Interim results - 6 months ended 30 June 2007
Operating and financial review
Long-term business operating profit on an International Financial Reporting Standard (IFRS) basis
On an IFRS basis, our long-term business operating profit before shareholder tax was £1,081 million (2006: £710 million), an increase of 53%. The increase is primarily driven by the benefit of improved equity markets across most businesses, the impact of on-going PS06/14 implementation in the United Kingdom and the effect of increases in long-term interest rates on guarantee provisions in the Netherlands.
United Kingdom
The UK life operating profit on an IFRS basis was 42% higher at £303 million (2006: £213 million), driven by both with-profit and non-profit business. The increase in operating profit for with-profits business to £85 million (2006: £68 million) is driven by strong investment performance conditions which continue to drive higher policyholder bonuses. The increase in the non-profit business results from the FSA rule change PS06/14 which contributed £76 million to the result although this has been partially offset by investment losses caused by adverse market interest rate movements.
Europe
In Europe, life IFRS operating profit increased to £582 million (2006: £497 million), driven primarily by increased profits in France and the Netherlands.
In France, operating profit increased to £138 million (2006: £116 million) reflecting the increased profits from the growing unit-linked in-force portfolio and higher equity-market related investment gains. In Ireland, operating profit increased to £40 million (2006: £31 million including five months in respect of Ark Life) following the inclusion of a full six months profit for Ark Life and increased sales across both bank and broker channels. In the Netherlands, operating profit of £254 million (2006: £225 million) included a £78 million release (2006: £94 million release) from the provision for guarantees resulting from an increase in interest rates and policy values in the period. The year on year increase reflected lower expenses and lower new business strain. In our businesses in Poland and Lithuania operating profit increased to £60 million (2006: £56 million) reflecting increased income as a result of higher funds under management. Operating profit in Spain increased to £63 million (2006: £48 million) due to higher profits from the growing portfolio of protection and pensions business. Operating profit in Italy increased to £41 million (2006: £28 million) driven by increased interest rates and higher investment returns.
Aviva's other European businesses based in the Czech Republic, Hungary, Romania, Russia and Turkey, had an operating loss of £14 million (2006: £7 million loss) reflecting the developing nature of these operations.
North America
Life operating profit was £165 million (2006: £15 million loss) driven primarily by the inclusion of the AmerUs business. Operating profit was favourably impacted by net market value adjustments of £36 million (2006: £9 million loss).
Asia Pacific
Life operating profit improved significantly to £31 million from £15 million in the six months to 2006, driven mainly by favourable investment markets in the region and higher emerging profits from existing business.
