UK
Norwich Union delivered a robust performance with total sales, including investments, of £7,441 million (2004: £7,438 million). Norwich Union’s strategy in the third quarter has been to grow volume in key markets in order to position itself for profitable growth in the medium term. As a result, total sales, including investment sales, in the third quarter were £2,684 million, outperforming the first two quarters of the year (11% higher relative to the previous quarter; 14% higher relative to the first quarter).
The margin to the end of the third quarter was 3.0% (full year 2004: 2.9%) and shows a reduction from the half year margin of 3.2% resulting from repricing actions in a competitive market. The discrete third quarter margin was 2.7% and the expectation is that future aggregate margin movements will be driven primarily by product mix effects.
Norwich Union achieved a strong third quarter investment performance with bond sales of £602 million, the highest quarterly sales performance of the year. Total year to date sales increased 5% to £1,760 million (2004: £1,681 million) against a similarly strong performance at the same time in the previous year. Unit-linked bond sales continued to perform very strongly with an increase of 18% to £1,298 million (2004: £1,104 million). The top three investment choices in the quarter have been property, guaranteed products and with-profits, reflecting Norwich Union’s very strong offerings in these areas.
The company’s continued focus on collective investments resulted in strong third quarter sales of £342 million, an increase of 13% over the second quarter sales of £304 million and the strongest of the year. Total sales to the end of the third quarter were £855 million which is 29% ahead of 2004 sales (2004: £664 million). The company expects collective investments to show further significant growth as we continue to invest in developing our offering as a core part of our overall investment proposition.
Following repricing in July, protection sales for the third quarter totalled £247 million which is the strongest quarterly performance of the year and 7% ahead of second quarter sales of £231 million. Sales to the end of the third quarter were lower at £714 million (2004: £784 million) reflecting the slowing housing market and therefore demand for protection products. The protection market remains highly competitive, with Norwich Union pricing its products to maintain its presence in this strategically important area.
Against a backdrop of a flat market and increasing competition, equity release sales for the quarter at £99 million were broadly the same as the second quarter sales of £96 million. Sales to the end of the third quarter were £278 million (2004: £332 million). Norwich Union completed its fifth securitisation in August. A portfolio of £380 million of lifetime mortgages was successfully securitised, with strong demand from investors and excellent pricing levels achieved.
Individual pension sales, which include group personal pension business, were lower at £1,867 million (2004: £2,289 million). However, discrete third quarter sales of £692 million were 22% higher than second quarter sales, showing volume growth which reflects the outcome of a pricing strategy of refocusing and repositioning Norwich Union’s proposition in the pension market as Pensions Simplification approaches.
The company has maintained a strong position in the corporate pensions market during the year. Sales of corporate pensions are lower at £727 million (2004: £786 million), reflecting a slowdown in this market in the run up to Pensions Simplification.
The company expects to see good business opportunities and strong pension sales volumes in the fourth quarter and into 2006 as Pensions Simplification approaches and companies and individuals review their pension arrangements.
Individual annuity sales remained strong with sales growth of 37% to £1,240 million (2004: £902 million). In this quarter, Norwich Union reviewed its Internal Capital Assessment results and concluded that it is appropriate to reduce the level of required capital for the UK annuity business on a European Embedded Value basis from 200% to 150% of required minimum margin. This brings the required capital used to report the business performance closer in line with the economic capital required to support this business.
The joint venture with The Royal Bank of Scotland Group (RBSG) continued to deliver a strong sales performance, including investment sales, with an increase of 21% to £763 million (2004: £629 million). Norwich Union’s share of sales through the joint venture, including investments, increased 34% to £521 million (2004: £390 million). This is an excellent performance and Norwich Union is confident that this improving trend will continue as the joint venture is firmly underpinned by 600 active advisers, a full product range and improved alignment between sales and bank operations.
Norwich Union further increased its equity in the Lifetime wrap platform to 97% in the quarter. The Lifetime wrap platform has signed major distribution deals with Tenet and Millfield Alliance and now has 600 advisers registered on the platform and a new distribution deal with SimplyBiz has also just been agreed. The company is confident of strong growth for Lifetime as the market for flexible asset accumulation with tax wrapper advantages increases.
Norwich Union has developed a strong distribution footprint for the depolarised marketplace. During the third quarter the company secured a major single tie distribution agreement with Co-operative Insurance Society (CIS) for the distribution from 2006 of a range of Norwich Union’s products through CIS’s 2,200 financial advisers. The company has secured major product multi-tie agreements with Sesame, Barclays, Bankhall and Millfield Alliance, together with protection multi-ties with SimplyBiz and Direct Life & Pensions.
Norwich Union expects sales performance to continue to improve in the final quarter of 2005. Increasing activity in the pensions market as Pensions Simplification approaches and continued growth in investment markets will support Norwich Union’s improving sales trend.
Aviva continues to review the possibility of a reattribution of the inherited estate, or orphan assets, of two of its with-profit funds, CGNU Life and Commercial Union Life Assurance Company (“CULAC”). The inherited estate consists of surplus assets accumulated over time within a with-profit fund. Aviva wishes to explore what benefits there may be to policyholders and shareholders from a reattribution and has established a project team to examine this.
Under FSA rules, one condition of the new regulatory system for reattributing an inherited estate is the appointment of an independent policyholder advocate to represent policyholder interests during the procedure, a development that Aviva welcomes. Aviva has therefore commenced a process to identify a policyholder advocate.
At this stage, no decision can be taken to proceed with a reattribution of the inherited estate of CGNU Life or CULAC. This will only be undertaken if there are clear benefits for policyholders and shareholders.
