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Preliminary results - 12 months ended 31 December 2005

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16. Segmental information

(a) Segmental results – primary reporting format - business segments

The principal activity of the Group is financial services, which is managed using the following reportable segments: long-term business, fund management, general insurance and health.

Long-term business

Our long-term business comprises life insurance, long-term health and accident insurance, savings, pensions and annuity business written by our life insurance subsidiaries including managed pension fund business and our share of the other life and related business written in our associates and joint ventures, as well as the equity release business written in the United Kingdom.

Fund management activities

Our fund management business invests policyholders' and shareholders' funds, provides investment management services for institutional pension fund mandates and manages a range of retail investment products, including investment funds, unit trusts, OEICs and ISAs. Clients include Aviva group businesses and third-party financial institutions, pension funds, public sector organisations, investment professionals and private investors.

General insurance and health

Our general insurance and health business provides insurance cover to individuals and to small and medium-sized businesses, for risks associated mainly with motor vehicles, property and liability, such as employers' liability and professional indemnity liability, and medical expenses.

Other

Other activities not related to the core business segments or which are not reportable segments due to their immateriality, such as RAC non-insurance operations, our banking businesses and service companies are included as "Other" in the following tables. Head office expenses, such as Group treasury and finance functions are also reported as "Other", together with eliminations and any other reconciling items. Certain financing costs and taxes are not allocated among the segments.

The accounting policies of the segments are the same as those for the Group as a whole. Any transactions between the business segments are on normal commercial terms and market conditions.

Segment assets and liabilities comprise operating assets and liabilities, being the majority of the balance sheet but excluding items such as tax and borrowings.

(b) Segmental results of the income statement – primary reporting format - business segments for the year ended 31 December 2005

		Long-term business £m	Fund management £m	General insurance and health £m	Other £m	Total £m
Segment revenue from external customers:
	Net earned premiums	14,671	-	10,188	-	24,859
	Fee and commission income	598	264	214	771	1,847
		15,269	264	10,402	771	26,706
Net investment income		21,985	11	1,603	123	23,722
Inter-segment revenue		-	112	-	-	112
Other income		(10)	-	41	122	153
Segment income		37,244	387	12,046	1,016	50,693
Claims and benefits paid, net of recoveries from reinsurers		(13,482)	-	(6,224)	-	(19,706)
Change in insurance liabilities, net of reinsurance		(10,004)	-	(372)	-	(10,376)
Change in investment contract provisions		(7,814)	-	-	-	(7,814)
Change in unallocated divisible surplus		(1,474)	-	-	-	(1,474)
Fee and commission expense		(1,481)	(55)	(2,752)	(38)	(4,326)
Other operating expenses
	Depreciation	(11)	(6)	(17)	(78)	(112)
	Amortisation of acquired value of in-force business	(45)	-	-	-	(45)
	Net impairment of acquired value of in-force business	(28)	-	-	-	(28)
	Amortisation and net impairment of intangible assets	(24)	-	(5)	(16)	(45)
	Impairment of goodwill	(14)	-	-	(29)	(43)
	Other impairment losses recognised in the income statement	(37)	-	-	-	(37)
	Inter-segment expense	(103)	-	(9)	-	(112)
	Other expenses	(999)	(233)	(615)	(1,027)	(2,874)
Finance costs		(203)	-	(58)	(100)	(361)
Segment expenses		(35,719)	(294)	(10,052)	(1,288)	(47,353)
Segment result before share of profit/(loss) of joint ventures and associates		1,525	93	1,994	(272)	3,340
Share of profit/(loss) of joint ventures and associates		340	(1)	1	18	358
Segmental result before tax		1,865	92	1,995	(254)	3,698
Unallocated costs:
	Finance costs on central borrowings					(248)
	Tax attributable to policyholders’ returns					(922)
	Tax attributable to shareholders’ profits					(630)
Total unallocated expenses						(1,800)
Profit for the year						1,898

Finance costs on central borrowings comprise interest payable on borrowings by holding companies within the Group which are not allocated to operating companies.

