Interim results for 6 months ended 30 June 2006
Operating and financial review
Life EEV operating return
| 6 months 2006 £m |
6 months 2005 £m |
||
|---|---|---|---|
| New business contribution (after the effect of required capital) | 352 | 286 | |
| Profit from existing business | – expected return | 503 | 434 |
| – experience variances | (9) | (31) | |
| – operating assumption changes | 3 | 7 | |
| Expected return on shareholders’ net worth | 172 | 161 | |
| Life EEV operating return before tax | 1,021 | 857 | |
| Analysed by: | |||
| Continental Europe | 617 | 491 | |
| Rest of the World | 54 | 36 | |
| International | 671 | 527 | |
| United Kingdom | 350 | 330 | |
Worldwide life EEV operating return before tax was 19% higher at £1,021 million (2005: £857 million) due to increased contributions from both new and existing business. New business contribution after the effect of required capital was 24% higher at £352 million (2005: £286 million) outpacing the 19% growth in sales. Consequently the Group’s new business margin after the effect of required capital increased to 2.7% (2005: 2.6%), reflecting improved business mix and our value focus. Aviva International now accounts for 62% of new business contribution after the effect of required capital.
| Present value of new business premiums | New business contribution(1) | New business margin(1,2) | New business contribution(3) | New business margin(2,3) | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 6 months 2006 £m |
6 months 2005 £m |
6 months 2006 £m |
6 months 2005 £m |
6 months 2006 % |
6 months 2005 % |
6 months 2006 £m |
6 months 2005 £m |
6 months 2006 % |
6 months 2005 % |
|
| Continental Europe | 6,645 | 6,150 | 268 | 239 | 4.0% | 3.9% | 202 | 170 | 3.0% | 2.8% |
| Rest of the World | 686 | 554 | 24 | 18 | 3.5% | 3.2% | 15 | 10 | 2.2% | 1.8% |
| International | 7,331 | 6,704 | 292 | 257 | 4.0% | 3.8% | 217 | 180 | 3.0% | 2.7% |
| United Kingdom | 5,816 | 4,312 | 167 | 136 | 2.9% | 3.2% | 135 | 106 | 2.3% | 2.5% |
| Total life and pensions business | 13,147 | 11,016 | 459 | 393 | 3.5% | 3.6% | 352 | 286 | 2.7% | 2.6% |
(1) Before effect of required capital which
amounted to £107 million (2005: £107 million).
(2) New business margin represents the ratio of new business
contribution to present value of new business premiums, expressed as a percentage.
(3) After deducting the effect of required capital.
The expected returns on existing business and shareholders’ net worth increased to £675 million (2005: £595 million) reflecting the higher start of year embedded values. Adverse experience variances of £9 million (2005: £31 million adverse) were partially offset by positive operating assumption changes of £3 million (2005: £7 million positive).
Continental Europe
Life EEV operating return from our continental European businesses has increased 26% to £617 million (2005: £491 million).
New business contribution after the effect of required capital increased to £202 million (2005: £170 million), with strong performances in France, Spain and Poland, mainly reflecting a combination of sales growth and margin improvements.
New business margins before and after required capital were 4.0% and 3.0% (2005: 3.9% and 2.8%), respectively. The increase in new business margin after required capital reflects a change in business mix towards less capital intensive products, with higher sales of unit-linked and single premium savings products notably in France and Italy.
Expected returns were higher at £360 million (2005: £315 million), reflecting higher start of year embedded value. Experience variances were higher at £52 million (2005: £1 million loss) mainly reflecting a favourable mortality experience of £42 million (2005: £28 million) in the Netherlands, France and Poland. Operating assumption changes were £3 million (2005: £7 million).
Rest of the World
The life EEV operating return increased to £54 million (2005: £36 million), benefiting from a higher expected return primarily resulting from the growth in embedded values achieved in our developing businesses during 2005. New business margins before and after the effect of required capital increased to 3.5% and 2.2%, respectively (2005: 3.2% and 1.8%, respectively) reflecting improving margins in our Asian operations.
UK
Norwich Union’s life EEV operating return increased to £350 million (2005: £330 million) primarily reflecting increased new business contribution as higher expected returns from in-force business were offset by adverse experience variances.
New business contribution after the effect of required capital grew 27% to £135 million (2005: £106 million) reflecting increased sales following strategic pricing actions taken in the second half of 2005. We continue to maintain our balance between focus on value while retaining a market-leading position.
Experience variances amounting to an adverse £67 million (2005: £31 million) include exceptional expenses of £75 million (2005: £81 million) primarily relating to project costs associated with reorganisation, strategic initiatives and regulatory change, including pensions simplification. Persistency experience on pension and bond products continues to be adverse generating a loss of £35 million in the period (2005: £5 million loss). Following pensions simplification there has been increased activity in the pensions market, particularly in corporate pensions business, and consequently there have been higher transfers in the pensions business. As we had anticipated, this has resulted in increased lapse experience and at 30 June 2006 we have utilised £40 million of the £130 million provision established at the end of 2005. This was offset by positive mortality experience on protection business of £20 million (2005: £41 million) and better than assumed default experience on corporate bonds and commercial mortgages of £14 million (2005: £11 million).
