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| “The improvement in operating performance reflects the benefits of our business model, combining substantial life and general insurance businesses, and the diversity of our business both geographically and by distribution channel” |
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| “Our established bancassurance partnerships in Europe and more recent agreements in Asia provide us with significant opportunities for growth” |
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Richard Harvey
Group Chief Executive |
Overview
Our results for the first half of 2004 build on the excellent performance
in 2003, and show a significant improvement compared with the
same period last year.
This success reflects the benefits of our business model, which combines substantial life and general insurance operations, and the diversity of our business both geographically and by distribution channel. Our strategy remains to write profitable business ahead of focusing on volume increases. We are also seeing improvements from the actions we have taken to improve cost efficiency.
Our long-term savings business
reported an increase in operating result. We achieved an excellent result in our general insurance businesses and beat our combined operating ratio (COR)* target of 100% across the group.
The result of our fund management operations also improved.
Group results
Higher pre-tax operating profit on an achieved profits basis of £1,130 million (2003: £828 million) reflects our focus on profitability in our long-term savings business, the sustainability of our general insurance performance, and the benefits of our actions to reduce our cost base. Our fund management business is also starting to benefit from markets that have remained steady.
We delivered a higher annualised return on capital employed in the first half of the year of 13.4% (full year 2003: 12.7%) as a result of our strong operational performance.
Our worldwide long-term savings businesses reported total new business sales of £7.9 billion (2003: £7.5 billion) with some return in confidence to unit-linked markets. Life achieved operating profit improved to £800 million (2003: £705 million) reflecting greater margins on our new business sales. Our bancassurance partnerships delivered total sales of £1,902 million
(2003: £1,945 million).
Our general insurance operations achieved an excellent operating result of £613 million (2003: £387 million), demonstrating the continuing sustainability of these results. We beat our COR target of 100% across the group with an overall COR of 97% (2003: 101%). Our focus on personal lines and small commercial business means we are less exposed to the significant volatility of larger commercial risks.
On a modified statutory basis, group operating profit before tax was £878 million (2003: £638 million). The overall group profit before tax was £414 million (2003: £742 million), owing to a loss from short-term fluctuations in investment returns.
Group capital and financial strength
Equity shareholders’ funds† at 30 June 2004 were £10.9 billion
(31 December 2003: £11.0 billion), a reflection of our strong operational performance offset by exchange losses from the weaker euro and the flat equity market performance. This represented a net asset value per share of 496 pence per share (31 December 2003: 502 pence per share) after adding back the equalisation provision of £375 million (31 December 2003: £364 million).
The group is subject to a number of regulatory capital tests and employs a number of tests to allocate capital and manage risk.
The group had estimated excess regulatory capital, as measured according to the EU Financial Groups Directive, of approximately £2.2 billion (31 December 2003: £2.4 billion). This measure represents the excess of the aggregate value of regulatory capital employed in our business over the aggregate minimum solvency requirements imposed by local regulators.
The solvency position of our main trading operations remains robust, with the average free asset ratio of our UK life business at 14.3% (31 December 2003: 16.2%) and orphan estate of £4.2 billion (31 December 2003: £4.3 billion), based on a realistic assumption of liabilities.
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