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Group Performance 6th August 2009

Half year 2009 key financial highlights

IFRS MCEV
6 months 2009
£m
Restated 6 months
2008
£m
Growth
%
6 months 2009
£m
Restated 6 months
2008
£m
Growth
%
IFRS long-term business profit/Life MCEV operating return 940 958 (2)% 1,607 1,280 26%
General insurance and health 545 528 3% 545 528 3%
Fund management 35 75 (53)% (4) 30 (113)%
Other:
Other operations and regional costs (107) (66) (62)% (99) (57) (74)%
Corporate centre (46) (71) 35% (46) (71) 35%
Group debt and other interest costs (318) (201) (58)% (318) (201) (58)%
Operating profit before tax 1,049 1,223 (14%) 1,685 1,509 12%
Profit/(loss) after tax 747 (84) 1,084 (2,361)
Total dividend per share 9.0p 13.09p n/a n/a
Net asset value per share 349p 437p 416p 660p
Diluted earnings per share 24.8p (4.0)p 38.9p (91.6)p
Equity shareholders' funds £9,549m £11,625m £11,399m £17,541m
Return on equity shareholders' funds     16.5% 11.0%¹

1. As at 31 December 2008

IFRS profit after tax of £747 million
  • Strong improvement in profit after tax benefiting from resilient operating result and improved market conditions.
  • Change in longer-term investment return (LTIR) rate basis contributed £129 million to operating profit.
  • Diluted earnings per share on an IFRS basis increased to 24.8 pence.
IFRS long-term business operating profit down 2% to £940 million
  • Result impacted by the prevailing economic climate with lower expected returns, resulting from decreased asset values following falls in financial markets and lower interest rates.
  • UK Life result includes impact of reduced with-profit special distribution bonus of £86 million (H1 2008: £124 million).
  • Asia Pacific benefited from a £58 million one-off release from reserves following an actuarial review of risk margins.
General insurance and health operating profit up 3% to £545 million
  • General insurance and health operating profit increased by 3% (H1 2008: £528 million).
  • Group underwriting result of £118 million, a strong increase on prior period (H1 2008: £52 million).
  • Reserve releases of £190 million (H1 2008: £230 million), net of reinsurance, from previous accident year and prior.
  • Longer-term investment return down 9% to £436 million driven by lower asset values and lower interest rates when compared to the prior period.
  • Net written premiums down 15% to £4,947 million (down 4% adjusted for the sale of Delta Lloyd Healthcare), with reductions in the UK partially offset by increases in other regions.
  • COR of 97% in line with H1 2008 and consistent with overall 98% 'meet or beat' target, with improvements in expense and distribution ratios offset by increase in claims costs.
Fund management down to £35 million on an IFRS basis
  • Operating profit decrease to £35 million reflecting decline in management fee income.
  • Reduction due to significant falls across all major equity markets during the second half of 2008, together with the continued fall in real estate capital values, leading to a reduction in average funds under management for the period compared to the first half of 2008.
  • Net new business flows of £3 billion, with £2 billion of this from third party clients.
Underlying costs down by 9%
  • Underlying cost base, excluding foreign exchange and restructuring costs, reduced by 9% over the last 12 months and ahead of our plan to deliver £500 million of cost savings by 2010.
Net asset value of 349 pence per share on an IFRS basis
  • Reduction in NAV to 349 pence for H1 2009 (FY 2008: 416 pence; H1 2008: 437 pence) impacted by exchange movements of £1,476 million and pension schemes deficit increase of £1,380 million, primarily driven by changes in discount rates and increases in long term inflation assumptions.
New business sales
  • Worldwide long-term new business sales, including investment products of £19,421 million 6% down compared with H1 2008 (down 16% in local currency).
  • Life and pension sales down 4% to £17,473 million (down 15% in local currency) with higher sales in North America more than offset by reductions across all regions.
  • Bancassurance remains a significant contributor, accounting for almost a third of our global life and pensions sales. Sales through bancassurance channels were £5.4 billion for H1 2009.
  • Overall new business margin of 2.1%, in line with FY08 and a 0.2% increase on H1 2008.
  • IRR on life and pension new business for the group was 9.5% (H1 2008: 12.9%)
MCEV operating profit up 12% to £1,685 million
  • Life MCEV operating earnings up by 26% to £1,607 million.
  • Unfavourable movement in experience variance is driven predominately by adverse persistency experience in a number of businesses.
  • Change in LTIR rate basis contributed £350 million to operating profit.
Net asset value of 416 pence per share on an MCEV basis
  • Net asset value impacted by increase in pension schemes deficit of £1,380 million and unfavourable exchange movements of £1,746 million.
  • Impact of marking own debt to market would add 67 pence to MCEV net asset value.
Increase in IGD solvency to £3.2 billion
  • Strong growth reflects a combination of operating and market performance as well as the benefit of capital management initiatives.
  • Initiatives in the period include the issue of £0.2 billion of hybrid capital, issuance of hybrid debt in the Netherlands of £0.4 billion and a £0.1 billion benefit from the disposal of the Dutch healthcare business.
  • 40% fall in equities would reduce IGD surplus by £0.3 billion; 40% rise would improve IGD surplus by £0.7 billion.
Liquidity
  • Strong liquidity position with direct access to £1.1 billion of liquid assets.
  • £2.1 billion of undrawn committed credit facilities provided by a range of leading international banks.
Interim dividend of 9 pence
  • Interim dividend for 2009 of 9 pence, a reduction of 31% from 2008.
Group's rating from Standard and Poors is AA- ("very strong")
  • Group's rating from Standard and Poors is AA- ("very strong") with a Negative outlook, and A ("excellent") from A M Best with a Stable outlook.
  • Moody's group rating at Aa3 ("excellent") reaffirmed in May 2009, with a Negative outlook in line with the UK sector.
  • Ratings continue to reflect our strong competitive position, positive strategic management, strong and diversified underlying earnings profile, and robust liquidity.
Sale announced of Australian business for £452 million
  • Sale of Australian life business for £452 million expected in Q3 2009, a return of 16 times 2008 IFRS earnings. This transaction is expected to contribute around £0.4 billion to IGD surplus on completion.
US listing
  • Continued to make good progress on our global finance programme, which will bring with it Sarbanes-Oxley compliance. This would enable us to consider a listing of our shares in the US if we choose to do so. Over 20% of our shareholders are in the US.
Asset quality
  • Quality of Aviva's asset base continues to be strong.
  • No material deterioration since end 2008 in either credit quality or the proportion of assets which are valued either based on quoted prices in an active market or using models with significant observable market parameters.
  • 94.8% of total debt securities are investment grade, with 1.6% below investment grade and 3.6% not rated.
  • Total corporate debt defaults in H1 2009 of only £15 million and impairments of approximately £50 million (FY 2008: £140 million and £260 million).
  • UK commercial mortgage interest cover constant at 1.3 times.
  • No defaults recorded on bonds and commercial mortgages backing the UK annuity book.
  • Very limited exposure to RMBS (Sub prime, Alt A), ABS, wrapped credit, CDOs and CLOs; these investments represent less than 1.0% of total balance sheet assets.

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