Aviva plc: Interim results for the 6 months ended 30 June 2008

Article date: 30 July 2008

Growth in operating profit and dividend

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

Financial strength in an uncertain economic environment

  • Net asset value per share of 702 pence
  • Strong balance sheet and sound capital position despite unrealised investment losses leading to overall loss after tax

Resilient business flows driven by composite model and geographic spread

  • Life and pensions sales up 11% to £17,283 million at increased margin
  • General insurance result ahead of 'meet or beat' combined operating ratio target at 97%
  • Difficult conditions in global markets reduce asset management result; plans on track for Aviva Investors launch

Accelerating transformational change of existing business for the benefit of customers and shareholders

  • Reaffirmed commitment to growth and efficiency targets
  • Increase in cost savings target to £500 million (from £350 million)

Reattribution offer agreed with policyholder advocate#

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

Andrew Moss, group chief executive, commented:

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

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

Worldwide highlights6 Months 20086 Months 2007Growth %
* Including life EEV operating return, before tax and exceptional items.
** Including life IFRS operating return, before tax and exceptional items.
*** Measured on an EEV basis, excluding preference shares, direct capital instrument and minority interests.
† 2007 comparative restated for the change in IFRS operating profit definition announced 22 November 2007.
^ As at 31 December 2007.
# Detailed press release on the reattribution offer is available from the media centre at www.aviva.com
~ Based on 30 June 2008 values and an assumed 100% take-up rate. The value created by the reattribution will be highly dependent on the performance of equity and property markets, and the level of policyholders who accept the offer. Estimate of profit to be recognised once transaction completed, subject to approvals.
Operating profit – EEV basis*£1,719 m£1,541m  12 %
(Loss)/profit after tax – EEV basis£(1,275)m£1,502m  (185)%
Operating profit – IFRS basis**†£1,233 m£1,151m  7 %
(Loss)/profit after tax – IFRS basis£(81)m£890m  (109)%
(Loss)/earnings per share (total IFRS return)(3.9)p31.0p  (113)%
Interim dividend per share13.09p11.90p  10%
Net asset value per share702p772p^(9)%
Equity shareholders' funds***£18,672m£20,253m^(8)%
Return on equity shareholders' funds10.3%11.3%^
 6 months
6 months
  1. Excludes the proportion of the results of Aviva Investors and other fund management businesses within the group that arise from the provision of fund management services to our life businesses. These results are included within the Life EEV operating return consistent with CFO Forum EEV principles.
  2. Investment business trading as Norwich Union and our collective investment joint venture business with RBSG.
  3. UK general insurance includes the results of the group's reinsurance operations
  4. Excludes the results of Norwich Union Equity Release. Also excludes the proportion of the results of Norwich Union Life Services relating to the services provided to the UK life business. These results are included within the Life EEV operating return.
  5. Group operating profit before tax. All operating profit is from continuing operations.
Continuing operations   
Life EEV operating return   
United Kingdom47141314 %
France29722532 %
Italy897224 %
Netherlands (including Belgium and Germany)139166(16)%
Poland 1037145 %
Spain15710747 %
Other Europe81700 %
Europe82367921 %
North America13911224 %
Australia24234 %
Asia Pacific4747
 1,4801,25118 %
Fund management1    
Aviva Investors2029(31)%
United Kingdom2 (8)(4)(100)%
Other Europe3250 %
Europe911(18) %
Asia Pacific99
General insurance and health   
United Kingdom332628415 %
Other Europe2222
North America76709 %
Asia Pacific(1)3(133)%
Other operations and regional costs4 (57)(45)(27)%
Regional operating profit before tax1,9911,81110 %
Corporate centre(71)(80)11 %
Group debt costs and other interest(201)(190)(6)%
Group operating profit before tax51,7191,54112 %

Group Results


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

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

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

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

Strategy update

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

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

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

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

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

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

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

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

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

Regional performance

United Kingdom

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

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

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

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

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

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

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

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


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

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

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

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

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

North America

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

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

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

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

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

Asia Pacific

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

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

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

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

Aviva Investors

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

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

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

Summary and outlook

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

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

Andrew Moss
Group Chief Executive


Andrew MossGroup chief executive+44 (0)20 7662 2679
Philip ScottGroup finance director+44 (0)20 7662 2264

Charles Barrows Investor relations director+44 (0)20 7662 8115
Jessie BurrowsHead of investor relations+44 (0)20 7662 2111
Susie YeohInvestor relations, senior manager+44 (0)20 7662 2117

Hayley Stimpson Director of external affairs+44 (0)20 7662 7544
Sue WinstonHead of group media relations  +44 (0)20 7662 8221
Danielle AnthonyGroup media relations, senior manager+44 (0)20 7662 9511
Vanessa RhodesGroup media relations, senior manager+44 (0)20 7662 2482
James Murgatroyd/Ed SimpkinsFinsbury+44 (0)20 7251 3801

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

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

The presentation slides will be available on the Group's website, from 9.00am (BST). The Aviva media centre at includes images, company information and news release archive. Photographs are available from the Aviva media centre.

Notes to Editors

  • Aviva is a leading provider of life and pensions to Europe with substantial positions in other markets around the world, making it the world's fifth largest insurance group based on gross worldwide premiums at 31 December 2007.
  • Aviva's principal business activities are long-term savings, fund management and general insurance, with worldwide total sales* of £49.2 billion at 31 December 2007 and total funds under management of £359 billion at 30 June 2008.
    *Based on life and pensions PVNBP, total investment sales and general insurance and health net written premiums including share of associates' premiums.
  • Income statements and cash flows of foreign entities are translated at average exchange rates while their balance sheets are translated at the closing exchange rates on 30 June 2008.
  • The present value of new business premiums (PVNBP) is equal to total single premium sales received in the year plus the discounted value of annual premiums expected to be received over the term of the new contracts, and is expressed at the point of sale.
  • All growth rates are quoted in sterling.
  • This interim announcement may include oral and written “forward-looking statements” with respect to certain of Aviva's plans and its current goals and expectations relating to its future financial condition, performance and results. These forward-looking statements sometimes use words such as 'anticipate', 'target', 'expect', 'estimate', 'intend', 'plan', 'goal', 'believe' or other words of similar meaning. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which may be beyond Aviva's control, including, among other things, UK domestic and global economic and business conditions, market-related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities, the impact of competition, the possible effects of inflation or deflation, the timing impact and other uncertainties relating to acquisitions by the Aviva Group and relating to other future acquisitions or combinations within relevant industries, the impact of tax and other legislation and regulations in the jurisdictions in which Aviva and its affiliates operate, as well as the other risks and uncertainties set forth in our 2007 Annual Report to Shareholders. As a result, Aviva's actual future financial condition, performance and results may differ materially from the plans, goals and expectations set forth in Aviva's forward-looking statements, and persons receiving this announcement should not place undue reliance on forward-looking statements.
  • Aviva undertakes no obligation to update the forward-looking statements made in this announcement or any other forward-looking statements we may make. Forward-looking statements made in this announcement are current only as of the date on which such statements are made.

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