Notes to the consolidated financial statements - IFRS Basis

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1 – Basis of preparation – IFRS basis

(a)

The results for the six months to 30 June 2008 have been prepared using International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and endorsed by the European Union (EU). These include IAS 34, Interim Financial Reporting, which specifically addresses the contents of interim announcements. The results apply the accounting policies set out in Aviva plc’s 2007 Annual Report and Accounts, except that segmental information is now given in accordance with the requirements of IFRS 8, Operating Segments, as described in note 1(d) below.

The results for the six months to 30 June 2008 and 2007 are unaudited but have been reviewed by the auditor, Ernst & Young LLP. The interim results do not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The results for the full year 2007 have been taken from the Group’s 2007 Annual Report and Accounts. The auditor has reported on the 2007 financial statements and the report was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. The Group’s 2007 Report and Accounts have been filed with the Registrar of Companies.

(b)

Items included in the financial statements of each of the Group’s entities are measured in the currency of the primary economic environment in which that entity operates (the “functional currency”). The consolidated financial statements are stated in sterling, which is the Company’s functional and presentational currency. Unless otherwise noted, the amounts shown in the financial statements are in millions of pounds sterling (£m). As supplementary information, consolidated financial information is also presented in euros.

(c)   Restatement of prior period figures

(i)   Change to definition of operating profit

During 2007, the Group changed its definition of IFRS operating profit. The key changes to our definition of IFRS operating profit are set out in the 2007 Report and Accounts and were presented in this manner. Results to 30 June 2007 have been restated to reflect the changes.

(ii)   Gross up for cash collateral received

The Group enters into stock lending transactions and receives cash or non-cash collateral to reduce the Group’s exposure to counterparty credit risk. Collateral received in the form of cash is then either lent out at market rates of interest or held as cash. During 2007, we identified that certain cash collateral transactions should have been historically recognised on the balance sheet, with a corresponding obligation to return this collateral, instead of showing a net nil position.

The cash collateral transactions were accounted for correctly in the 2007 Report and Accounts but, as a result, the figures for loan assets, cash and cash equivalents, and payables and other financial liabilities as at 30 June 2007 have been restated by increasing them by £3,396 million, £147 million and £3,543 million respectively. The equivalent adjustment at 1 January 2007, the start of the comparative period, was to increase loan assets and payable and other financial liabilities by £2,129 million.

The 30 June 2007 comparative figures in the cash flow statement for cash generated from operations, net increase in cash and cash equivalents and cash and cash equivalents at 30 June 2007 have also been restated for the increase in cash and cash equivalents of £147 million detailed above.

In addition, we identified that the interest paid on cash collateral received and the interest earned from onlending this cash had previously been offset and reported as net investment income. The 30 June 2007 comparative figures have therefore been restated in order to report this interest expense and interest income separately, by increasing both by £59 million.

Neither of these adjustments have any impact on profit for the period, operating profit or earnings per share for the six months ended 30 June 2007, nor on retained earnings, net assets or total equity at either 1 January 2007 or 30 June 2007.

(iii) Consolidation of managed fund

The Group manages a number of specialised investment vehicles around the world, in which our insurance and investment funds have invested. The Group’s percentage ownership in these vehicles can fluctuate from day to day according to the Group’s and third party participation in them, and control is determined based on an analysis of the guidance in IAS 27. During 2008, we identified that one such vehicle, a UK cash deposit fund, required consolidation in accordance with IAS 27 which therefore results in grossing up assets and liabilities for the effect of the third party participation.

As a result, the figures for cash and cash equivalents, financial investments (debt securities) and net asset value attributable to unitholders as at 31 December 2007 have been restated by increasing them by £315 million, £806 million and £1,121 million respectively. The equivalent figures as at 30 June 2007 have been restated by increasing them by £242 million, £392 million and £634 million respectively. The impact on the full year 2007 income statement has been to restate net investment income and fee and commission expense by increasing both by £62 million (6 months to 30 June 2007: increase both by £40 million).

None of these adjustments has any impact on profit for the period, operating profit or earnings per share in either the full year 2007 or the 6 months to 30 June 2007, nor on retained earnings, net assets or total equity at either 1 January 2007, 30 June 2007 or 31 December 2007. The effect of restating items in the cash flow statements for these periods is given in section (iv) below.

(iv)   Restatement of cash equivalents

During 2007, we reviewed the policy for cash and cash equivalents and determined that certain investments, previously classified as cash equivalents, would be more appropriately classified as financial investments.

This treatment was adopted in the 2007 Report and Accounts but the application of this review to the 30 June 2007 balances has led to a reduction of the cash equivalents balance at that date by £980 million and a corresponding increase in the debt securities total of the same amount.

