (173,147) (170,765) - (170,765) (146,930)Liabilities of the general insurance business - (27,110) (27,110) - (27,736) (27,736) (26,391)--------------------------------------------------------------------------------------------------------------------- Net assets on a modifiedstatutory basis 7,329 2,574 9,903 7,629 2,550 10,179 7,684 Additional value of in-force long-term business 1 4,355 - 4,355 4,340 - 4,340 3,553--------------------------------------------------------------------------------------------------------------------- Net assets on an EEV basis 2 11,684 2,574 14,258 11,969 2,550 14,519 11,237===================================================================================================================== Shareholders' capital, share premium, shares held by employee trusts and merger reserves 4,604 4,622 4,710 Modified statutory basis retained profit 1,773 1,932 1,126 Additional retainedprofit on an EEV basis 4,167 4,198 3,468---------------------------------------------------------------------------------------------------------------------Shareholders' funds on an EEV basis 10,544 10,752 9,304 Minority interests 963 953 743--------------------------------------------------------------------------------------------------------------------- 11,507 11,705 10,047 Subordinated debt 2,751 2,814 1,190---------------------------------------------------------------------------------------------------------------------Total capital, reserves and subordinated debt 14,258 14,519 11,237===================================================================================================================== 1 The analysis between the Group's and the minority interest's share of the additional value of in-force long-term business is as follows: 30 June Movement in 31 December 2004 the period 2003 £m £m £m Group's share included in shareholders' funds 4,167 (31) 4,198Minority interest share 188 46 142--------------------------------------------------------------------------------------------------------------------Balance 4,355 15 4,340==================================================================================================================== 2 The analysis of net assets of the life and related businesses on an EEV basis is as follows: 30 June 31 December 2004 2003 £m £m Embedded value 11,473 11,751RBSG goodwill 211 218--------------------------------------------------------------------------------------------------------------------Long-term business net assets on an EEV basis 11,684 11,969==================================================================================================================== -------------------------------------------------------------------------------------------------------------------- PAGE 14 Basis of preparation - EEV basis The consolidated profit and loss account and balance sheet statements on pages 10 to 13 present the Group's results and financial position for the life and related businesses (including Group service companies) on the European Embedded Value (EEV) basis and for its non life businesses on the modified statutory solvency basis. The EEV methodology adopted is in accordance with the EEV principles introduced by the CFO Forum in May 2004. In the Directors' opinion, the EEV basis provides a more accurate reflection of the performance of the Group's life and related operations year on year than results presented under the modified statutory basis. The Directors considerthat the EEV methodology is a refinement to the Achieved Profits basis previously adopted by the Group and represents the most meaningful basis of reporting the underlying value in our life business and the underlying drivers of performance. This basis allows for the impact of uncertainty in the future investment returns more explicitly and is consistent with the way the business is priced and managed. The results for 2003 have been audited by the auditors, Ernst & Young LLP. The results for the six month period to 30 June 2004 are unaudited but have been reviewed by Ernst & Young LLP. Their reports in respect of the six month period to 30 June 2004 and the year to 31 December 2003 are shown on pages 49 and 50. Covered business The EEV 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 fundbusiness 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 venture operations including our arrangement with The Royal Bank of Scotland Group (RBSG) and our operations in India and China. For our joint venture with RBSG, the goodwillarising on the acquisition of the associate company, RBS Life Investments Limited, is included within the 'Amortisation of goodwill' on page 10. In addition, the results of Group companies providing administration, investment 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". New business premiums New business premiums include: • premiums arising from the sales of new contracts during the period; • non-contractual additional premiums, including future Department of Work and Pensions (DWP) rebate premiums; and • the value of expected renewals on the new contracts and expected future contractual alterations to the new contracts. For products sold to individuals, premiums are generally considered to represent new business in certain circumstances, including 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 premiumsexpected to be received beyond the expiry of any guaranteed premium rates. Foreign exchange adjustments Embedded value and other balance sheet items denominated in foreign currencies have been translated to sterling using the appropriate closing exchange rate. New business contribution and other profit and loss items have been translatedusing an average exchange rate for the relevant period. The closing euro exchange rates used in this announcement are €1 = £0.67 at 30 June 2004, €1 = £0.70 at 31 December 2003 and €1 = £0.65 at 31 December 2002. The average euro exchange rates are €1 = £0.68 for the six months to 30 June2004 and €1 = £0.69 for the full year 2003. -------------------------------------------------------------------------------------------------------------------- PAGE 15 Methodology Overview Under the EEV 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 modified statutory 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 life business, the net worth of that business excludes the interest in the dependent company. The embedded value is calculated on an after-tax basis and the profits are then grossed up for tax at the full rate of corporation tax for the United Kingdom and at an appropriate rate for each of the other countries, applying currentlegislation and practice together with future known changes. 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 adjustedto add back any non-admissible assets, and consists of the required capital and free surplus. The level of required capital for each business, which ranges between 100% and 200% of the EU minimum solvency requirement for our mainEuropean businesses, reflects the level of capital considered by the Directors to be appropriate to manage the business, allowing for our internal assessment of the level of market, insurance and operating risk inherent in the underlying products. The same definition of required capital is used for both existing and new business. The free surplus comprises the market value of shareholder assets in excess of local statutory reserves and required capital. Value of in-force covered business The value of in-force covered business is the present value at the appropriate risk discount rate (which incorporates a risk margin) of the distributable profits to shareholders arising from the in-force covered business projected ona best estimate basis, less a deduction for the cost of holding the required level of capital. Shareholders' distributable profits arise when they are released following actuarial valuations. These valuations are carried out in accordance with statutory requirements designed to ensure and demonstrate solvency in long-termbusiness 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 best estimate assumptions of future experience. The value of in-force covered business includes an allowance for the impact of financial options and guarantees arising from best estimate assumptions (the intrinsic value) and from additional costs related to the variability ofinvestment returns (the time value). The intrinsic value is included in the underlying value of the in-force covered business using deterministic assumptions. The time value of financial options and guarantees has been determined using stochastic modelling techniques. Stochastic modelling 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. 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. The time value is determined by deducting the average value of shareholder cash flows under these economic scenarios from the deterministic shareholder value under best estimate assumptions. The cost of holding required capital is the difference between the required capital and the present value at the appropriate risk discount rate of the projected release of the required capital and investment earnings on the assetsdeemed to back the required capital. The value of in-force covered business 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 tocovered 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. Risk discount rates Under the EEV methodology, a risk discount rate (RDR) is required to express a stream of expected future distributable profits as a single value at a particular date (the present value). It is the interest rate that an investment equal to the present value would have to earn in order to replicate exactly the stream of future profits. The RDR is a combination of a risk free rate to reflect the time value of money plus a risk margin to make prudent allowance forthe risk that experience in future years may differ from that assumed. In particular, a risk margin is added to allow for the risk that expected additional returns on certain asset classes (e.g. equities) are not achieved. -------------------------------------------------------------------------------------------------------------------- PAGE 16 Risk discount rates for our life businesses have been calculated using a risk margin based upon a Group Weighted Average Cost of Capital (WACC). The Group WACC is calculated using a gross risk free interest rate, an equity risk margin, a market assessed risk rate (beta), and an allowance for the gearing impact of debt financing (including subordinated debt). The market risk rate captures the market's view of the effect of all types of risk on our business, including operational and other non-economic risk. The RDR is only one component of the overall allowance for risk in EEV calculations. Risk is also allowed for in the cost of holding statutory reserving margins, additional required capital and in the time value of options and guarantees. Hence to derive an RDR the Group WACC is adjusted to reflect the average level of required capital assumed to be held, and to reflect the explicit valuation of the time value of options and guarantees. In order to derive risk discount rates for each of our life businesses, the adjusted Group WACC is expressed as a risk margin in excess of the gross risk free interest rate used in the WACC calculation as described above. Business-specific discount rates are then calculated as the sum of this risk margin and the appropriate local gross risk free rate at the valuation date, based on returns on government bonds. A common risk free rate, and