“We took a number of tough but clear-sighted decisions to protect and grow our business during 2003”
An improved return on capital employed† of 12.7% (2002: 9.7%) reflects the continued strength of our business.
“We achieved the operational targets we set ourselves at the start of the year”
Graph 'Operating profit before tax'
Overview
The Aviva group delivered a strong performance against a challenging commercial backdrop in 2003. We committed ourselves to applying our strategy clearly and consistently in the face of slow worldwide economic growth, stock market volatility and increasing pace of regulatory change.
In particular, we achieved the operational targets we set ourselves at the start of the year. We improved productivity, to keep our costs in line with revenues. We continued to apply rigorous financial management to maximise returns from our valuable capital resources. We generated cashflow from our general insurance business and from our focus on capital management disciplines and costs. We committed ourselves to improving customer service by sharing best practice groupwide.
Most importantly, our combination of strong and diversified long-term savings operations and cash-generative general insurance business delivered consistent and reliable financial results.
Group results
Our pre-tax operating profit* of £1,907 million (2002: £1,720 million) and an improved return on capital employed† of 12.7% (2002: 9.7%) reflects the continued strength of both our long-term savings and general insurance businesses.
Given the uncertain financial climate, we were pleased that our worldwide long - term savings new business sales** were £14.4 billion (2002: £14.6 billion). Sales in continental Europe improved by 5% to £6.9 billion (2002: £6.0 billion). We continue to benefit from our bancassurance distribution agreements as they develop across Europe and South East Asia, with worldwide total sales of £3.5 billion (2002: £3.0 billion). We are seeing signs that investment market conditions are improving and customer confidence is recovering in equity markets. Life achieved operating profit was £1,555 million (2002: £1,524 million).
We made an excellent operating profit† of £911 million (2002: £881 million) from our general insurance business, which reaped the benefits from strict underwriting and pricing disciplines for the third consecutive year, in addition to favourable weather conditions. We achieved a combined operating ratio (COR)† of 100%.
This operational performance, combined with improvements in global investment markets and a strengthened euro, saw shareholders’ funds# increase to £11.2 billion (2002: £9.7 billion). Net asset value per share was up 12% to 502 pence (2002: 433 pence per share).
On a modified statutory basis, group operating profit before tax*** was £1,490 million (2002: £1,218 million). On an after tax basis, this operating profit covers the proposed full year ordinary dividend of £545 million 1.82 times, in line with our dividend policy. The group delivered an overall profit before tax of £1,390 million (2002: £282 million loss).
Cost management
We continue to improve our operational efficiency by reducing costs and capitalising on economies of scale. We endeavour to align costs to revenues across our businesses. We have continued to apply rigorous financial targets for new developments and internal projects.
The net pre-tax benefit to the profit and loss account for the year was £65 million, which is in line with our indication at the half year.
Senior management responsibilities
A realignment of responsibilities among the executive directors took effect fro m July 2003 to support our strategy and structure more effectively.
In addition to my duties as group chief executive, I became non-executive chairman of Norwich Union Life in the UK, with Gary Withers continuing as chief executive. Our continental European and international long-term savings businesses now report to Philip Scott. Patrick Snowball, chief executive of Norwich Union Insurance in the UK, also took on responsibility for our general insurance businesses in Canada, Ireland and Asia.
Philip Scott will become non-executive chairman of Morley Investment Holdings, in addition to his existing responsibilities, after Philip Twyman’s retirement on 31 March 2004. We look forward to welcoming Andrew Moss as group finance director, following the departure of Mike Biggs.
Association of British Insurers
As a leading insurance and investment provider, Aviva plays an active role in advising and consulting on government policy and regulatory reforms as they affect our industry in countries around the world.
I was delighted to be appointed chairman of the Association of British Insurers in July 2003. During my time in office I intend to ensure that the ABI continues to provide effective and influential leadership for the insurance industry in the UK.
We have a big task to explain the full value of the industry’s contribution to the social and economic health of the country. We need to communicate more effectively with governments, regulators and consumers on issues that concern all of us. There is also more we can do to build trust with our customers through greater openness and better service.
Outlook
Investment markets are showing signs of recovery and there is evidence that investors are regaining confidence. The group’s longer-term prospects remain excellent.
Having invested around £2 billion in strategic long-term businesses and savings partnerships since 2000, we are beginning to gain rewards in terms of sales volumes, profitability and market share. Many of our bancassurance partnerships worldwide are still at a relatively early stage of development and we expect further growth as these relationships mature. Furthermore, as one of the leading providers of life and pension products to Europe, Aviva’s potential to grow remains strong, particularly given Europe’s ageing populations and widespread pension reform. We are well placed to capitalise on this growing demand for private provision as the European Union expands.
Our powerful presence in our chosen markets is aided by the Aviva brand, which has been successfully launched in more than 20 countries worldwide. Our long-term savings business is focused on profitable growth, supported by well-managed general insurance operations where our investment in improved efficiency, claims handling and distribution is generating consistent and sustainable earnings.
Our employees continue to adapt, as we face more challenging competition and market forces. I thank them for their willingness and capability to embrace change in the pursuit of our cost effectiveness and customer service ambitions.
We took a number of tough but clear-sighted decisions to protect and grow our business during 2003. We will continue with clarity of purpose and action to develop our distribution channels, improve standards of customer service, increase efficiency and maintain capital disciplines. We remain financially strong and we believe we are the best-positioned life company in Europe to benefit as consumer confidence returns.
*   From continuing operations, including life achieved operating profit before amortisation of goodwill and exceptional items.
†   From continuing operations.
**   From continuing operations, including share of associates’ premiums.
***   From continuing operations, before amortisation of goodwill, amortisation of acquired additional value of in-force long-term business and exceptional items.
#   On an achieved profit basis.
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Group Chief Executive Richard Harvey
Title: Chief Executive's review