Basis of preparation

The results for the six months to 30 June 2006 have been prepared on the basis of the accounting policies set out in Aviva plc’s 2005 Annual Report and Accounts. The results for the six months to 30 June 2006 and 2005 are unaudited but have been reviewed by the external auditor, Ernst & Young LLP. The interim financial statements do not constitute financial statements as defined in section 240 of the Companies Act 1985. The results for the full year 2005 have been taken from the group’s 2005 Annual Report and Accounts. The external auditor has reported on the 2005 financial statements and the report was unqualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. The group’s 2005 Report and Accounts have been filed with the Registrar of Companies.

In accordance with Phase I of International Financial Reporting Standard 4, Insurance Contracts (IFRS 4), the group has continued to apply existing accounting practices for insurance and participating investment contracts, modified as appropriate to comply with the IFRS framework and applicable standards.

Items included in the financial statements of each of the group’s entities are measured in the currency of the primary economic environment in which that entity operates (the “functional currency”). The consolidated financial statements are stated in sterling, which is the company’s functional and presentation currency. Unless otherwise noted, the amounts shown in the financial statements are in millions of pounds sterling (£m). As supplementary information, consolidated financial information is also presented in euros.

In addition to presenting our results and financial position on an International Financial Reporting Standards (IFRS) basis, we also use European Embedded Value (EEV) as an alternative performance measure. We continue to focus on the EEV basis in this period’s report, as the directors believe life EEV operating return is a better measure of the performance of our life business than the IFRS basis. The EEV methodology is in accordance with the EEV principles introduced by the CFO Forum in May 2004 and the additional guidance issued in October 2005.

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:

– Global and UK domestic 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.

Key performance indicators

The European Union 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. The KPIs comprise:

– Return on equity shareholders’ funds
– Proposed ordinary dividend
– Dividend cover
– Operating profit (IFRS 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.

Non-financial performance indicators covering customer service and employee satisfaction will also be disclosed in the 2006 Annual Report and Accounts. We see both as being important to the ongoing success of our business. Additionally, performance against customer and employee measures has been incorporated into executive and senior management remuneration for 2006.