Proforma reconciliation to operating profit before tax attributable to shareholders' profits

		Long-term business £m	Fund management £m	General insurance and health £m	Other £m	Total £m
Segment result before tax		1,865	92	1,995	(254)	3,698
Finance costs on central borrowings		-	-	-	(248)	(248)
Adjusted for the following items:
	Impairment of goodwill	14	-	-	29	43
	Amortisation and impairment of acquired value of in-force business	73	-	-	-	73
	Amortisation and impairment of intangible assets	24	-	5	16	45
	Short-term fluctuation on investment return	-	-	(517)	-	(517)
	(Profit)/loss on the disposal of subsidiaries and associates	10	-	(41)	(122)	(153)
	Integration costs	-	-	77	32	109
	Unallocated interest	-	(1)	25	(24)	-
	Corporate costs reallocation	1	1	7	(9)	-
		1,987	92	1,551	(580)	3,050
Less:
	Tax attributable to policyholders' returns	(922)	-	-	-	(922)
Operating profit before tax attributable to shareholders' profits		1,065	92	1,551	(580)	2,128

(c) Segmental results of the income statement – primary reporting format - business segments for the year ended 31 December 2004

		Long-term business £m	Fund management £m	General insurance and health £m	Other £m	Total £m
Segment revenue from external customers
	Net earned premiums	13,533	-	9,642	-	23,175
	Fee and commission income	534	203	197	334	1,268
		14,067	203	9,839	334	24,443
Net investment income		14,503	8	1,176	46	15,733
Inter-segment revenue		-	114	-	-	114
Other income		-	-	13	21	34
Segment income		28,570	325	11,028	401	40,324
Claims and benefits paid, net of recoveries from reinsurers		(12,015)	-	(5,784)	-	(17,799)
Change in insurance liabilities, net of reinsurance		(5,393)	-	(711)	-	(6,104)
Change in investment contract provisions		(5,635)	-	-	-	(5,635)
Change in unallocated divisible surplus		(1,330)	-	-	-	(1,330)
Fee and commission expense		(1,865)	(70)	(2,482)	(54)	(4,471)
Other operating expenses
	Depreciation	(14)	(4)	(19)	(60)	(97)
	Amortisation of acquired value of in-force business	(72)	-	-	-	(72)
	Net impairment of acquired value of in-force business	(13)	-	-	-	(13)
	Amortisation and net impairment of intangible assets	(7)	-	-	-	(7)
	Impairment of goodwill	(18)	-	(2)	(21)	(41)
	Other impairment losses recognised in the income statement	(4)	-	-	(24)	(28)
	Inter-segment expense	(105)	-	(9)	-	(114)
	Other expenses	(788)	(218)	(610)	(692)	(2,308)
Finance costs		(161)	-	(43)	(72)	(276)
Segment expenses		(27,420)	(292)	(9,660)	(923)	(38,295)
Segmental result before share of profit/(loss) of joint ventures and associates		1,150	33	1,368	(522)	2,029
Share of profit/(loss) of joint ventures and associates		235	(6)	-	13	242
Segmental results before tax		1,385	27	1,368	(509)	2,271
Unallocated costs:
	Finance costs on central borrowings					(246)
	Tax attributable to policyholders' returns					(383)
	Tax attributable to shareholders’ profits					(271)
Total unallocated expenses						(900)
Profit for the year						1,371

Finance costs on central borrowings comprise interest payable on borrowings by holding companies within the Group which are not allocated to operating companies.

Proforma reconciliation to operating profit before tax attributable to shareholders' profits

		Long-term business £m	Fund management £m	General insurance and health £m	Other £m	Total £m
Segment result before tax from continuing operations		1,385	27	1,368	(509)	2,271
Finance costs on central borrowings		-	-	-	(246)	(246)
Adjusted for the following:
	Impairment of goodwill	18	-	2	21	41
	Amortisation and impairment of acquired value of in-force business	85	-	-	-	85
	Amortisation and impairment of intangible assets	7	-	-	-	7
	Financial Services Compensation Scheme and other levies	-	9	40	-	49
	Short-term fluctuation on investment return	-	-	(161)	-	(161)
	Profit on the disposal of subsidiaries and associates	-	-	(12)	(22)	(34)
	Exceptional costs for termination of operations	-	-	-	40	40
	Corporate costs reallocation	4	4	22	(30)	-
		1,499	40	1,259	(746)	2,052
Less:
	Tax attributable to policyholders’ returns	(383)	-	-	-	(383)
Operating profit before tax attributable to shareholders’ profits		1,116	40	1,259	(746)	1,669

(d) Segmental balance sheet – primary reporting format – on business segments as at 31 December 2005

		Long-term business £m	Fund management £m	General insurance and health £m	Other £m	Total £m
Goodwill		631	-	398	1,245	2,274
Acquired value of in-force business and intangible assets		424	-	265	114	803
Investments in joint ventures and associates		2,815	46	39	114	3,014
Property and equipment		367	4	126	388	885
Investment property		12,895	-	338	42	13,275
Loans		18,240	-	3,661	2,643	24,544
Financial investments
	Debt securities	91,926	2	9,390	2,599	103,917
	Equity securities	48,365	12	2,647	1,020	52,044
	Other investments	25,920	8	459	40	26,427
Other assets		23,185	436	9,425	2,113	35,159
Segment assets		224,768	508	26,748	10,318	262,342
Unallocated assets – tax assets						1,105
Total assets						263,447
Insurance liabilities		114,176	-	18,426	-	132,602
Liability for investment contracts		77,309	-	-	-	77,309
Unallocated divisible surplus		8,978	-	-	-	8,978
Net asset value attributable to unitholders		3,137	-	-	-	3,137
External borrowings		4,060	-	2,565	578	7,203
Other liabilities, including inter-segment liabilities		6,149	278	(224)	9,622	15,825
Segment liabilities		213,809	278	20,767	10,200	245,054
Unallocated liabilities
	Central borrowings					3,810
	Tax liabilities					3,491
Total liabilities						252,355
Total equity						11,092
Total equity and liabilities						263,447

