Long-term savings

We are seeing some signs of investor confidence returning, particularly in unit-linked sales as markets have stabilised. However the level of uncertainty surrounding worldwide economic conditions, particularly in respect of savings growth in the UK, continues to dampen an upturn in demand.

Our operations in continental Europe continue to deliver strong results and contributed 54% of our group worldwide life and pensions new business sales in the first half of the year. Sales in the UK showed a small increase.

Worldwide life and pensions new business sales improved by 3% to £7.1 billion (2003: £6.9 billion) with particularly good growth in France and in the Netherlands. Overall margins were 26.5%
(full year 2003: 26.1%). Retail investment new business sales improved strongly to £775 million (2003: £520 million), reflecting the gradual return of investors to equity-backed products.

We continue to focus on increasing margins through changes in our business mix and by launching new higher-margin products, including unit-linked savings plans, to meet demand created by improving investor sentiment.

Our established bancassurance partnerships in Europe and more recent agreements in Asia are an important distribution channel. They provide us with significant opportunities for growth in the future as new markets open up, governments introduce reforms to pension and savings markets, and there is an increasing requirement for individuals to make financial provision for themselves in retirement.

UK
Norwich Union Life reported a solid set of results in a market that remained broadly flat. We improved margins to 23.0% (full year 2003: 22.6%) following pricing actions, focus on cost control and a richer mix of higher margin business.

Operating profit was £356 million (2003: £339 million). Total new business volumes were 6% higher at £3.5 billion (2003: £3.3 billion).

New business life and pension sales were £3.0 billion (2003: £3.0 billion), including higher bond sales of £964 million (2003: £862 million). Retail investment new business sales increased sharply by 41% to £451 million (2003: £319 million). This growth reflects investor confidence slowly returning to the UK market.

Pension sales were £1.3 billion (2003: £1.3 billion), with lower group pensions business offset by higher individual pension sales. Sales of annuities were £568 million (2003: £641 million) reflecting increased price competition.

Ahead of the depolarisation changes that come into effect at the end of the year, we have reached agreements with a number of distributors including Bankhall, Sesame and Portman.

We have made good progress in our efficiency and offshoring initiatives. We have already announced that approximately 700 jobs will move to India by the end of 2004. In addition, our UK life business services division is undergoing a restructure and is outsourcing to various locations including the UK, continental Europe, the US and India. This will result in approximately 700 job losses and a reduction of 250 contract worker positions by the end of 2005.

We expect the costs associated with these job losses to be incurred over the remainder of 2004 and, combined with our other ongoing cost initiatives, to be in the order of approximately
£30 million. The first full year of savings as a result of these actions will arise from 2006 onwards. We have ongoing initiatives to identify and drive further efficiency gains.

We recognise that there are areas in which customer service levels can be improved and a number of initiatives are underway in these areas. We have set challenging service performance targets, and we expect to see steady improvements.

The period of regulatory uncertainty governing the way in which we conduct our business is coming to an end. We broadly welcomed the government's announcement in June on stakeholder product pricing and the clarity that it provides for the marketplace in the future.

We are well-positioned to benefit from an upturn in demand and, as the UK's largest provider, we are a natural choice for investors as they return to the market. A focus on improving margins and cost efficiency initiatives has resulted in a solid half-year performance and we expect to see continuing benefits from these actions.

In July we sold our Your Move estate agency and e.surv surveying business as these operations were no longer core to our strategy.

France
Aviva France reported a good first half operating result, higher at £114 million (2003: £90 million).

New business sales outperformed the market, improving 22% to £1,210 million (2003: £989 million), with a significant increase in sales both of unit-linked and fixed interest products. Margins were higher at 30.3% (full year 2003: 29.0%) following the increase in volumes and in customers' appetite for unit-linked products.

Following the recent government pension reforms, we launched our Plan d'Epargne Retraite (PERP) product during the second quarter. Sales volumes remain low but are growing encouragingly. The reaffirmation of our distribution agreement with the savings association AFER has strengthened our relationship and we continue to benefit from sales through this channel. Our distribution reach will be enhanced by our new bancassurance joint venture with Crédit du Nord which commences in the fourth quarter of 2004.

