Basis of preparation

This business review has been prepared in accordance with the recommendations of the European Union (EU) Modernisation Directive and is in line with current best practice. It is addressed to, and written for, the members of Aviva plc with the aim of providing a fair review of our business development, performance and position at the current time. In providing this review, we aim to present a view that is both balanced and comprehensive and that is consistent with the size and complexity of our business. The review is written in the context of the risks and uncertainties facing our business. We anticipate that the format and content of the review will evolve over time, along with developments in our business and the external environment.

Key performance indicators

The EU Modernisation Directive requires that business reviews contain financial and, where applicable, non-financial key performance indicators. We consider that our key financial performance indicators (KPIs) are those that communicate the financial performance and strength of the group as a whole to the members. These KPIs comprise:

• Return on capital employed
• Proposed ordinary dividend
• Dividend cover
• Operating profit (International Financial Reporting Standards basis)
• Operating profit (European Embedded Value basis).

Management also use a variety of Other Performance Indicators (OPIs) in both running and assessing the performance of individual business segments, rather than the group as a whole. OPIs include measures such as present value of new business premiums, new business margins, combined operating ratio and underwriting profit.

From 2006, non-financial performance indicators covering customer service and employee satisfaction will also be disclosed. We see both as being important to the ongoing success of our business. Additionally, performance against customer and employee measures will be incorporated into executive and senior management remuneration.

Forward-looking statements

This business review contains “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 that are beyond Aviva’s control. For example, certain insurance risk disclosures are dependent on our choices about assumptions and models, and by their nature are only estimates. As a result, actual future gains and losses could differ materially from those that have been estimated. Other factors that could cause actual results to differ materially from those estimated by the forward-looking statements include, but are not limited to:

• UK domestic and global economic business conditions
• Monetary and interest rate policies
• Foreign currency exchange rates
• Equity and property prices
• The impact of competition, inflation and deflation
• Changes to regulations, taxes or UK and foreign legislation
• The timing and impact of acquisitions or business combinations in relevant industries
• Natural and other disasters
• Changes to consumer saving or spending habits
• Aviva’s success in managing the above factors.

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 review or any other forward-looking statements we make.

Accounting basis of preparation

In addition to presenting our results and financial position on an International Financial Reporting Standards basis, we also use European Embedded Value (EEV) as an alternative performance measure. Details of the accounting basis of preparation are set out in the ‘financial reporting’ section of this business review.