hence acommon RDR, is used for all of our businesses within the Eurozone. The same risk margin is used for the United Kingdom and for all businesses within the Eurozone. Additional country-specific risk margins are applied to smaller businesses to reflect additional economic, political andbusiness-specific risk. Within each business, a constant RDR has been applied in all future time periods and in each of the economic scenarios underlying the calculation of the time value of options and guarantees. At each valuation date, the risk margin is reassessed based on current economic factors and is updated only if a significant change has occurred. In particular, changes in risk profile arising from movements in asset mix are allowed for via the updated risk margin calculation. The Group's revised approach to establishing economic assumptions (specifically investment returns, required capital and discount rates) has been reviewed by Tillinghast, a firm of actuarial consultants, who have confirmed to the Directors that, for the life business in aggregate, the approach is based on the well established capital asset pricing model theory and is in line with the EEV Principles and Guidance. Participating business Future regular bonuses on participating business are projected in a manner consistent with current bonus rates and expected future returns on assets deemed to back the policies. For with-profit funds in the United Kingdom 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 ofthe 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 averageadditional shareholder cost arising from this shortfall has been included in the time value of options and guarantees. For profit sharing business in Continental Europe, where policy benefits and shareholder value depend on the timing of realising gains, apportionment of unrealised gains between policyholders' benefits and shareholders reflect contractual requirements as well as existing practice. Where under certain economic scenarios additional shareholder injections are required to meet policyholder payments, this additional cost has been included in the time value of options and guarantees. Consolidation adjustments The effect of transactions between our life companies such as loans and reinsurance arrangements has been included in results split by territory in a consistent manner. No elimination is required on consolidation. As the EEV 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 profitshas changed from the modified statutory basis to the EEV basis. The capitalised value of the future profits and losses from such service companies are included in the embedded value and new business contribution calculations for the relevant territory, but the net assets (representing historical profits and other amounts) remain under non insurance or fund management. In order to reconcile the profits arising in the financial period within each segment with the assets on the opening and closing balance sheets, a transfer of modified statutory profits from life and related business to the appropriate segment is deemed to occur. The same approach has been adopted for expenses within our holding companies. -------------------------------------------------------------------------------------------------------------------- PAGE 17 Components of life EEV return The life EEV return comprises the following components: • new business contribution written during the period including value added between the point of sale and end of the period;• the profit from existing business equal to: - the expected return on the value of the in-force covered business at the beginning of the period, - experience variances caused by the differences between the actual experience during the period and expected experience based on the operating assumptions used to calculate the start of year value, - the impact of changes in operating assumptions including risk margins;• the expected investment return on the shareholders' net worth, based upon assumptions applying at the start of the year;• investment return variances caused by differences between the actual return in the period and the expected return based on economic assumptions used to calculate the start of year value; and• the impact of changes in economic assumptions in the period. The life EEV operating return comprises the first three of these components and is calculated using economic assumptions as at the start of the year and operating (demographic, expenses and tax) assumptions as at the end of the year. Life EEV return 6 months Full year 2004 2003 £m £m New business contribution (after the effect of required capital) 251 474Profit from existing business - expected return 417 761 - experience variances (20) (31) - operating assumption changes - 19Expected return on shareholders' net worth 151 273--------------------------------------------------------------------------------------------------------------------Life EEV operating return before tax 799 1,496 Investment return variances (202) 696Effect of economic assumption changes 56 (55)--------------------------------------------------------------------------------------------------------------------Life EEV return before tax 653 2,137 Tax on operating profit (244) (457)Tax credit/(charge) on other ordinary activities 36 (175)--------------------------------------------------------------------------------------------------------------------Life EEV return after tax 445 1,505==================================================================================================================== There were no separate development costs reported in either period. -------------------------------------------------------------------------------------------------------------------- PAGE 18 New business