This restatement has no impact on net assets or total equity. The effect of the restatements described in sections (iii) and (iv) on cash flows for the 6 months to 30 June 2007 is to reduce cash equivalents at 1 January 2007 and 30 June 2007 by £1,211 million and £738 million respectively, and to increase cash flows from operating activities by £473 million. The effect on the year to 31 December 2007 is to increase cash equivalents at 1 January 2007 and 31 December 2007 by £214 million and £315 million respectively, and to increase cash flows from operating activities by £101 million.

(d)

In November 2006, the IASB issued IFRS 8, Operating Segments. Although its requirements are applicable for accounting periods beginning on or after 1 January 2009, the Group has decided to adopt IFRS 8 early and reflect its impact in the 2008 financial statements. Accordingly, the segmental information given in these interim results reflect the adoption of this standard.

The Group has determined its operating segments along regional lines and the results for the period to 30 June 2008 are presented on this basis, using NU Life and NUI within the United Kingdom, Europe, North America, Asia Pacific and Aviva Investors as the main segments.

1. The NUI region covers the Group’s UK general insurance business and includes the results of Aviva Re, the Group’s captive reinsurance business;
2. Europe incorporates all European operations excluding the UK as set out above;
3. North America is made up of our life business in the United States and general insurance business in Canada;
4. Asia Pacific includes all our Asian and Australian businesses; and,
5. Aviva Investors comprises the business of Morley, as well as the asset management businesses in France and Canada.

2 – Exchange rates

The Group’s principal overseas operations during the year were located within the Eurozone and the United States.

The results and cash flows of these operations have been translated into sterling at an average rate for the period of 1 euro = £0.77 (6 months to 30 June 2007: 1 euro = £0.68; full year 2007: 1 euro = £0.68). Assets and liabilities have been translated at the period end rate of 1 euro = £0.79 (30 June 2007: 1 euro = £0.67; 31 December 2007: 1 euro = £0.73).

The US dollar rates used for translation are an average of £1 = US$1.98 (6 months to 30 June 2007: £1 = US$1.97; full year 2007: £1 = US$2.00) and a closing rate of £1 = US$2.00 (30 June 2007: £1 = US$1.99; 31 December 2007: £1 = US$1.99).

3 – Acquisitions

(i) Acquisition of VIVAS Health

On 15 May 2008, the Group’s Irish subsidiary, Hibernian Group plc, acquired a 70% holding in VIVAS Group Ltd. (VIVAS Health), an Irish health insurance company, for £26 million. Allied Irish Banks plc (AIB) will continue to hold the remaining 30% equity, further strengthening AIB and Hibernian’s existing relationship. The company has since been re-branded as Hibernian Health. Its health insurance products will be distributed through Hibernian and AIB’s distribution channels, including Hibernian Health’s existing direct and non-direct channels.

The acquisition of this shareholding has given rise to goodwill on acquisition of £22 million, calculated as follows:

Purchase cost:	£m
Cash paid	25
Attributable costs	1
Total consideration	26

The estimated book and fair values of the assets and liabilities at the date of acquisition were:

	Book value £m	Fair value and accounting policy adjustments £m	Fair value £m
Assets
Reinsurance assets	31	-	31
Cash and cash equivalents	28	-	28
Receivables and financial assets	33	-	33
Other assets	1	-	1
Total assets	93	-	93
Liabilities
Insurance liabilities	51	-	51
Payables and other financial liabilities	31	-	31
Other liabilities	5	-	5
Total liabilities	87	-	87
Total net assets	6	-	6
Net assets acquired (70%)			4
Goodwill arising on acquisition of this holding			22

The assets and liabilities as at the acquisition date in the table above are stated at their provisional fair values and may be amended in the Group’s full year financial statements in accordance with paragraph 62 of IFRS 3, Business Combinations.

(ii) Acquisition of UBI Vita

On 18 June 2008, the Group acquired 50% plus one share in UBI Assicurazioni Vita SpA. (UBI Vita), an Italian life insurance company, from Unione di Banche Italiane Scpa (UBI Banca), for a consideration of £51 million. UBI Vita distributes life insurance products through a bancassurance agreement with Banca Popolare di Ancona and other channels.

The acquisition of this shareholding has given rise to goodwill on acquisition of £6 million, calculated as follows:

Purchase cost:	£m
Cash paid	51
Attributable costs	-
Total consideration	51

The estimated book and fair values of the assets and liabilities at the date of acquisition were:

	Book value £m	Fair value and accounting policy adjustments £m	Fair value £m
Assets
Intangible assets	-	35	35
Reinsurance assets	128	-	128
Prepayment and accrued income	22	-	22
Cash and cash equivalents	50	-	50
Debt securities	1,768	(2)	1,766
Other investments	444	1	445
Property and equipment	18	1	19
Receivables and other financial assets	15	1	16
Other assets	2	(1)	1
Total assets	2,447	35	2,482
Liabilities
Insurance liabilities	2,241	-	2,241
Borrowings	30	-	30
Payables and other financial liabilities	140	(12)	128
Other liabilities	(10)	4	(6)
Total liabilities	2,401	(8)	2,393
Total net assets	46	43	89
Net assets acquired (50%)			45
Goodwill arising on acquisition of this holding			6

The assets and liabilities as at the acquisition date in the table above are stated at their provisional fair values and may be amended in the Group’s full year financial statements in accordance with paragraph 62 of IFRS 3, Business Combinations.

