News

Preliminary Results 12 months ended 31 December 2002

26 February, 2003

PRELIMINARY RESULTS
12 MONTHS ENDED 31 DECEMBER 2002

AVIVA REPORTS ROBUST OPERATING PROFIT* OF £1,798 MILLION (2001: £1,983 MILLION) FOR THE 12 MONTHS TO 31 DECEMBER 2002. On a modified statutory basis, operating profit** was £1,296 million (2001: £1,512 million)

ROBUST LIFE PERFORMANCE IN TOUGH MARKETS

• Total life achieved operating profit of £1,524 million (2001: £1,665 million) after a net charge of £123 million (2001: £78 million) arising from prudent annuitant mortality strengthening
• New business contribution of £578 million (2001: £591 million) with worldwide margins of 24.4% (2001: 25.5%)
• Leading position in European bancassurance distribution with worldwide bancassurance sales up 50% to £3.0 billion (2001: £2.0 billion)
• Continuing benefits of geographical diversity with our Continental European businesses contributing 49% of life achieved operating profit

EXCELLENT GENERAL INSURANCE RESULT

• Worldwide combined operating ratio† of 101.4% (2001: 104%)
• Worldwide combined operating ratio on continuing operations†† of 101.7% (2001: 103%)
• General insurance operating profit† higher at £959 million (2001: £924 million)

RESILIENT CAPITAL POSITION

• Equity shareholders’ funds of £9.5 billion (2001: £11.6 billion, restated***)
• Orphan estate is estimated at £4.3 billion and the estimated free asset ratio# of the UK life funds is 11.8%

Richard Harvey, Group Chief Executive, commented:

“We have delivered a robust set of results in a difficult year where the ongoing turmoil in investment markets has affected consumer demand and investor sentiment. These results demonstrate the effectiveness of our product and distribution strategies and are a measure of the Group’s financial and operational strength.

“The benefits of a strong business model, where resilient long-term savings operations are allied with a cash-generative general insurance business, are evident in these tough market conditions. We expect 2003 to be a challenging year and will continue our emphasis on capital disciplines, cost management and building our bancassurance opportunities.”

* From continuing and discontinued operations, including life achieved operating profit and stated before tax, amortisation of goodwill and exceptional items.

** From continuing and discontinued operations, before tax, amortisation of goodwill, amortisation of acquired additional value of in-force long-term business and exceptional items.

*** Restated for the impact of Financial Reporting Standard 19 “Deferred Tax”.

# Calculated in accordance with FSA regulations and includes implicit items.

† From continuing and discontinued operations.

†† Continuing operations excludes the results of the disposed general insurance operations in Australia and New Zealand sold in 2002 and the results of the US general insurance operations sold in June 2001.
All growth rates quoted are at constant rates of exchange. 

FINANCIAL HIGHLIGHTS

---

	2002 £m	Restated* 2001 £m
Total premiums written (after reinsurance) and investment sales
Continuing operations, including share of associates’ premiums	27,933	27,756
Discontinued operations
– Australia and New Zealand general insurance operations	692	583
– US general insurance operations	-	1,103
	28,625	29,442
Worldwide long-term savings new business sales
Life and pensions	13,618	13,479
Retail investments	1,028	1,475
New business contribution (before effect of solvency margin)	578	591
Achieved operating profit before tax
Life achieved operating profit**	1,524	1,665
Health	61	70
Fund management	5	29
General insurance	881	876
Non-insurance operations**	(69)	7
Corporate costs	(218)	(187)
Unallocated interest charges	(434)	(426)
Wealth management	(30)	(99)
Achieved operating profit before tax – continuing operations	1,720	1,935
Discontinued operations
– Australia and New Zealand general insurance operations (sold December 2002)	78	69
– US general insurance operation (sold June 2001)	-	(21)
Achieved operating profit before tax	1,798	1,983
Modified statutory operating profit†	1,296	1,512
Modified statutory operating profit after tax, minorities and preference dividends†	856	959
Achieved operating earnings per share†	51.5p	55.5p
Modified statutory operating earnings per share†	38.0p	42.6p
Final dividend per ordinary share	14.25p	23.75p
Total dividend per ordinary share	23.0p	38.0p
Equity shareholders’ funds	9,469	11,552
Total shareholders’ funds	9,669	11,752
Net asset value per ordinary share#	433p	524p
Assets under management	£208bn	£209bn

*	Restated for the impact of Financial Reporting Standard 19 “Deferred Tax”.
**	Reclassification of other life and savings business from “Life” to “Non-insurance operations”.
†	From continuing and discontinued operations.
#	After adding back the claims equalisation provision.

