Aviva plc: Preliminary results for the year ended 31 December 2006

Index

Results announcement

1 March, 2007

• Worldwide EEV operating profit up 12% to £3,245m; IFRS operating profit up 46% to £3,110m
• Continued profitable growth in long-term savings with sales up 21% to £30,762m and stable margins at 3.5% (H1 2006: 3.5%); life EEV operating profit up 12% to £2,033m
• Strong general insurance result with combined operating ratio of 94% ahead of 'meet or beat' commitment of 98%; general insurance and health operating profit up 8% to £1,680m
• Balance sheet strength with 1.8 times excess IGD solvency cover
• Total dividend increased by 10% to 30.0 pence per share

Richard Harvey, group chief executive, commented:

“This is high quality growth from Aviva and demonstrates the benefit of our balanced portfolio of businesses, in terms of product, distribution and geography.”

“In the UK, our clear strategy and increased consumer confidence has delivered an excellent result and an increased market share. Our European portfolio of life businesses is also growing ahead of the market overall, with an increasing contribution from Central and Eastern Europe. In Asia, we've made good headway in the biggest markets of India and China and will continue to broaden our reach, looking at new markets and distribution opportunities”

“We're delighted with our acquisition of AmerUs in the US. It is a key strategic development for us, bringing a great growth platform in the biggest long-term savings market in the world. The integration is on track with an excellent growth outlook for 2007 and beyond”

“In general insurance, we've out-performed our combined operating ratio target again. The RAC has been a great acquisition, delivering good profits and bringing new insurance customers.”

“Looking to the future, we will continue with aggressive growth of our business across product lines, distribution and geographies, subject to our strict profitability targets. We will supplement strong organic growth with bolt-on value-adding acquisitions funded from internally generated capital.””

Worldwide highlights	2006	2005	Growth in constant currency
Operating profit – EEV basis*	£3,245m	£2,904m	12%
Operating profit – IFRS basis**	£3,110m	£2,128m	46%
Life EEV operating return	£2,033m	£1,814m	12%
General insurance and health operating profit	£1,680m	£1,551m	8%
Long-term savings new business sales	£30,762m	£25,583m	21%
New business contribution – gross	£892m	£808m	11%
New business contribution – net of required capital, tax and minorities	£376m	£341m	10%
Final dividend per share	19.18p	17.44p	10%
Total dividend per share	30.0p	27.27p	10%
Equity shareholders’ funds***	£17,531m	£14,899m	18%
Return on equity shareholders’ funds	13.1%	15.0%	-
Net asset value per share	683p	622p	10%

All operating profit is from continuing operations and all growth rates quoted are at constant rates of exchange.
* Including life EEV operating return, before tax and exceptional items.
** Before tax, amortisation of acquired value of in-force business and intangibles and exceptional items.
*** Measured on an EEV basis, excluding preference shares, direct capital instrument and minority interests.

Segmental analysis of Group operating profit*
For the year ended 31 December

Continuing operations		2006 £m	2005 at 2006 exchange rates £m	2005 £m
Life EEV operating return1
France		402	319	321
Ireland		(40)	20	20
Italy		110	95	96
Netherlands (including Belgium, Germany and Luxembourg)		329	346	349
Poland		162	136	132
Spain		221	213	214
Other Europe		(13)	(5)	(6)
Asia		37	31	30
Australia		49	43	44
United States		32	25	25
Aviva International		1,289	1,223	1,225
United Kingdom		744	589	589
		2,033	1,812	1,814
Fund Management2, 3
France		10	8	8
Netherlands		33	31	32
Other Europe		8	7	7
Other		16	11	11
United Kingdom		29	25	25
		96	82	83
General insurance and health
United Kingdom		1,075	974	974
France		63	35	35
Ireland		172	170	171
Netherlands		139	136	137
Other Europe		43	46	47
Canada		148	154	147
Other		40	40	40
Aviva International		605	581	577
		1,680	1,555	1,551
Non-insurance operations2, 4		(23)	29	28
Corporate costs	– central costs and sharesave schemes	(143)	(101)	(101)
	– staff profit share and share incentive schemes	(17)	(7)	(7)
	– global finance transformation programme	-	(28)	(28)
Unallocated interest charges	– external	(230)	(248)	(248)
	– intra-group	(228)	(220)	(220)
	– net pension income	77	32	32
Group operating profit before tax*		3,245	2,906	2,904

* Group operating profit before tax. All operating profit is from continuing operations.
¹ Germany has been reclassified from Other Europe to the Netherlands, Lithuania has been reclassified from Other Europe to Poland and Norwich Union’s Dublin-based offshore life and savings business has been reclassified from Other Europe to the United Kingdom. 2005 figures have been reclassified accordingly.
² Delta Lloyd Asset Management previously included within non-insurance has been reclassified to fund management and 2005 figures reclassified accordingly.

³ Excludes the proportion of the results of Morley’s fund management businesses, of our French asset management operation Aviva Gestion d’Actifs (AGA) and other fund management operations within the Group that arises from the provision of fund management services to our life businesses. These results are included within the Life EEV operating return.
⁴ Excludes the results of Norwich Union Equity Release. Also excludes the proportion of the results of Norwich Union Life Services relating to the services provided to the UK life business. These results are included within the Life EEV operating return.