(iii) Acquisition of Swiss Life Belgium

On 30 June 2008, the Group acquired 100% of the shares in Swiss Life Belgium, a multi-line insurer, from SNS REAAL for £112 million. By combining Swiss Life Belgium with its Belgian insurance operation, managed through its Dutch subsidiary Delta Lloyd, the Group will further strengthen its position in the Belgian life insurance market.

The acquisition of this shareholding has given rise to goodwill on acquisition of £nil, calculated as follows:

Purchase cost:	£m
Cash paid	112
Attributable costs	-
Total consideration	112

The estimated book and fair values of the assets and liabilities at the date of acquisition were:

	Book value £m	Fair value and accounting policy adjustments £m	Fair value £m
Assets
Acquired value of in-force business on insurance contracts	-	55	55
Prepayment and accrued income	45	-	45
Cash and cash equivalents	89	-	89
Equity securities	130	-	130
Debt securities	2,221	-	2,221
Other investments	21	-	21
Receivables and other financial assets	39	-	39
Other assets	113	-	113
Total assets	2,658	55	2,713
Liabilities
Insurance liabilities	2,195	-	2,195
Liabilities for investment contracts – gross	277	-	277
Borrowings	49	-	49
Payables and other financial liabilities	35	(3)	32
Other liabilities	48	-	48
Total liabilities	2,604	(3)	2,601
Total net assets	54	58	112
Net assets acquired (100%)			112
Goodwill arising on acquisition			-

The assets and liabilities as at the acquisition date in the table above are stated at their provisional fair values and may be amended in the Group’s full year financial statements in accordance with paragraph 62 of IFRS 3, Business Combinations.

(iv) Addition to existing shareholding in Cajamurcia Vida

As disclosed in the 2007 financial statements, on 6 June 2007 the Group acquired 5% of the share capital of Caja Murcia Vida y Pensiones, de Seguros y Reaseguros SA (Cajamurcia Vida) from the Spanish savings bank Caja de Ahorros de Murcia (Cajamurcia). Cajamurcia Vida was fully consolidated as a subsidiary from that date, as the Group has the power to govern its financial and operating policies, through having the majority vote at meetings of the company’s board of directors.

On signing the shareholders’ agreement, Cajamurcia granted the Group a call option over a further 45% of the shares in Cajamurcia Vida. On 27 March 2008, the Group exercised this option and acquired 45% of the shares for £81 million. The fair value of the net assets of the company at the date the option was exercised was £176 million, and the acquisition of the additional shareholding gave rise to additional goodwill of £3 million.

(v) Investment in LIG Life

On 4 April 2008, the Group acquired 40.65% of LIG Life Insurance Co. Ltd (LIG Life), a South Korean life insurance company, for £34 million. LIG Life distributes life insurance products through multiple distribution channels and focuses on the Busan metropolitan area in the south-eastern region of the country. Further shareholdings of 5.51% and 0.63 % were acquired on 7 April and 29 May 2008 respectively for a total of £4 million. This investment has been accounted for as an interest in a joint venture.

4 – Profit/(loss) on the disposal of subsidiaries and associates

	6 months 2008 £m	6 months 2007 £m	Full year 2007 £m
United Kingdom	-	(7)	(7)
Turkey	-	-	71
Other small operations	9	2	(15)
Profit/(loss) on disposal before tax	9	(5)	49
Tax on profit/(loss) on disposal	-	3	3
Profit/(loss) on disposal after tax	9	(2)	52

5 – Integration and restructuring costs

(a)

Integration and restructuring costs of £132 million (six months to 30 June 2007: £40 million) comprises phase one restructuring costs of £38 million announced in October 2007, phase two restructuring costs of £83 million announced in June 2008. The balance relates mainly to the implementation of Aviva Investors.

(b)

Exceptional costs for termination of operation of £84 million (six months to 30 June 2007: £nil) are due to the closure of the wrap platform in the UK and migration of the operation to a third party provider, Scottish Friendly. These costs include write-downs of goodwill and intangible assets.