 

GROUP CHIEF EXECUTIVE’S STATEMENT

2002 has been a difficult year with ongoing turmoil in investment markets affecting consumer demand and investor sentiment. The Group has delivered a robust set of results with operating profit before tax from continuing and discontinued operations of £1,798 million (2001: £1,983 million).

These results demonstrate the importance of our broad product range and multi-distribution strategy, which have enabled us to deliver solid results in challenging times. We have a strong business model, with long-term savings operations allied to a cash-generating general insurance business. A particular strength is our breadth of distribution, which includes one of the leading bancassurance networks in Europe.

Long-term savings

As the largest provider of life and pensions to Europe, we have delivered a solid performance despite the challenging conditions that have affected the savings industry as a whole. Worldwide new business sales were £14.6 billion (2001: £15.0 billion) with margins at 24.4% (2001: 25.5%), reflecting the impact of a shift in product mix in some territories.

In the UK the Group has achieved life and pension sales of £1,231 million (2001: £1,269 million) on an Annual Premium Equivalent (APE) basis. Life achieved operating profit in the UK was lower at £699 million (2001: £850 million) and is after strengthening our annuitant mortality reserves at a net cost of £123 million (2001: £78 million). In setting our assumptions for calculating our embedded values, we have taken into account the recent experience studies of the Continuous Mortality Investigation Bureau (CMIB). Our current experience shows profits against the existing reserve basis, but we have taken the prudent decision to strengthen our base mortality assumptions to reflect the study.

During 2002, there were a number of reviews relating to the UK long-term savings market, including the proposals outlined in the Government’s recent Green Paper on UK pensions and taxation reform. We broadly welcome these proposals as a first step, but we believe they need to go further in providing savings incentives if they are to close the savings gap. We agree that a price cap on Sandler-style products should be open to consultation. We have made it clear that we will not write business at uneconomic rates of return.

In Continental Europe, life and pension sales increased to £967 million (2001: £918 million) on an APE basis, demonstrating the success of our growing bancassurance businesses in Italy and Spain. Life achieved operating profit from Continental Europe was £747 million (2001: £779 million) which represents 49% of our total life achieved operating result.

Bancassurance is an important part of our distribution strategy and in 2002 worldwide sales through this channel increased by 50% to £3.0 billion (2001: £2.0 billion). We continue to seek opportunities to extend our reach across the important long-term savings markets of Europe and have recently secured new bancassurance agreements with ABN AMRO in the Netherlands, Crédit du Nord in France, Caja de Granada in Spain and Banca Popolare Commercia e Industria (“BPCI”) in Italy. These arrangements offer further potential for growth in our life and pensions distribution through access to our new partners’ existing customer bases and deploy the extensive experience held within our worldwide group. In addition we completed our partnership with Médéric, a French mutual, which will commence sales in the first half of 2003.

Fund management

The sustained fall in world investment markets has inevitably continued to impact the results of our fund management business. Overall operating profit for the year reflected this and was lower at £5 million (2001: £29 million). Worldwide funds under management were maintained at £208 billion (2001: £209 billion), as the impact of new business flows in the period offset the falls in worldwide investment markets.

General insurance

Our cash-generative general insurance business is an integral part of our operating model. We are the number one general insurer in the UK and Ireland and have top-five positions in Canada and the Netherlands. Our general insurance business, including both continuing and discontinued operations, contributed an operating profit of £959 million (2001: £924 million). On the same basis our worldwide combined operating ratio (COR) improved to 101.4% reflecting the rating actions taken during the year and our strict approach to underwriting. The COR of our continuing operations was 101.7% (2001: 103%). These results demonstrate the success of our strategy to focus on personal lines and small commercial business. We have exceeded our COR target and remain confident of our ability to maintain a COR of 102% across the underwriting cycle.

As we announced in October, we have sold our Australian and New Zealand general insurance businesses to Insurance Australia Group Limited (“IAG”) following an unsolicited approach which the Board considered to be an excellent deal for the Group’s shareholders.

Shareholders’ capital employed and financial strength

In a market that increasingly looks for quality and financial strength, our resilient capital position is fundamental to our business. While the Group achieved a robust operating performance, this has been offset by the falls in investment markets. As a result the equity shareholders’ funds were £9.5 billion (2001: £11.6 billion, restated) which is equivalent to 433 pence per share (2001: 524 pence, restated).