Central borrowings are borrowings by holding companies within the Group which are not allocated to operating companies.

(e) Segmental balance sheet – primary reporting format - business segments as at 31 December 2004

		Long-term business £m	Fund management £m	General insurance and health £m	Other £m	Total £m
Goodwill		595	-	308	281	1,184
Acquired value of in-force business and intangible assets		451	-	19	46	516
Investments in joint ventures and associates		1,995	40	13	80	2,128
Property and equipment		404	7	133	268	812
Investment property		10,639	-	362	56	11,057
Loans		17,090	-	2,635	2,330	22,055
Financial investments
	Debt securities	86,897	2	9,255	2,565	98,719
	Equity securities	44,269	1	2,449	572	47,291
	Other investments	20,067	6	224	49	20,346
Other assets		23,455	311	9,786	735	34,287
Segment assets		205,862	367	25,184	6,982	238,395
Tax						908
Total assets						239,303
Insurance liabilities		106,329	-	17,793	-	124,122
Liability for investment contracts		69,555	-	-	-	69,555
Unallocated divisible surplus		7,549	-	-	-	7,549
Net asset value attributable to unitholders		2,247	-	-	-	2,247
External borrowings		4,082	-	1,439	270	5,791
Other liabilities, including inter-segment liabilities		6,250	191	474	7,367	14,282
Segment liabilities		196,012	191	19,706	7,637	223,546
Unallocated liabilities
	Central borrowings					4,299
	Tax liabilities					2,465
Total liabilities						230,310
Total equity						8,993
Total equity and liabilities						239,303

Central borrowings are borrowings by holding companies within the Group which are not allocated to operating companies.

(f) Goodwill allocation and impairment testing

IFRS requires formal impairment testing to be carried out annually. For impairment testing, goodwill and intangibles with indefinite useful lives have been allocated to cash-generating units by geographical reporting unit and business segment. The carrying amount of goodwill and intangible assets with indefinite useful lives is reviewed at least annually or when circumstances or events indicate there may be uncertainty over this value. During the year, goodwill allocated to a life cash-generating unit in Germany was tested for impairment. Following the impairment test, an impairment charge of £21 million has been recognised in the income statement. The impairment charge arose as a result of the low interest rate environment in which the cash-generating unit operates in and the further decline in interest rates during the year. The recoverable amount for the cash-generating unit has been measured based on a value in use calculation. A pre-tax discount rate of 6.75% was used in the value in use calculation and cash flows beyond the plan period have been extrapolated using a steady 4.85% growth rate. The remaining £14 million related to other small European businesses. The 2004 impairment charge of £41 million comprised £21 million on one non-insurance Dutch operation, £17 million on other small European businesses and £3 million on other operations.

Other long lived assets such as acquired additional value of in-force, and intangibles are not subject to formal impairment testing but are amortised on an annual basis.

(g) Long-term business summary analysis by geographical segment

 

(i) Income statement For the year ended 31 December 2005

	Net written premiums			Fee and commission income			Profit before tax
	2005 £m	2004 £m		2005 £m	2004 £m		2005 £m	2004 £m
United Kingdom	4,459	4,768		169	219		1,210	654
France	3,553	2,892		160	142		234	196
Ireland	182	195		23	15		56	52
Italy	1,357	1,084		66	45		35	28
Netherlands	2,582	1,859		57	28		164	220
Poland	312	267		45	16		90	80
Spain	1,248	1,206		39	29		75	61
Other Europe	152	565		12	25		(7)	(8)
Continental Europe	9,386	8,068		402	300		647	629
International	826	697		27	15		8	102
Total	14,671	13,533		598	534		1,865	1,385

The following analysis shows the net written premiums from associates and joint ventures on insurance and participating investment contracts which are not included in the analysis above.