6 – Operations classified as held for sale

	30 June 2008 £m	30 June 2007 £m	31 December 2007 £m
Intangible assets	260	52	-
Investments and property and equipment	5,072	-	316
Deferred acquisition costs and other assets	57	74	-
Receivables and other financial assets	587	1,062	554
Prepayments and accrued income	247	-	145
Tax assets	9	-	17
Cash and cash equivalents	411	73	96
Total assets	6,643	1,261	1,128
Gross insurance liabilities/liability for investment contracts	(5,253)	(871)	(627)
Borrowings	(13)	(11)	(12)
Payables and financial liabilities	(197)	(68)	(72)
Other liabilities	(369)	(100)	(220)
Tax liabilities and other provisions	(73)	-	(11)
Total liabilities	(5,905)	(1,050)	(942)
Net assets	738	211	186

(i) Dutch health insurance business

On 16 July 2007, the Group announced that its Dutch subsidiary, Delta Lloyd Group (“DL”), had reached an agreement to sell its health insurance business to OWM CZ Groep Zorgverkeraar UA (“CZ”), a mutual health insurer, and create a long-term alliance for the cross-selling of insurance products. Under the terms of the agreement, CZ will purchase the DL health insurance business and take on its underwriting risk and policy administration. DL will continue to market and distribute health insurance products from CZ to its existing customers and continue to provide asset management for the transferred business. DL will also have exclusive rights to market life, general insurance and income protection products to CZ’s customers. The transaction is expected to take effect on 1 January 2009, subject to regulatory, competition and other relevant approvals.

The relevant assets and liabilities of the DL health insurance business have been classified as held for sale, at their carrying values, in the consolidated balance sheet as at 30 June 2008.

(ii) Dutch bancassurance business with ABN AMRO

On 20 May 2008, the Group announced that its Dutch subsidiary, Delta Lloyd Group, had received notice from ABN AMRO that, in accordance with its contractual entitlement, as a consequence of a change of control of ABN AMRO, it wished to end their 30-year bancassurance agreement signed in 2003, covering life and general insurance, and intended to buy out Delta Lloyd’s 51% shareholding in Delta Lloyd ABN AMRO Verzekeringen Holding BV. The transaction is expected to complete in 2009.

The relevant assets and liabilities of the Dutch bancassurance business with ABN AMRO have been classified as held for sale, at their carrying values, in the consolidated balance sheet as at 30 June 2008. Gross assets were £4,716 million and net assets were £388 million.

(iii) UK non-core businesses

In the current period, the Group commenced a strategic review of certain UK non-core operations. As a consequence, certain assets and liabilities have been classified as held for sale at their carrying values in the consolidated balance sheet at 30 June 2008.

(iv) Non-adjusting post-balance sheet event

On 10 July 2008 we announced the sale of our offshore operations, known as Aviva Global Services (“AGS”) to WNS. As part of this agreement, we have also entered into a master services contract with WNS, who will provide offshoring services to Aviva’s UK, Irish and Canadian businesses for the next eight years and four months. Aviva will receive total cash consideration of £115 million.

7 – Analysis of long-term business IFRS operating profit

	6 months 2008 £m	Restated 6 months 20071 £m	Full year 2007 £m
See details of the change in long-term business operating profit definition.
With-profit	202	85	178
Non-profit	226	272	545
United Kingdom	428	357	723
France	145	136	243
Ireland	28	31	73
Italy	37	38	78
Netherlands (including Belgium and Germany)	134	94	181
Poland	76	53	110
Spain	74	57	119
Other Europe	(8)	(14)	(27)
Europe	486	395	777
North America	42	58	103
Asia	(7)	3	(6)
Australia	21	21	37
Asia Pacific	14	24	31
Total	970	834	1,634

8 – Long-term business economic volatility

(a) Definitions

Operating profit for long-term business is based on expected investment returns on financial investments backing shareholder and policyholder funds over the period, with consistent allowance for the corresponding expected movements in liabilities. Operating profit includes the effect of variance in experience for non-economic items, such as mortality, persistency and expenses, and the effect of changes in non-economic assumptions. Changes due to economic items, such as market value movement and interest rate changes, which give rise to variances between actual and expected investment returns, and the impact of changes in economic assumptions on liabilities, are disclosed separately outside operating profit.

(b) Economic volatility

The investment variances and economic assumption changes excluded from the long-term business operating profit are as follows:

	Long-term business
	6 months 2008 £m	Restated 6 months 2007 £m	Full year 2007 £m
Investment variances and economic assumption changes	(636)	107	15

Economic items had a significantly negative impact on profit in the six months to 30 June 2008. This was driven primarily by increases in market risk-free rates and widening credit spreads on debt securities, partly mitigated by higher liability valuation interest rates, and by the impact of falling equity and property market values.

(c) Assumptions

The expected rate of investment return is determined using consistent assumptions between operations, having regard to local economic and market forecasts of investment return and asset classification under IFRS.

Where assets are classified as fair value through profit or loss, the Group has applied the same ‘real-world’ economic assumptions for fixed interest securities, equities and properties as are used under EEV principles. The principal assumptions underlying the calculation of the expected investment return are:

	Expected return fixed interest			Expected return equities			Expected return properties
	2008 %	2007 %		2008 %	2007 %		2008 %	2007 %
United Kingdom	4.6%	4.6%		7.6%	7.6%		6.6%	6.6%
Eurozone	4.4%	4.0%		7.4%	7.0%		6.4%	6.0%

Where fixed interest securities are classified as available for sale, the expected investment return comprises the expected interest or dividend payments and amortisation of the premium or discount at purchase.