The total IFRS operating profit for the year to 31 December 2006 was £3,110 million (2005: £2,128 million; £2,130 million restated at constant exchange rates).

GROUP CHIEF EXECUTIVE’S STATEMENT

In 2006 we have achieved a 12% increase in EEV¹ operating profit before tax to £3.2 billion along with a return on capital employed of 13.1%, ahead of our group target of 12.5%. On an IFRS basis, operating profit before tax grew 46% to £3.1 billion driven by investment market movements in our life operations and some significant one-offs in our UK life business. These results have been achieved on top of the 29% growth in EEV and 25% growth in IFRS operating profits in 2005. This trend of sustained growth has been delivered by applying a consistent strategy across our UK and international life and general insurance businesses. We continue to demonstrate our ability to grow our existing portfolio of businesses profitably, while also achieving excellent returns from our acquisitions.

As a result of our continued growth, I am delighted to announce that the Board recommends an increase in our final dividend of 10% to 19.18 pence per share, giving a total dividend for the year of 30.00 pence per share. Our intention continues to be to grow the dividend using a dividend cover² in the range of 1.5 to 2.0 times as a guide, while retaining sufficient capital to support future business growth.

Our portfolio of long-term savings and general insurance businesses across Europe, North America and Asia-Pacific gives us geographical diversification and a broad range of distribution channels and products across locations. The acquisition of AmerUs in November 2006 and the further development of our Central and Eastern European and Asian businesses makes our diversified portfolio even stronger.

Long-term Savings and Fund management

I am pleased to report that worldwide total long-term savings sales increased by 21% to £30.8 billion. Life and pension sales increased by 17% to £25.9 billion, with gross margins maintained at 3.5% (HY 2006: 3.5%) and the group IRR on new business increasing to 12.6% (HY06: 11.8%). This demonstrates our continued focus on profitable growth across our long-term savings business.

2006 has been a record year for Norwich Union in the UK, with total sales up 31% to £13.6 billion and EEV operating profits up 26% to £744 million, even after strengthening our persistency assumptions. Our strong brand, broad distribution and waterfront product range meant that we were well positioned to capture growth, underpinned by an increase in customer confidence and buoyant equity markets. In addition we achieved a strong performance from our bancassurance partnership with the Royal Bank of Scotland Group. We were well positioned to capture the growth stimulated by A-day and we have increased our market share in this growing market, while also improving service levels during the year. Gross margins were maintained at 2.9% and IRR improved to 12%. Our outlook for the UK long term savings market remains positive and we anticipate market growth in 2007 of between 5% and 10%. Our aim is to grow at least in line with the market.

Outside the UK, total international long-term savings sales increased by 13% to £17.2 billion and life and pension sales also increased by 13% to £14.7 billion. Operating profits increased by 5% to £1.3 billion, representing 63% of our life profits, while gross margins reduced slightly to 3.8% (HY 2006: 4.0%). We remain confident of achieving our ambition of average organic sales growth of 10% a year over the next five years in our international life businesses, with new business profits growing at least as fast as sales.

In continental Europe we achieved strong and steady growth with sales increasing by 9% or £1 billion to £12.8 billion, highlighting the continued growth potential for the Group in this wealthy region. Organic growth was approximately 5%, and about one third of our growth was achieved in our Central and Eastern European businesses. We believe that this region will continue to make a growing contribution to our results.

We continue to build on our strong bancassurance franchise and we continue to be a partner of choice for banks worldwide. In 2006 we generated excellent sales through our new arrangements with Allied Irish Banks in Ireland, Centurion Bank of Punjab in India, National Development Bank in Sri Lanka and in Italy through the additional branches in the UniCredit group network.

In North America, our acquisition of AmerUs provides us with a platform for sustainable growth in the United States, the world’s largest long-term savings market. The fourth quarter of 2006 was the strongest quarter for new business for AmerUs, in spite of a period of considerable change as a result of the acquisition. This growth is underpinned by a strong distribution network enhanced by new distribution agreements with Annexus and two other independent marketing organisations in 2006, with three more already secured in 2007. The Aviva USA management team is now in place and the integration of the two businesses is on track.

Our businesses in Asia-Pacific continue to show strong rates of growth, with total sales nearly doubling in the year. We have businesses in China, India, Sri Lanka, Australia, Singapore and Hong Kong and we expect to enter the Taiwanese and Malaysian markets in 2007. Operating profit from Asia-Pacific was up 16% to £86 million. In India, sales grew nearly threefold with our 26% share totalling £84 million. We welcome the Indian Government’s indication that a proposal to raise the foreign investment limit to 49% may go before parliament this year. In China, our 50% share of sales through our joint venture life business, Aviva COFCO, continue to grow rapidly, up 41% to £50 million and we are now licensed to operate in 15 cities across six major provinces covering a population of around 375 million. Our stated ambition is to achieve an average 10% market share in 10 provinces by 2010.

