United Kingdom
Norwich Union continues to focus on delivering increased value, with life and pension sales of £2,140 million (2004: £2,123 million) and a 9% increase in new business contribution to £67 million (2004: £61 million). As a result, the margin increased strongly to 3.1% (full year 2004: 2.9%). The company continues to manage its business for the long-term and remains committed to retaining a significant market-leading position through disciplined growth. The focus on improving the margin has resulted in pricing actions being taken where necessary. This has included the reduction of commissions on pension business in October, resulting in lower volumes of pension sales in the run up to price cap changes. However, this reduction was more than offset by strong growth in bonds and annuities.
Despite investors remaining cautious, total bond sales performed well with an increase of 21% to £577 million (2004: £477 million) with a 37% increase in unit-linked bonds achieved through a broad range of products and funds. The outlook for the investment bond market remains positive and Norwich Union expects to at least maintain its share of this market.
Collective investment sales were down 17% at £209 million (2004: £252 million), reflecting customer preferences for our bond products. However the company intends to improve its product range and grow its share of the market.
Protection sales (excluding equity release) were £235 million (2004: £287 million) in a highly competitive market and also reflects the general slowdown in this market, in line with the property market. Pricing action has been taken in order to achieve growth in the second quarter and remainder of the year. The company intends to remain a key provider in this market.
Equity release sales totalled £83 million (2004: £90 million). Norwich Union has a market leadership position and expects to maintain this strong position as the market develops.
Individual annuity sales increased significantly by 51% to £413 million (2004: £273 million), partly due to a relatively low comparator in the first quarter of 2004, but also sustaining the momentum built throughout the rest of the year. Pricing reflects our internal assessment of the capital requirements and due to the competitive nature of this market, growth is not expected to continue at this level.
As a result of pricing actions taken on individual pension products and a slowdown in the corporate pensions market, total pension sales were £831 million (2004: £996 million). In line with the company’s expectations, sales of individual pensions were lower at £607 million (2004: £708 million). This reflects the commission actions taken on individual stakeholder personal pensions last year but this has been partially offset as a result of our focus on group personal pensions. Sales of corporate pensions were £224 million (2004: £288 million) reflecting a contraction of this market in the run up to Pensions Simplification. The pensions market remains subdued and further clarity around the regulations for advisers on full and basic advice and Pensions Simplification is still required.
Life and pension sales from the joint venture1 with the Royal Bank of Scotland Group were up by 3% to £182 million (2004: £178 million). This reflects growth in single premium investment business. Collective investment business sales were £34 million (2004: £50 million) reflecting the reduction in ISA business from a high first quarter of 2004. The benefits of closer integration between the sales force and the bank network are beginning to emerge and are expected to continue through the year.
Norwich Union is well placed to benefit from market changes as a result of depolarisation and has already announced a number of key distribution agreements, most recently with Barclays and Fidelity. The company is working closely with potential and existing partners but does not expect depolarisation to have a significant impact on new business sales this year. Lifetime Group, in which Norwich Union has a majority stake, has recently announced the launch of its wrap platform. Lifetime Portfolio is an adviser driven proposition designed to provide an integrated investment and asset management service for IFAs. Lifetime has already signed significant distribution agreements with Tenet Group and Millfield. These represent a significant breakthrough in the emerging UK wrap market.
Norwich Union anticipates modest market growth during 2005 in line with previous expectations and is confident of outperforming the market in the longer term as investor confidence fully returns and demand increases. The company remains committed to delivering value to its customers and shareholders while delivering disciplined growth.
1 Aviva’s share of these total sales and sales by product mix is shown in supplementary analysis 2.