9 – Analysis of fund management operating profit

	6 months 2008 £m	6 months 20071 £m	Full year 20071 £m
Prior periods have been restated to reflect the new management structure to include France and Canada. Norwich Union's retail investment business and the collective investment business with RBSG do not form part of Aviva Investors UK operations.
United Kingdom	28	33	70
France	16	16	33
Canada	1	1	3
Other	4	8	17
Aviva Investors	49	58	123
United Kingdom	(8)	(4)	(10)
Netherlands	10	11	23
Other Europe	3	2	4
Europe	13	13	27
Asia Pacific	9	9	15
Total	63	76	155

On 28 February, as part of the “one Aviva, twice the value” vision, we announced our plans to combine the asset management companies within Aviva to create a single, globally integrated asset manager to be known as Aviva Investors.

10 – Analysis of general insurance and health

(a) Operating result

	Operating profit				Underwriting result
	6 months 2008 £m	6 months 2007 £m	Full Year 2007 £m		6 months 2008 £m	6 months 2007 £m	Full Year 2007 £m
United Kingdom	326	284	433		37	(46)	(214)
France	30	31	70		1	-	11
Ireland	41	80	162		8	53	101
Netherlands	44	70	169		(7)	29	75
Other	22	22	41		5	6	10
Europe	137	203	442		7	88	197
North America	76	70	154		15	5	18
Asia Pacific	(1)	3	4		(1)	2	3
Total	538	560	1,033		58	49	4
Analysed by:
General insurance	543	574	1,037		84	92	47
Health	(5)	(14)	(4)		(26)	(43)	(43)
Total	538	560	1,033		58	49	4

(b) Investment return information

	Actual investment return credited to income				Longer-term investment return
	6 months 2008 £m	6 months 2007 £m	Full Year 2007 £m		6 months 2008 £m	6 months 2007 £m	Full Year 2007 £m
United Kingdom	301	302	575		289	330	647
France	27	17	42		29	31	59
Ireland	32	23	52		33	27	61
Netherlands	47	37	79		51	41	94
Other	18	10	23		17	16	31
Europe	124	87	196		130	115	245
North America	60	55	120		61	65	136
Asia Pacific	-	-	-		-	1	1
Total longer-term investment return					480	511	1,029
Total actual investment income	485	444	891
Realised gains	24	160	579
Unrealised losses	(343)	(56)	(625)
Total actual investment return	166	548	845

The total short-term adverse fluctuation in investment return of £314 million (30 June 2007: £37 million favourable; 31 December 2007: £184 million adverse) is the difference between the total actual investment return of £166 million (30 June 2007: £548 million; 31 December 2007: £845 million) and the total longer-term investment return of £480 million (30 June 2007: £511 million; 31 December 2007: £1,029 million).

Actual income and longer-term investment return both contain the amortisation of the discount/premium arising on the acquisition of fixed income securities.

The longer-term investment return is calculated separately for each principal general insurance and health business unit. In respect of equities and properties, the return is calculated by multiplying the opening market value of the investments, adjusted for sales and purchases during the period, by the longer-term rate of investment return. The longer-term rate of investment return is determined using consistent assumptions between operations, having regard to local economic and market forecasts of investment return. The allocated longer-term return for other investments is the actual income receivable for the period.

The Group has calculated the longer-term investment return for its general insurance and health business using the same start of year economic assumptions for equities and properties as those used for EEV reporting.

The total assets supporting the general insurance and health business, which contribute towards the longer-term return, were £18,379 million (30 June 2007: £18,957 million; 31 December 2007: £18,291 million). Total assets comprise debt securities £10,578 million (30 June 2007: £8,724 million; 31 December 2007: £10,757 million), equity securities £1,130 million (30 June 2007: £3,389 million; 31 December 2007: £1,195 million), properties £294 million (30 June 2007: £340 million; 31 December 2007: £360 million), cash and cash equivalents £3,354 million (30 June 2007: £3,261 million; 31 December 2007: £3,178 million) and other assets £3,023 million (30 June 2007: £3,242 million; 31 December 2007: £2,801 million).