I am particularly pleased to report significant growth in our fund management operations this year, with investment sales increasing by 48% to £4.9 billion. Funds under management increased by £42 billion to £364 billion and profits on an IFRS basis increased by 25% to £155 million.

General Insurance and Health

Our general insurance businesses delivered a strong performance, with a combined operating ratio (COR) of 94%, comfortably ahead of our target to meet or beat a COR of 98%. Operating profit has increased to £1.7 billion, 8% ahead of last year. This was achieved through a combination of improved underwriting disciplines and lower than average weather-related claims of £91million. The result includes exceptional releases in the UK of approximately £200 million.

In the UK, we have taken the lead in tackling reduced profitability in the motor insurance market and we have already seen an improvement in our motor COR as a result. We continue to increase our distribution reach in our international businesses in order to capture profitable growth. The RAC business delivered a good performance growing operating profit to £160 million in 2006. We expect to deliver cost savings of £130 million and operating profits of £220 million per annum by 2008, giving a run rate return on capital of 18.8%. We remain on track to meet our target of increasing the customer base by 1.4 million customers by the end of 2008.

Cost and efficiency review

Our market place continues to be very competitive. In September 2006 we announced a programme to save £250 million a year in our UK businesses by 2008. We are on track to achieve this objective and maintain our market leading positions in both our life and savings and general insurance business.

Management changes

We announced earlier in January that I will retire in July this year. Andrew Moss, who is currently the group finance director will take over from me as group chief executive and Philip Scott, currently group executive director, Aviva International, will become group finance director. I am confident that I am handing over Aviva at a time when it is in a very healthy and strong position, and with a management team, including Patrick Snowball and Tidjane Thiam, that has the capability to continue to develop the Group.

Outlook

In summary, these are a strong set of results that demonstrate the resilience and sustainability of our composite business model. We continue to prosper in our chosen markets and are excited by the further opportunities we see in 2007 and the longer term. Our strategy continues to be to deliver growth across the world, while maintaining our focus on value. In 2007 strong organic growth is our priority, while completing the integration of AmerUS into the Aviva group. We will continue to develop our distribution reach by expanding bancassurance and growing our direct business. We will supplement strong organic growth with bolt-on value-adding acquisitions funded from internally generated capital.

Richard Harvey - Group chief executive

¹ European Embedded Value
² Dividend cover is measured on an operating earnings after tax on an IFRS basis, expressed as a multiple of the ordinary dividend.

Enquiries:

Richard Harvey	Group chief executive	+44 (0)20 7662 2286
Andrew Moss	Group finance director	+44 (0)20 7662 2679
Analysts:
Charles Barrows	Investor relations director	+44 (0)20 7662 8115
Jessie Burrows	Head of investor relations	+44 (0)20 7662 2111
Media:
Hayley Stimpson	Director of external affairs	+44 (0)20 7662 7544
Sue Winston	Head of group media relations	+44 (0)20 7662 8221
Rob Bailhache	Financial Dynamics	+44 (0)20 7269 7200

NEWSWIRES: There will be a conference call today for wire services at 8.15am (GMT) on +44 (0)20 7162 0125 Quote: Aviva, Richard Harvey.

ANALYSTS: A presentation to investors and analysts will take place at 9.30am (GMT) at St Helen’s, 1 Undershaft, London, EC3P 3DQ. The investors and analysts presentation is being filmed for live webcast and can be viewed on this website or on www.cantos.com. In addition a replay will be available on these websites later today. There will also be a live teleconference link to the investor and analyst meeting on +44 (0) 20 7138 0817. A replay facility will be available until 14 March 2007 on +44 (0) 20 7806 1970. The pass code is 7467412# for the whole presentation including Question & Answer session or 7492722# for Question & Answer session only.

The presentation slides will be available on this website, from 9.00am (GMT).

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Notes to editors

• Aviva is one of the leading providers of life and pensions to Europe with substantial positions in other markets around the world, making it the world’s fifth largest insurance group based on gross worldwide premiums at 31 December 2005.
• Aviva’s principal business activities are long-term savings, fund management and general insurance, with worldwide total sales of £41.5 billion and assets under management of £364 billion at 31 December 2006.
• Overseas currency results are translated at average exchange rates.
• The present value of new business premiums (PVNBP) is equal to total single premium sales received in the year plus the discounted value of annual premiums expected to be received over the term of the new contracts, and is expressed at the point of sale.
• All growth rates are quoted at constant currency, which excludes the impact of changes in exchange rates between periods.
• This preliminary announcement may contain “forward-looking statements” with respect to certain of Aviva’s plans and its current goals and expectations relating to its future financial condition, performance and results. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which are beyond Aviva’s control, including amongst other things, UK domestic and global economic business conditions, market-related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities, the impact of competition, inflation, deflation, the timing impact and other uncertainties of future acquisitions or combinations within relevant industries, as well as the impact of tax and other legislation and other regulations in the jurisdictions in which Aviva and its affiliates operate. As a result, Aviva’s actual future financial condition, performance and results may differ materially from the plans, goals and expectations set forth in Aviva’s forward-looking statements. Aviva undertakes no obligation to update the forward-looking statements contained in this presentation or any other forward-looking statements we may make.

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