contribution The following tables set out the premium volumes and contribution from new business written by the life and related businesses, consistent with the definition of new business set out on page 14. The contribution generated by new business written during the period is the present value of the projected stream of after tax distributable profit from that business. New business contribution before tax is calculated by grossing upthe contribution after tax at the full corporation tax rate for UK business and at appropriate rates of tax for other countries. New business contribution has been calculated using the same economic assumptions as those used to determine the embedded value as at the start of the year and operating assumptions used to determine the embedded value as at the end of the year, and is rolled forward to the end of the financial period. New business sales are expressed on two bases: annual premium equivalent (APE), the UK life industry's standard measure, and the present value of future new business premiums (PVNBP). The PVNBP calculation is equal to total singlepremium sales received in the year plus the discounted value of regular premiums expected to be received over the term of the new contracts, and is expressed at the point of sale. The premium volumes and projection assumptions used to calculate the present value of regular premiums for each product are the same as those used to calculate new business contribution, so the components of the new business margin are on a consistent basis. New business contribution is shown before and after the effect of required capital, calculated on the same basis as for in-force covered business. New business New business contribution contribution before the after the Annual premium Present value of effect of effect of equivalent(1) new business premiums required capital required capital ------------------- --------------------- ------------------- ------------------- 6 months Full year 6 months Full year 6 months Full year 6 months Full year 2004 2003 2004 2003 2004 2003 2004 2003 £m £m £m £m £m £m £m £mLife and pensions business United Kingdom 567 1,118 4,299 8,516 127 250 106 212 Continental EuropeFrance 145 241 1,337 2,224 46 72 27 39Ireland 44 81 267 529 13 28 11 26Italy 89 194 811 1,752 22 45 14 27Netherlands (including Belgium and Luxembourg) 119 224 981 1,821 40 69 25 29Poland 18 35 121 226 5 5 4 3Spain 130 246 1,122 1,964 68 141 55 122Other Europe 58 101 388 587 1 (1) (2) (6)International 74 187 427 1,190 16 37 11 22---------------------------------------------------------------------------------------------------------------------Total (before the effect of required capital) 1,244 2,427 9,753 18,809 338 646Effect of required capital (87) (172)------------------------------------------------------------------------------------------------Total (after the effect of required capital) 251 474 251 474=====================================================================================================================(1) APE has been restated to include NUER volumes New business contribution before the effect of required capital includes minority interests in 2004 of £56 million (2003: £109 million). This comprises minority interests in France of £2 million (2003: £3 million), Italy £13 million(2003: £25 million), Netherlands £5 million (2003: £8 million), Poland £1 million (2003: £1 million) and Spain £35 million (2003: £72 million). New business contribution after the effect of required capital includes minority interests in 2004 of £42 million (2003: £86 million). This comprises minority interests in France of nil (2003: nil), Italy £8 million (2003: £15 million), Netherlands £4 million (2003: £7 million), Poland £1 million (2003: £1 million) and Spain £29 million (2003: £63 million). -------------------------------------------------------------------------------------------------------------------- PAGE 19 EEV basis - new business contribution before the effect of required capital, tax and minority interest Annual premium Present value of New business equivalent(1) new business premiums contribution 6 months Full year 6 months Full year 6 months Full year 2004 2003 2004 2003 2004 2003 £m £m £m £m £m £mAnalysed between:- Bancassurance channels 275 542 2,305 4,440 116 224- Other distribution channels 969 1,885 7,448 14,369 222 422-------------------------------------------------------------------------------------------------------------------Total 1,244 2,427 9,753 18,809 338 646===================================================================================================================(1) APE has been restated to include NUER volumes EEV basis - new business contribution after the effect of required capital, tax and minority interest Annual premium Present value of New business equivalent(1) new business premiums contribution(2) 6 months Full year 6 months Full year 6 months Full year 2004 2003 2004 2003 2004 2003 £m £m £m £m £m £mAnalysed between:- Bancassurance channels 154 312 1,263 2,499 35 66- Other distribution channels 928 1,796 7,288 14,148 111 206-------------------------------------------------------------------------------------------------------------------Total 1,082 2,108 8,551 16,647 146 272=================================================================================================================== (1) APE has been restated to include NUER volumes(2) Contribution stated after deducting the effect of required capital, tax and minority interests. Experience variances Experience variances include the impact of the difference between expense, demographic and persistency assumptions, and actual experience incurred in the year. Also included are variances arising from tax, where such variances are dueto management action. 