The solvency position of our main trading operations remains strong despite market falls. At 31 December 2002 the average free asset ratio of our main UK life trading operations was 11.8% (7.7% excluding implicit items), and the orphan estate was £4.3 billion (2001: £5.2 billion). This orphan estate estimate is based upon a realistic assessment of liabilities and is calculated after prudently allowing for over £4 billion in respect of the expected cost of guarantees and the glide path.

Furthermore, the solvency capital of our combined general insurance and overseas life operations remains strong with an estimated excess solvency margin of £2.3 billion at 31 December 2002. The solvency margin of the combined regulated Group is resilient to market falls.

Dividend

In line with our previous announcement, the Board recommends a final dividend of 14.25 pence net per share payable on 16 May 2003 to shareholders on the register at 28 March 2003. This brings the total dividend for the year to 23.0 pence net per share (2001: 38.0 pence net per share).

Outlook

We expect the challenging conditions we have faced during the past twelve months to continue throughout 2003, particularly in long-term savings markets where we expect some of our key markets to contract. We will continue to improve our efficiency while delivering high standards of service to customers. Our recent announcement to build a new call centre and claims processing operation in India and our restructuring of our UK life sales and marketing function are examples of this. We have already announced our commitment to reducing unit costs in our UK life business and we will continue to drive down costs across our businesses to ensure that costs are appropriately aligned to revenues. We have a track record of achieving cost savings, as demonstrated by the merger, when savings exceeded our targets.

2003 will also benefit from a number of new developments including our new distribution channels in Spain, Italy, the Netherlands and France coming on stream. We will also launch collective investment products into our joint venture with The Royal Bank of Scotland Group in the UK in the first quarter and are optimistic about the potential for further growth from this distribution channel during the year.

We believe that we have the financial structure, operating model and capital resilience to deliver solid results during these challenging economic circumstances. We will continue to focus on capital disciplines, cost management and building our bancassurance opportunities through 2003.

Richard Harvey
Group Chief Executive

Enquiries:

Richard Harvey	Group Chief Executive	+44 (0)20 7662 2286
Mike Biggs	Group Finance Director	+44 (0)20 7662 2031
Analysts:
Steve Riley	Investor Relations Director	+44 (0)20 7662 8115
James Matthews	Head of Investor Relations	+44 (0)20 7662 2137
Media:
Hayley Stimpson	Director of External Affairs	+44 (0)20 7662 7544
Sue Winston	Head of Group Media Relations	+44 (0)20 7662 8221
Alex Child-Villiers	Financial Dynamics	+44 (0)20 7269 7107

 

NEWSWIRES: There will be a conference call today for wire services at 8.15am (GMT) on +44 (0)20 7162 0125. Quote: Aviva, Richard Harvey.

ANALYSTS: A presentation to investors and analysts will take place at 9.30am (GMT) at St Helen’s, 1 Undershaft, London, EC3P 3DQ. In addition a replay will be available on these websites later today. There will also be a live teleconference link to the investor and analyst meeting on +44 (0)20 8400 6314. A replay facility will be available for two weeks on +44 (0)20 8797 2499. The pass code is 871615# for the whole presentation including Question & Answer session or 871637# for Question & Answer session only.

Photographs are available from www.newscast.co.uk and the media centre on www.aviva.com/media/

Notes to editors

• Aviva is the largest provider of life and pensions to Europe with substantial positions in other markets around the world, making it the world’s seventh-largest insurance group based on gross worldwide premiums.
• Aviva’s principal business activities are long-term savings, fund management and general insurance, with worldwide premium income and retail investment sales from continuing operations of £28 billion and assets under management of more than £200 billion.
• Overseas currency results are translated at average exchange rates.
• All growth rates are quoted in local currency.
• This preliminary announcement may contain “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 and circumstances which are beyond Aviva’s control, including amongst other things, UK domestic and global economic business conditions, market-related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities, the impact of competition, inflation, deflation, the timing impact and other uncertainties of future acquisitions or combinations within relevant industries, as well as the impact of tax and other legislation and other regulations in the jurisdictions in which Aviva and its affiliates operate. 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 presentation or any other forward-looking statements we may make.

Financial calendar 2003

Ex-dividend date (ordinary shares)	26 March 2003
Record date (ordinary shares)	28 March 2003
Announcement of long-term savings new business for 3 months to 31 March 2003	24 April 2003
Annual General Meeting	7 May 2003
Payment date (ordinary shares)	16 May 2003
Announcement of unaudited six months’ interim results	31 July 2003
Announcement of long-term savings new business for 9 months to 30 September 2003	23 October 2003

 

Download the full preliminary results announcement (PDF 301KB)