With-Profits mid-year bonus update - 17 July 2009

Strong long-term performance from the With-Profit funds

Since January 2009, the world's stock markets have remained turbulent but Aviva's With-Profit Funds continue to protect investors from the full impact of the downturn in the stock market, commercial property markets and falling interest rates.

Strength of the fund

Over the past five years, a customer who invested in the main CGNU With-Profit Fund through an investment bond would have seen a return of 25.2% which is equal to a return of 4.6% per annum (net of basic rate tax), demonstrating the financial strength of the fund and the benefits of smoothing. This has outperformed:

• cash (14.9%)*
• the ABI Balanced Managed average fund (12.9%)
• the FTSE All-Share Index (19.7%) total return, including dividends reinvested
  (Source: Lipper Hindsight)

* Moneyfacts average savings account, 90 days' notice, for investments over £10,000.

Regular bonus rates

Regular bonus rates have been held on all conventional policies and Aviva Life & Pensions UK Ltd and CU unitised policies. For CGNU unitised policies, regular bonus rates have been reduced by 0.75% on life policies and 0.5% on pension policies. This means that the new business rate for bonds will be 2.75% from 1 July, which remains attractive compared to bank base rates falling from 2% at the end of 2008 to an all-time low of 0.5%.

Final bonus rates and Market Value Reductions (MVRs)

In the six months to July 2009, the CGNU and CULAC funds recorded a decrease of 3.5%, Aviva L&P decreased 4.1% and the Provident Mutual fund decreased 0.8% (all figures are estimated and after tax). As a result, final bonus rates have been reduced; for those policies where an MVR may apply, MVRs have been reduced by an equivalent amount.

These changes are part of the prudent management of the fund, creating a balance between paying out to customers today and ensuring future performance.

Strong long term returns for with-profits investors

With-profits continue to deliver attractive performance for investors, highlighting the benefits of financial strength and smoothing compared to alternative forms of investment, particularly during these difficult market conditions.

Bonds - £10,000 invested in a bond 10 years ago increased in value to £14,934 on 1 July 2009, outperforming an equivalent investment in:

• the average savings account £13,038
  Figures for the FTSE All-Share Index and ABI Balanced Managed Average do not take into account any charges
• the ABI Balanced Managed Average £10,364
• the FTSE All-Share Index £10,117 total return, including dividends reinvested

Pensions - £200 a month invested in a pension over the past 15 years with a retirement date of 1 July 2009 has delivered an investment value of £51,647. This is equivalent to an annual return of 4.6% gross and represents an excess return of 2.7% above inflation giving customers greater spending power in retirement. Over the same period, it has outperformed:

• the average savings account £47,492
• the ABI Balanced Managed Average £45,079
• the FTSE All-Share Index £44,219 total return, including dividends reinvested

Endowments - a 25-year, £50 a month mortgage endowment maturing on 1 July 2009 has delivered an investment value of £38,776, £3,124 above the target amount. In that time:

• the average savings account has returned £25,047 over the same period*
• the ABI Balanced Managed Average has returned £27,641
• the FTSE All-Share index has returned £40,146 total return, including dividends reinvested**

* The average savings account return includes simulated past performance for the period 1 July 1984 to 31 October 1985 as actual figures are not available.
**FTSE All Share returns: past performance prior to 31 December 1985 does not include dividends as figures are not available; FTSE capital return figures used instead.

Special bonus rate

In January 2009 the second of the three special bonus payments was added to CGNU and CULAC policy values. The last of the special bonus payments will be added to policy values in 2010.

Valuable guarantees

About 86% of with-profits bond policyholders benefit from valuable policy guarantees. This year, 50,000 bond policies are eligible for a policy guarantee and more than 33,000 customers' policies will reach their 10-year anniversary and become eligible to take advantage of an MVR-free guarantee. Aviva's standard practice is to write to customers in advance of their guarantee dates, bringing these valuable guarantees to their attention.

Market Value Reductions

Market Value Reductions are being reduced for the second time this year. From 1 July 2009, the average MVR is being reduced from 11% to 10%. MVRs are a way of ensuring that those policyholders leaving or wishing to take money out of the fund do not take more than their fair share of the fund at the expense of those policyholders who remain.

MVRs are currently being applied on some unitised policies for those policyholders wishing to take money out of the fund. For unitised endowments and pensions, MVRs apply only when the policy is encashed early. MVRs do not apply on maturity or if the policyholder dies. The actual MVR applied will differ depending on the year the policy was actually taken out.

Further information

For more information on the with-profits bonus announcement 2009 please view here.