Ireland
Hibernian, the third-largest life and pensions provider in Ireland, reported an increase in new business sales to £120 million (2003: £116 million).

We achieved good sales growth in term assurance and pensions. Sales of savings products reflected the market conditions which remain difficult owing to continuing investor caution.

Operating profit was lower at £18 million (2003: £31 million) as a result of an increase in the rate of lapses on certain product classes.

Italy
Operating profit in Italy was £34 million (2003: £33 million).
Total new business sales were lower at £714 million (2003: £841 million), a reflection of an overall contraction in the market and the higher level of one-off direct business sales in the first half of 2003.

Margins improved to 23.5% (full year 2003: 23.2%) and sales through our bancassurance partnerships were £624 million (2003: £654 million).

The Italian life and pensions market offers significant long-term growth potential. We expect the finalisation of the government's pension reforms shortly and are well placed for the significant sales opportunities expected from 2006 as the retirement savings market develops.

We have increased our distribution network through an extension of our agreement with Banche Popolari Unite (BPU) to include an additional 380 branches which will come on stream in early 2005.

Netherlands
Our Dutch business, Delta Lloyd, delivered an increase of 24% in total new business life and pension sales to £607 million
(2003: £490 million), with improved sales of bonds, savings products and large group pension contracts. Sales through our agreement with ABN AMRO also increased to £35 million (2003: £21 million) on an annual premium equivalent (APE)* basis.

Operating profit increased to £129 million (2003: £69 million) and new business margins were 31.9% (full year 2003: 27.7%) which includes ABN AMRO, with a new business margin of 31.4%. The increase is also attributable to higher investment returns and to improvements in the profitability of existing business, including management actions on costs.

Spain
In Spain we grew our market share in the first quarter of 2004. We achieved total new business sales which were 9% higher at
£917 million (2003: £839 million), including a large one-off group pension scheme. Margins remained strong at 51.0% (full year 2003: 54.4%) reflecting the high proportion of protection products in our sales mix. Operating profit was higher at £78 million (2003: £71 million).

We continue to develop our product range in all our bancassurance partnerships. Our distribution capability means we are well positioned to benefit from the significant long-term growth potential in the Spanish life and pensions market, and we expect to see steady underlying growth in 2004.

Other Europe
Total new business sales in our other European operations improved to £396 million (2003: £219 million). Operating profit was £40 million (2003: £42 million).

In Poland, new business life and pensions sales increased to
£48 million (2003: £33 million). There was also strong demand for mutual funds, with new business sales higher at £49 million (2003: £31 million). In Turkey, sales of individual pensions were encouraging. The launch of a group pension product is planned for later in 2004 offering further opportunities for growth.

New business sales in Germany were higher at £117 million (2003: £65 million) following a change in income tax laws and the launch of a new limited offer bond.

International
Total new business sales fell to £340 million (2003: £562 million) owing to a fall in sales in the US. Operating profit was £31 million (2003: £30 million).

Total new business sales in Australia were higher at £171 million (2003: £130 million) as investors were encouraged by signs of recovery in the markets.

Sales in our US business were lower at £135 million (2003: £374 million) in a low interest rate environment. We are, however, confident of our long-term growth prospects in this market.

Sales through our bancassurance partnerships in Singapore and Hong Kong continue to grow, with further new products planned for launch in 2004.

Our businesses in India and China are now established and we have seen encouraging growth in sales and market presence, albeit from a low starting point.

We rank in the top 10 in the Indian long-term savings market where the government has recently agreed to increase the limit of foreign investment in life companies from 26% to 49%. We intend to increase our share in the Indian joint venture company when the new limit is approved.

In China we received formal approval in May to establish a new operation in Chengdu, the provincial capital of Sichuan. New products are being developed for launch both in Chengdu and Beijing, to add to our existing presence in Guangzhou.