6 months 2004 Full year 2003 ------------------------ ------------------------- Originally Originally Restated reported Restated reported £m £m £m £m United Kingdom (19) (18) (41) (10)France 2 9 56 54Netherlands (including Belgium and Luxembourg) (1) (3) (60) (58)Europe 5 6 9 15International (7) (7) 5 (13)------------------------------------------------------------------------------------------------------------------- (20) (13) (31) (12)=================================================================================================================== Operating assumption changesChanges in operating assumptions are made when the assumed future levels of expenses, mortality or other operating assumptions are expected to change permanently. 6 months 2004 Full year 2003 ------------------------ ------------------------ Originally Originally Restated reported Restated reported £m £m £m £m United Kingdom 7 - 1 (4)France (1) (1) (27) (23)Netherlands (including Belgium and Luxembourg) 3 7 28 21Europe (10) (10) 23 36International 1 - (6) 8------------------------------------------------------------------------------------------------------------------- - (4) 19 38=================================================================================================================== Further disclosures on experience variances and operating assumption changes on an EEV basis are provided on page 34. -------------------------------------------------------------------------------------------------------------------- PAGE 20 Geographical analysis of life EEV operating return 6 months Full year 2004 2003 £m £m United Kingdom 345 597Continental EuropeFrance 112 228Ireland 16 57Italy 36 70Netherlands (including Belgium and Luxembourg) 132 198Poland 35 99Spain 81 165Other Europe 14 18International 28 64------------------------------------------------------------------------------------------------------------------- 799 1,496=================================================================================================================== Life EEV operating return includes minority interests in 2004 of £83 million (2003: £157 million). This comprises minority interests in France of £4 million (2003: £4 million), Italy £20 million (2003: £37 million), Netherlands £14million (2003: £13 million), Poland £5 million (2003: £21 million), Spain £39 million (2003: £81 million) and Other Europe £1 million (2003: £1 million). -------------------------------------------------------------------------------------------------------------------- PAGE 21 Analysis of movement in life and related businesses embedded value The following tables provide an analysis of the movement in embedded value for the life and related businesses for the 6 months to 30 June 2004 and for the full year to 31 December 2003. The analysis is shown separately for net worth and the value of in force covered business, and includes amounts transferred between these categories. The transfer from life and related businesses to other segments consists of service company profits and losses during the reported period that have emerged from the value of in force. Since the "look through" into service companies includes only future profits and losses, these amounts must be eliminated from the closing embedded value. All figures are shown net of tax. 6 months 2004 ---------------------------------- Net Value of worth in-force Total £m £m £m Embedded value at the beginning of the period - Free surplus 1,721 - Required capital(1) 4,114 Total 5,835 5,916 11,751--------------------------------------------------------------------------------------------------------------------New business contribution (after the effect of required capital) (280) 454 174Expected return on existing business - return on VIF - 294 294Expected return on existing business - transfer to net worth 341 (341) -Experience variances and operating assumption changes 47 (64) (17)Expected return on shareholders' net worth 105 - 105 Investment return variances and economic assumption changes (9) (102) (111)--------------------------------------------------------------------------------------------------------------------Life EEV return after tax 204 241 445 Exchange rate movements (256) (63) (319)Embedded value of businesses acquired - - -Amounts injected into life and related businesses 39 - 39Amounts released from life and related businesses (458) - (458)Transfer from life and related businesses to other segments 15 - 15--------------------------------------------------------------------------------------------------------------------Embedded value at the end of the period - Free surplus 1,399 - Required capital (1) 3,980 Total 5,379 6,094 11,473==================================================================================================================== (1) Required capital is shown net of implicit items permitted by local regulators to cover minimum solvency margins. Full year 2003 ---------------------------------- Net Value of worth in-force Total £m £m £m Embedded value at the beginning of the year 4,616 5,169 9,785--------------------------------------------------------------------------------------------------------------------New business contribution (after the effect of required capital) (581) 908 327Expected return on existing business - return on VIF - 533 533Expected return on existing business - transfer to net worth 774 (774) -Experience variances and operating assumption changes 147 (157) (10)Expected return on shareholders' net worth 190 - 190Investment return variances and economic assumption changes 395 70 465--------------------------------------------------------------------------------------------------------------------Life EEV return after tax 925 580 1,505Related Shares:
Aviva