	2005 £m	2004 £m
RBSG	217	319
India	14	6
China	30	3
	261	328

(ii) Balance sheet
At 31 December 2005

	Segmental total assets			Net assets
	2005 £m	2004 £m		2005 £m	2004 £m
United Kingdom	117,803	107,495		2,929	3,162
France	44,109	41,827		1,177	1,175
Ireland	6,054	5,108		410	403
Italy	10,805	9,492		639	478
Netherlands (including Belgium and Luxembourg)	28,826	27,357		2,229	1,858
Poland	1,860	1,564		191	176
Spain	6,355	5,638		790	761
Other Europe	1,527	1,104		77	60
Continental Europe	99,536	92,090		5,512	4,911
International	7,429	6,277		702	735
Total	224,768	205,862		9,144	8,808

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

For the purpose of recording life and pensions new business premiums, the Group’s policy is to include life insurance, long-term health and accident insurance, savings, pensions and annuity business written by our life insurance subsidiaries, including managed pension fund business and our share of the other life and related business written in our associates and joint ventures as well as the equity release business written in the UK. This includes both insurance and investment contracts as defined under IFRS 4, Insurance Contracts and is consistent with the definition of covered business used for our supplementary embedded value reporting.

An analysis of new long-term business sales is provided below. In this table, 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. Life and pensions total income represents all net written premiums in the year for insurance contracts and investment contracts, excluding non-participating investment contracts which are required to be accounted for under IAS 39, Financial Instruments: Recognition and Measurement and IAS 18, Revenue.

	New single premiums			New regular premiums			Total income
	2005 £m	2004 £m		2005 £m	2004 £m		2005 £m	2004 £m
* Included within new business sales is £5,071 million single premiums and £357 million regular premiums (2004: £4,338 million single premiums and £410 million regular premiums), in respect of contracts that meet the definition of “non-participating investment” contracts under IFRS 4 “Insurance Contracts”. Under IFRS, the premiums on these contracts are not included in the Group income statement under earned premiums, but are included on the balance sheet as a deposit.
Life and pensions:
United Kingdom	6,573	6,502		485	516		4,676	5,087
France	3,077	2,454		76	62		3,553	2,892
Ireland	372	203		63	66		182	195
Italy	1,940	1,529		58	45		1,357	1,084
Netherlands (including Belgium and Luxembourg)	1,245	1,131		146	148		2,582	1,859
Poland	120	60		30	31		312	267
Spain	1,395	1,566		100	91		1,248	1,206
Other Europe	406	336		80	90		152	565
Continental Europe	8,555	7,279		553	533		9,386	8,068
International	798	660		113	105		870	706
Total life and pensions (including share of associates)	15,926	14,441		1,151	1,154		14,932	13,861
Retail sales of mutual fund type products:
United Kingdom	1,139	840		21	19		1,160	859
Netherlands	563	196		-	-		563	196
Poland	49	75		4	2		53	77
Other Europe	410	254		-	-		410	254
International	213	243		-	-		213	243
Total investment sales	2,374	1,608		25	21		2,399	1,629
Total long-term savings (including share of associates)	18,300	16,049		1,176	1,175		17,331	15,490

(i) General insurance and health business summary analysis by geographical segment

 

(i) Income statement
For the year ending 31 December 2005

	Net written premiums			Fee and commission income			Profit before tax
	2005 £m	2004 £m		2005 £m	2004 £m		2005 £m	2004 £m
United Kingdom	6,127	5,715		180	125		1,294	778
France	726	670		11	23		68	71
Ireland	499	545		-	1		181	142
Netherlands	1,270	1,286		7	21		171	145
Other Europe	259	230		5	9		17	44
Continental Europe	2,754	2,731		23	54		437	402
Canada	1,324	1,202		11	11		178	153
Other	106	170		-	7		86	35
International	1,430	1,372		11	18		264	188
Total	10,311	9,818		214	197		1,995	1,368

(ii) Balance sheet
As at 31 December 2005

	Segmental total assets			Net assets
	2005 £m	2004 £m		2005 £m	2004 £m
United Kingdom	13,114	12,927		2,725	2,504
France	1,698	1,741		362	416
Ireland	1,916	1,989		545	498
Netherlands	5,038	3,677		553	461
Other Europe	860	914		302	162
Continental Europe	9,512	8,321		1,762	1,537
Canada	3,742	3,111		848	687
Other	380	825		246	277
International	4,122	3,936		1,094	964
Total	26,748	25,184		5,581	5,005

(iii) General insurance, fund management and other investments mix at 31 December 2005

	United Kingdom £m	Continental Europe £m	International £m	Total £m
Equity securities - fair value	1,965	1,140	574	3,679
Debt and fixed income securities at market value	4,478	5,176	2,337	11,991
Loans secured by mortgages and other loans	693	5,592	19	6,304
Other investments	32	474	1	507
Investments in joint ventures and associates	135	42	22	199
Investment property	268	109	3	380
Total investments	7,571	12,533	2,956	23,060

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