The principal assumptions underlying the calculation of the longer-term investment return are:

	Longer-term rates of return Equities			Longer-term rates of return Properties
	2008 %	2007 %		2008 %	2007 %
United Kingdom	7.6%	7.6%		6.6%	6.6%
France	7.4%	7.0%		6.4%	6.0%
Ireland	7.4%	7.0%		6.4%	6.0%
Netherlands	7.4%	7.0%		6.4%	6.0%
Canada	7.6%	7.1%		6.6%	6.1%

(c) Analysis of operating profit - general insurance business only

	Operating profit				Longer-term investment return				Underwriting result
	6 months 2008 £m	6 months 2007 £m	Full Year 2007 £m		6 months 2008 £m	6 months 2007 £m	Full Year 2007 £m		6 months 2008 £m	6 months 2007 £m	Full Year 2007 £m
United Kingdom	324	286	433		286	327	642		38	(41)	(209)
France	25	27	54		23	25	47		2	2	7
Ireland	41	80	162		33	27	61		8	53	101
Netherlands	57	86	193		39	21	73		18	65	120
Other Europe	22	22	41		17	16	31		5	6	10
Europe	145	215	450		112	89	212		33	126	238
North America	76	70	154		61	65	136		15	5	18
Asia Pacific	(2)	3	-		-	1	-		(2)	2	-
Total	543	574	1,037		459	482	990		84	92	47

(d) Combined operating ratio analysis – general insurance business only

	Claims ratio				Expense ratio				Combined operating ratio
	6 months 2008 %	6 months 2007 %	Full Year 2007 %		6 months 2008 %	6 months 2007 %	Full Year 2007 %		6 months 2008 %	6 months 2007 %	Full Year 2007 %
United Kingdom	60.0%	64.5%	65.9%		12.8%	13.6%	13.9%		98%	102%	106%
France	70.0%	73.4%	72.7%		8.7%	8.9%	10.2%		96%	97%	99%
Ireland	71.2%	54.5%	54.2%		15.2%	12.5%	14.3%		98%	78%	80%
Netherlands	60.3%	41.8%	45.1%		14.7%	14.1%	18.8%		92%	76%	85%
Canada	64.7%	67.2%	65.9%		14.2%	13.2%	13.6%		98%	99%	98%
Total	62.4%	63.1%	63.7%		12.7%	12.9%	13.9%		97%	97%	100%

Ratios are measured in local currency. The total Group ratios are based on average exchange rates applying to the respective periods.

Definitions:

Claims ratio	–	Incurred claims expressed as a percentage of net earned premiums.
Expense ratio	–	Written expenses excluding commissions expressed as a percentage of net written premiums.
Commission ratio	–	Written commissions expressed as a percentage of net written premiums.
Combined operating ratio	–	Aggregate of claims ratio, expense ratio and commission ratio.

(e) Combined operating profit ratio analysis – class of business analysis

(i) United Kingdom (excluding Group reinsurance)

	Net written premiums				Underwriting result				Combined operating ratio
	6 months 2008 £m	6 months 2007 £m	Full Year 2007 £m		6 months 2008 £m	6 months 2007 £m	Full Year 2007 £m		6 months 2008 %	6 months 2007 %	Full Year 2007 %
Personal
Motor	693	706	1,431		(18)	(12)	(25)		102%	103%	102%
Homeowner	585	625	1,223		(27)	(177)	(296)		105%	126%	124%
Other	301	355	797		(8)	18	10		107%	101%	100%
	1,579	1,686	3,451		(53)	(171)	(311)		103%	111%	110%
Commercial
Motor	330	338	636		22	43	61		92%	85%	91%
Property	418	403	807		(9)	2	(175)		99%	100%	124%
Other	262	272	546		72	79	192		74%	70%	68%
	1,010	1,013	1,989		85	124	78		90%	86%	98%
Total	2,589	2,699	5,440		32	(47)	(233)		98%	102%	106%

During the six month period to 30 June 2008, annualised rating increases were as follows: personal motor 5%; homeowner 10% (including indexation); commercial motor 3%; commercial property 2%; commercial liability 2%.

(ii) France

	Net written premiums				Underwriting result				Combined operating ratio
	6 months 2008 £m	6 months 2007 £m	Full Year 2007 £m		6 months 2008 £m	6 months 2007 £m	Full Year 2007 £m		6 months 2008 %	6 months 2007 %	Full Year 2007 %
Motor	164	147	254		(3)	(2)	(2)		100%	99%	101%
Property and other	222	189	320		5	4	9		93%	96%	97%
Total	386	336	574		2	2	7		96%	97%	99%

(iii) Netherlands

	Net written premiums				Underwriting result				Combined operating ratio
	6 months 2008 £m	6 months 2007 £m	Full Year 2007 £m		6 months 2008 £m	6 months 2007 £m	Full Year 2007 £m		6 months 2008 %	6 months 2007 %	Full Year 2007 %
Motor	150	131	267		(7)	19	42		105%	83%	84%
Property	174	138	249		(5)	7	19		98%	89%	93%
Liability	50	34	61		(2)	3	13		97%	82%	79%
Other	188	142	211		32	36	46		73%	52%	77%
Total	562	445	788		18	65	120		92%	76%	85%

