Article date: 8 November 2000
- Operating profit before tax from ongoing businesses* of£1,138 million (1999: £1,120 million) (including life achievedprofit). On a modified statutory basis, operating profitbefore tax was £898 million (1999: £1,014 million)
- Life achieved operating profit up 24%** to £1,147million
- Worldwide long-term savings new business sales up 14%** to£9 billion
- General insurance operating profit from ongoing businesses*of £428 million (1999: £375 million)
- Agreement for the sale of US general insurance business andexit from UK London Market
- Rapid merger integration progress
* Excluding US general insurance and UK London Marketresult
** At constant rates of exchange
Bob Scott, Group Chief Executive, commented:
"The worldwide long-term savings businesses continued to makeexcellent progress with new business up 14% to £9 billion. Lifeachieved operating profit increased 24% to £1,147 million withincreased contributions from all our major businesses.
"Our general insurance result from ongoing businesses made goodprogress, rising to £428 million (1999: £375 million) with acombined operating ratio of 108%, and we continue to take thenecessary steps to improve profitability towards our targetcombined operating ratio of 102% by the end of 2001.
"We have announced that we have successfully reached agreementfor the sale of our US general insurance operations and that we areto withdraw from London Market operations.
"This completes the major elements of the restructuring of ourbusiness outlined at the time of the merger to reposition CGNU as aleading European-based financial services group focused on thelong-term savings markets and the achievement of superior returnsfrom selected general insurance markets. Whilst this is atconsiderable cost, this completes the major repositioning ofgeneral insurance business which would have any material financialconsequence for the Group.
"Integration of our businesses is moving ahead rapidly,following our merger at the end of May. On 2 October our UK life,general and retail fund management businesses were launched underthe new Norwich Union brand and, on the same day, our Irishbusiness was integrated under the Hibernian brand. The performanceof our ongoing businesses during a period of rapid mergerintegration demonstrates the strength of these businesses and thequality of our people, placing us in a strong position for futuregrowth."
|Total Long-term savings new business||9,017||8,104||14%|
|:life & pensionspremiums||7,909||7,097||15%|
|Total premiums written after reinsurance andinvestment sales from ongoing businesses||19,369||17,552||13%|
|Operating profit before tax from ongoingbusinesses(i)||1,138||1,120||4%|
|(Loss)/profit on ordinary activities aftertax(ii)||(959)||535|
|Operating earnings from ongoing businesses perordinary share(i)||34.5p||32.9p|
|Net asset value per ordinary share(iv)||652p||700p†|
Basis of preparation - the CGNU 9 months 2000 resultshave been prepared according to the principles of mergeraccounting, using common accounting policies. The 1999 results havebeen restated to this same basis and have been revised to complywith FRS16 "Current Tax".
(i) Operating profit before tax and earnings shown aboveinclude life achieved operating profit and exclude the operatingresults of businesses to be discontinued £132 million (30 September1999: £152 million), amortisation of goodwill £31 million (30September 1999: £25 million) and exceptional items £203 million (30September 1999: £100 million). They do not incorporate the use ofthe expected proceeds from businesses sold or sales of businessesto be completed.
(ii) Loss on ordinary activities after tax, includinglife achieved operating profit, is after providing for the loss onsale of the US general insurance business and withdrawal fromLondon Market operations.
(iii) Based on equity and non-equity shareholders' fundswhich have been reduced by the equalisation provision of £199million (31 December 1999: £212 million).
(iv) Based on equity shareholders' funds, adding back theequalisation provision.
† Denotes amount at 31 December 1999.
Life profits reporting
In reporting the CGNU plc headline operating profit, lifeprofits using the achieved profit basis have been included. This isused throughout the CGNU Group and by many in the investmentcommunity to assess performance. We have focused on the achievedprofit basis, as we believe life achieved operating profit is abetter measure of the performance of life businesses than themodified statutory basis, which is deliberately conservative andmore concerned with solvency protection and distributability thanperformance. The modified statutory basis is used in our financialstatements and, on this basis, the life operating profit before taxamounted to £907 million. The basis used for reporting achievedprofit is consistent with the draft guidance set out by theAssociation of British Insurers.
GROUP CHIEF EXECUTIVE'S STATEMENT
At the time of the merger announcement in February 2000, we madeclear our commitment to position CGNU plc as a leadingEuropean-based financial services group, focused on the long-termsavings markets and the achievement of superior returns fromselected general insurance markets. Since publishing the Group'shalf year results on 2 August, I am pleased to report that majorprogress has been made towards this objective through the agreementfor the sale of our US general insurance business and our exit fromUK London Market business, actions which have not been withoutsignificant cost. This completes the major repositioning of generalinsurance business which would have any material financialconsequence for the Group. At the same time, the Group hascontinued to press ahead with the integration of its ongoingbusinesses. These have maintained a successful focus on "businessas usual", together with the development of a number ofbancassurance arrangements.
The Group operating profit before tax from ongoing business,including life achieved profit, was £1,138 million (1999: £1,120million). This represents an increase of 13% over the first ninemonths of 1999 before a charge of £95 million for developing ouronline wealth management service and after removing the effect ofchanges in currency exchange rates. On a modified statutory basis,operating profit before tax was £898 million (1999: £1,014million).
Continued growth in long-term savings
Our worldwide life and savings business made strong progress inthe first nine months with new life, pension and investment salesincreasing by 14% to £9 billion. Life operating profit on anachieved profit basis increased by an excellent 24% to £1,147million. On a modified statutory basis, life operating profit wasup 10% at £907 million.
On 20 September 2000, we announced the sale of the Norwich Unionlife and pensions businesses in Poland for £143 million. The saledemonstrates the significant value we have been able to create inthis new market in the relatively short period of 19 months sincethe businesses were started. We are retaining CU Polska, which hasa 30% share of the local pension market, measured by assets undermanagement, and a 20% share of the local life market.
I am pleased to announce that we have reached agreement for anew life bancassurance partnership with Wells Fargo Insurance,Inc., a subsidiary of Wells Fargo & Company which is the sixthlargest bank in the US. This agreement builds on our extensivebancassurance experience and offers us further opportunity to growin the US life market.
Strong investment capability
Our retail investment sales increased 11% to £1,108 million andtotal assets under management increased by £8 billion to £216billion. We have continued to invest in our UK retail investmentbusiness which achieved an increase in sales of 12% to £709million.
Continuing the trend established in previous periods, sales fromour Navigator product in Australia rose by 32% to £606 million andfunds under administration totalled £2.2 billion.
Good progress in general insurance
Our ongoing general insurance businesses made good progress withoperating profits rising to £428 million (1999: £375 million). Thecombined operating ratio in the UK, which is our largest generalinsurance business, improved to 104% (1999: 107%), after excludingthe London Market business, and the personal lines businessdelivered an excellent 100% (1999: 103%).
We are continuing to take the necessary steps to improveprofitability in our general insurance businesses, towards theGroup's target combined operating ratio of 102% by 2001.
Rapid integration progress
The integration of our businesses continues to make rapidprogress. Annualised savings at the end of the third quarteramounted to £50 million, with £9 million included in these results,and integration costs of £203 million have been provided todate.
The Group has made significant progress in refocusing thebusiness in line with the objectives set out at the time of themerger, while maintaining the positive momentum in its ongoingbusiness. We are well positioned for future growth and increasedshareholder returns.
Group Chief Executive