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Modified Atatutory Basis Notes

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Basis of preparation – modified statutory solvency basis

1. The results for the six months to 30 June 2004 have been prepared on the basis of the accounting policies set out in Aviva plc’s 2003 Annual Report and Accounts. The results for the six months to 30 June 2004 and 2003 are unaudited but have been reviewed by the auditor. The interim accounts do not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The results for the full year 2003 have been taken from the Group’s 2003 Annual Report and Accounts. The auditors have reported on the 2003 accounts and their report was unqualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. The Group’s 2003 Annual Report and Accounts have been filed with the Registrar of Companies.
2. The contribution from the Group’s share of the alliance with RBSG is incorporated within the modified statutory life profit. Goodwill amortised in the period in respect of the Group’s holding in the associated company, RBS Life Investments Limited, is included within ‘Amortisation of goodwill’.
3. In November 2000, the Accounting Standards Board issued Financial Reporting Standard 17 (FRS17) “Retirement Benefits”, the accounting provisions, which are not required to be adopted by the Group until 2005. FRS17 requires certain transitional disclosures to be made in the statutory accounts and the table shown in the supplementary analyses shows the balance sheet effect of these memorandum disclosures. The Group has continued to account for pension costs in accordance with SSAP24.
4. Changes in accounting policy
1. Additional value of internally-generated in-force business
   In November 2003, the Association of British Insurers revised its Statement of Recommended Practice on accounting for insurance business (ABI SORP). One of the amendments is that insurance companies are no longer allowed to recognise the internally-generated additional value of in-force business (AVIF) on their balance sheets, either as an asset or as part of shareholders’ funds.
   
   The effect of implementing this change are that shareholders’ funds at 30 June 2004 have been reduced by £4,677 million (30 June 2003: reduced by £3,942 million; 31 December 2003: reduced by £4,611 million) and minority interests have been reduced by £174 million (30 June 2003: reduced by £101 million; 31 December 2003: reduced by £133 million).
2. Presentation changes
   In December 2003, the Urgent Issues Task Force issued UITF Abstract 38 which requires shares held in employee share trusts to be deducted from capital in arriving at shareholders’ funds rather than being held as assets.
   
   The effects of implementing this change on shareholders’ funds at 30 June 2004 is nil (30 June 2003: reduced by £1 million; 31 December 2003: reduced by £1 million).

Exchange rates

The euro rates employed in this announcement are an average rate of 1 euro = £0.68 (six months to 30 June 2003: 1 euro = £0.68; full year 2003: 1 euro = £0.69) and a closing rate of 1 euro = £0.67 (30 June 2003: 1 euro = £0.70; 31 December 2003: 1 euro = £0.70).

Exceptional costs for termination of operations

In February 2004, the Group announced the closure of its UK national broker subsidiary, Hill House Hammond (HHH) by the end of 2004 together with the sale of its commercial business. The associated pre-tax costs of the closure of HHH are £50 million and these exceptional costs relate to the redundancy costs and closure provisions. The Group expects to complete the branch closures by the end of September 2004.

During 2003, the Group incurred costs on the closure of its general insurance operations in Belgium. These exceptional costs relate to termination activities, including redundancy costs and closure provision.

Disposals

The net profit/(loss) on the disposal of subsidiary undertakings comprises:

	6 months 2004 £m	6 months 2003 £m	Full year 2003 £m
Other small operations	6	(7)	(6)
	6	(7)	(6)

 

No disposal of subsidiary undertakings was sufficiently material to warrant separate disclosure.

In June 2004, our French operations, Aviva France, sold its 31.4% holding in Société Foncière Lyonnaise (SFL) a French listed property company for €427 million (£285 million) and recorded a gain of £27 million. These shares were owned by both our French life and non-life operations. In accordance with local French provisions, the gain on sale in the life company of £22 million has been transferred to a statutory provision forming part of the fund for future appropriations and will be attributed to policyholders and shareholders as bonuses are declared to policyholders, within the next eight years.

Geographical analysis of life and pensions and investment sales – new business and total income

		New business sales				Premium income (after reinsurance) and investment sales
		New single premiums		New regular premiums
		6 months 2004	6 months 2003	6 months 2004	6 months 2003	6 months 2004	6 months 2003	Full year 2003
		£m	£m	£m	£m	£m	£m	£m
Life and pensions sales
United Kingdom	– group*	2,668	2,618	265	251	4,030	4,828	8,688
	– asso-ciates	73	82	8	10	125	141	254
		2,741	2,700	273	261	4,155	4,969	8,942
Europe (excluding UK)
France		1,183	966	27	23	1,345	1,141	2,300
Ireland		85	86	35	30	219	217	442
Italy		694	804	20	37	794	913	1,662
Netherlands (including Belgium and Luxembourg)		542	431	65	59	1,123	970	1,722
Poland	– Life	20	10	7	8	126	132	263
	– Pensions	13	4	8	11	217	212	440
Spain		875	778	42	61	965	834	1,641
Other		167	100	41	34	316	258	616
International		225	476	51	52	357	602	1,007
Total life and pension sales (including share of associates)		6,545	6,355	569	576	9,617	10,248	19,035
Investment sales
United Kingdom		437	313	14	6	451	319	680
Netherlands		120	115	-	-	120	115	204
Poland		48	30	1	1	49	31	110
Other Europe		91	21	-	-	91	21	49
International		64	34	-	-	64	34	98
Total investment sales		760	513	15	7	775	520	1,141
Total long-term savings (including share of associates)		7,305	6,868	584	583	10,392	10,768	20,176
Single premiums are those relating to products issued by the Group, which provide for the payment of one premium only. Regular premiums are those where there is a contractual obligation to pay on an ongoing basis. * Included within the prior year premium income (after reinsurance) and investment sales are transfers of institutional business into Morley Pooled Pensions (six months to 30 June 2003: £1,247 million; full year 2003: £1,247 million) which, since they are institutional in nature, are excluded from new business sales.

Geographical analysis of modified statutory life operating profit

	6 months 2004 £m	6 months 2003 £m	Full year 2003 £m
United Kingdom
With-profit	54	64	145
Non-profit	235	229	449
Europe (excluding UK)
France	84	80	179
Ireland	12	18	41
Italy	19	14	30
Netherlands (including Belgium and Luxembourg)	54	29	107
Poland	38	41	103
Spain	28	24	50
Other	3	(7)	(4)
International	21	23	38
Total modified statutory life operating profit	548	515	1,138

 

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