(iv) Canada

	Net written premiums				Underwriting result				Combined operating ratio
	6 months 2008 £m	6 months 2007 £m	Full Year 2007 £m		6 months 2008 £m	6 months 2007 £m	Full Year 2007 £m		6 months 2008 %	6 months 2007 %	Full Year 2007 %
Motor	450	376	795		37	1	7		91%	100%	99%
Property	229	204	450		(25)	3	10		112%	98%	96%
Liability	79	73	143		(2)	(2)	(5)		101%	97%	103%
Other	13	12	24		5	3	6		58%	68%	68%
Total	771	665	1,412		15	5	18		98%	99%	98%

11 – Analysis of other operations and regional costs

	6 months 2008 £m	Restated 6 months 2007 £m	Full Year 2007 £m
Europe	(12)	-	(11)
North America	(5)	-	(2)
Asia Pacific	(9)	-	(3)
Regional costs	(26)	-	(16)
United Kingdom	(33)	(23)	(8)
Europe	(10)	(22)	(38)
North America	1	-	(2)
Asia Pacific	2	(4)	(10)
Other operations	(40)	(49)	(58)
Total	(66)	(49)	(74)

The 30 June 2007 results have been restated to remove the covered business element of the NULS result (previously included in the UK line) to the life segment.

12 – Corporate Centre

	6 months 2008 £m	6 months 2007 £m	Full Year 2007 £m
Project spend	(20)	(13)	(26)
Share awards and other incentive schemes	(8)	(12)	(17)
Central spend	(43)	(55)	(114)
Total	(71)	(80)	(157)

13 – Group debt costs and other interest

	6 months 2008 £m	6 months 2007 £m	Full Year 2007 £m
External
Subordinated debt	(94)	(88)	(179)
Other	(34)	(41)	(80)
Internal	(95)	(93)	(179)
Net finance income on pension schemes	22	32	75
Total	(201)	(190)	(363)

14 – Tax

(a) Tax (credited)/charged to the income statement

	6 months 2008 £m	6 months 2007 £m	Full Year 2007 £m
Current tax:
For the period	286	329	888
Prior year adjustments	(67)	(77)	(94)
Total current tax	219	252	794
Deferred tax:
Origination and reversal of temporary differences	(827)	145	(348)
Changes in tax rates or tax laws	-	(99)	(88)
Write down of deferred tax assets	-	31	(6)
Total deferred tax	(827)	77	(442)
Total tax (credited)/charged to income statement	(608)	329	352
Analysed between:
Tax (credit)/charge attributable to policyholders' returns	(672)	21	15
Tax charge on IFRS operating profit before tax attributable to shareholders' profits from continuing operations	354	329	607
Tax credit on profit on other activities	(290)	(21)	(270)
	(608)	329	352

The Group, as a proxy for policyholders in the UK, Ireland and Australia, is required to record taxes on investment income and gains each year. Accordingly, the tax benefit or expense attributable to UK, Irish and Australian life insurance policyholder returns is included in the tax charge.

(b) Tax (credited)/charged to equity

(i) The total tax (credit)/charge comprises:

	6 months 2008 £m	6 months 2007 £m	Full Year 2007 £m
Current tax credit	-	(1)	(19)
Deferred tax (credit)/charge	(101)	231	198
Total tax (credited)/charged to equity	(101)	230	179

(ii) The tax expense attributable to policyholders’ returns included in the charge above is £nil (six months to 30 June 2007: £1 million charge; full year 2007: £nil).

(c) Tax reconciliation

The tax on the Group's profit before tax differs from the theoretical amount that would arise using the tax rate of the home country of the Company as follows:

	6 months 2008 £m	6 months 2007 £m	Full Year 2007 £m
(Loss)/Profit before tax	(689)	1,219	1,857
Tax calculated at standard UK corporation tax rate of 28.5% (2007: 30%)	(196)	366	557
Different basis of tax for UK life insurance	(465)	-	5
Adjustment to tax charge in respect of prior years	(55)	(3)	(49)
Non-assessable dividends	(19)	(61)	(124)
Non-taxable profit on sale of subsidiaries and associates	(3)	(2)	(18)
Disallowable expenses	26	17	7
Different local basis of tax on overseas profits	95	53	56
Reduction in future UK tax rate (net of movement in unallocated divisible surplus)	-	(69)	(64)
Deferred tax valuation difference	17	28	1
Other	(8)	(6)	(19)
Tax (credited)/charged to the income statement	(608)	329	352

15 – Earnings per share

(a) Basic earnings per share

(i) The profit attributable to ordinary shareholders is:

	6 months 2008 £m	6 months 2007 £m	Full Year 2007 £m
(Loss)/profit for the period	(81)	890	1,505
Amount attributable to minority interests	(13)	(83)	(178)
Cumulative preference dividends for the year	(9)	(9)	(17)
Coupon payments in respect of direct capital instruments (net of tax)	-	-	(37)
(Loss)/profit attributable to ordinary shareholders	(103)	798	1,273

(ii) Basic earnings per share is calculated as follows:

	6 months 2008				Restated 6 months 2007				Full year 2007
	Before tax £m	Net of tax, minorities and preference dividends and DCI appropriation £m	Per Share p		Before tax £m	Net of tax, minorities and preference dividends and DCI appropriation £m	Per Share p		Before tax £m	Net of tax, minorities and preference dividends and DCI appropriation £m	Per Share p
Operating profit attributable to ordinary shareholders	1,233	792	30.1		1,151	723	28.1		2,228	1,376	53.2
Adjusted for the following:
– Investment return variances and economic assumption changes on long-term business	(636)	(490)	(18.6)		107	89	3.5		15	79	3.1
– Impairment of goodwill	(42)	(38)	(1.4)		(3)	(3)	(0.1)		(10)	(10)	(0.4)
– Amortisation and impairment of intangibles	(51)	(36)	(1.4)		(49)	(35)	(1.4)		(103)	(72)	(2.8)
– Short-term fluctuation in return on investments backing general insurance and health business	(314)	(171)	(6.5)		37	53	2.1		(184)	(38)	(1.5)
– Profit on the disposal of subsidiaries and associates	9	9	0.3		(5)	(2)	(0.1)		49	52	2.0
– Integration and restructuring costs	(132)	(105)	(4.0)		(40)	(27)	(1.1)		(153)	(114)	(4.4)
– Exceptional items	(84)	(64)	(2.4)		-	-	-		-	-	-
(Loss)/profit attributable to ordinary shareholders	(17)	(103)	(3.9)		1,198	798	31.0		1,842	1,273	49.2

Earnings per share has been calculated based on the operating profit before impairment of goodwill and other non-operating items, after tax, attributable to ordinary shareholders, as well as on the profit attributable to ordinary shareholders. The directors believe the former earnings per share figures provide a better indication of operating performance.

The calculation of basic earnings per share uses a weighted average of 2,632 million (six months 30 June 2007: 2,571 million; full year 2007: 2,588 million) ordinary shares in issue, after deducting shares owned by the employee share trusts. The actual number of shares in issue at 30 June 2008 was 2,658 million (30 June 2007: 2,595 million; 31 December 2007: 2,622 million).

(b) Diluted earnings per share

(i) Diluted earnings per share is calculated as follows:

	6 months 2008				6 months 2007				Full year 2007
	Total £m	Weighted average number of shares m	Per Share p		Total £m	Weighted average number of shares m	Per Share p		Total £m	Weighted average number of shares m	Per Share p
(Loss)/profit attributable to ordinary shareholders	(103)	2,632	(3.9)		798	2,571	31.0		1,273	2,588	49.2
Dilutive effect of share awards and options	-	21	-		-	27	(0.3)		-	24	(0.5)
Diluted earnings per share	(103)	2,653	(3.9)		798	2,598	30.7		1,273	2,612	48.7

(ii) Diluted earnings per share on an operating profit attributable to ordinary shareholders is calculated as follows:

	6 months 2008				Restated 6 months 2007				Full year 2007
	Total £m	Weighted average number of shares m	Per Share p		Total £m	Weighted average number of shares m	Per Share p		Total £m	Weighted average number of shares m	Per Share p
Operating profit attributable to ordinary shareholders	792	2,632	30.1		723	2,571	28.1		1,376	2,588	53.2
Dilutive effect of share awards and options	-	21	(0.2)		-	27	(0.3)		-	24	(0.5)
Diluted earnings per share	792	2,653	29.9		723	2,598	27.8		1,376	2,612	52.7

16 – Dividends and appropriations

	6 months 2008 £m	6 months 2007 £m	Full Year 2007 £m
Ordinary dividends declared and charged to equity in the year
Final 2006 – 19.18 pence per share, paid on 18 May 2007	-	492	492
Interim 2007 – 11.90 pence per share, paid on 16 November 2007	-	-	309
Final 2007 – 21.10 pence per share, paid on 16 May 2008	554	-	-
	554	492	801
Preference dividends declared and charged to equity in the year	9	9	17
Coupon payments on direct capital instrument – gross of tax	-	-	53
	563	501	871

Subsequent to 30 June 2008, the directors proposed an interim dividend for 2008 of 13.09 pence per ordinary share (six months 2007: 11.90 pence), amounting to £347 million (six months 2007: £309 million) in total. The dividend will be paid on 17 November 2008 and will be accounted for as an appropriation of retained earnings in the year ending 31 December 2008.

Interest on the direct capital instrument issued in November 2004 is treated as an appropriation of retained profits and, accordingly, it is accounted for when paid. Tax relief will be obtained at a rate of 30%.

Irish shareholders who are due to be paid a dividend denominated in euros will receive a payment at the exchange rate prevailing on 29 July 2008.