Unaudited results - 3 months ended 31 March 2001

03 May, 2001

• Record level of worldwide long-term savings new business sales at £3.7 billion, 22% up in the UK
• Operating profit before tax from ongoing business* up 12% to £445 million (2000: £393 million). On a modified statutory basis, operating profit before tax was £310 million (2000: £298 million)
• New bancassurance ventures contributed to growth in life achieved operating profit, up 13% to £444 million
• Improving general insurance results, up 38% to £155 million
• Integration on course to complete by end of this year, £172 million of annualised savings achieved to date.

* Including life achieved operating profit and excluding results from US general insurance operations to be discontinued and the discontinued London Market operations.
All growth rates quoted are at constant rates of exchange.

Richard Harvey, Group Chief Executive, commented:

“The Group has made a strong start to the year with record long-term savings new business and operating profits from ongoing business up 12% to £445 million.

“Our life achieved operating profit is up 13% underpinned by the record level of worldwide long-term savings new business at £3.7 billion. Record sales in the UK, up 22% to £2.2 billion, have been achieved with good margins. We are seeing the benefits of our increasing bancassurance distribution capability in Italy and Spain and continue to work closely with all our bancassurance partners to grow our long-term savings business aggressively and profitably.

“We are positioning the Group’s general insurance business to deliver sustainable profitability. We have achieved a 38% increase in operating profit, and are beginning to see the benefits of the actions we have taken to improve performance. The sale of our US general business remains on track and will conclude the major re-positioning of our general business portfolio announced at the time of the merger.

“Integration progress continues apace and we are on course to complete this process and realise the cost savings by the end of the year as planned. We are well placed to build on the progress achieved in the first three months of this year for further growth and increased shareholder returns.”

Financial Highlights

Notes

† Denotes amount at 31 December 2000

GROUP CHIEF EXECUTIVE'S STATEMENT

The Group made a strong start to the year with record long-term savings new business levels and increased operating profits across all of our classes of business, up 12% to £445 million.

Long-term savings
In the first three months of the year the Group achieved record sales levels, both in the UK and worldwide. This was despite recent volatility in equity markets, which created difficult conditions for retail investment sales. Life achieved operating profit was up 13% with improvements in the majority of our major businesses.

In the UK, record new business sales, up 22% to £2.2 billion, were achieved - an exceptional performance following the launch of the merged life business in October last year. We have seen a reduction in overall margins compared to the full year 2000 (rebased to 2001 economic assumptions) which is largely attributable to changes in product mix. We recorded very strong pension sales in the first quarter, up 43% to £598 million (2000: £419 million) and we successfully launched our stakeholder pensions products on 6 April. We are well placed, having the distribution, financial and brand strength, to achieve a leading position in the new stakeholder market. Our bancassurance partnership with The Royal Bank of Scotland Group plc (RBSG) contributed to total sales for the first time, and we are working closely with RBSG to develop and introduce a new market-leading product range during 2001.

In continental Europe, France remains a key contributor to the Group’s sales volumes at £564 million. We are particularly encouraged by the impressive new business sales performance achieved in both Italy and Spain, up 269% and 419% respectively, boosted by our new bancassurance agreements, which are producing good margins. Elsewhere margins are at broadly similar levels compared to the full year 2000 (rebased to 2001 economic assumptions).

Fund management
Operating profits from our fund management operations grew by 60% to £16 million (2000: £10 million). In the UK we completed the disposal of Quilter Holdings Limited, a stockbroking operation, generating a profit on sale of £70 million. Our French fund management business, Victoire Asset Management, was declared “best fund manager” in France by La Tribune and Standard & Poor’s, recognising the excellent fund performance achieved by our investment managers.

General insurance
Our general business saw a 38% increase in operating profit with notable improvements in our UK and French general insurance businesses, which benefited from the steps we are taking to improve profitability. The Group combined operating ratio from ongoing business was 105% (2000: 108%) and we remain committed to achieving the target combined operating ratio of 102% by the end of 2001, through strict underwriting and cost reduction. The worldwide expense ratio (excluding commission) from ongoing business improved to 12.0% (2000: 12.3%) and in the UK we continue to be amongst the lowest cost providers. The sale of our US general business remains on track and will conclude the major re-positioning of our general business portfolio announced at the time of the merger. The decision to exit the US general insurance market is consistent with our stated strategy of focusing on personal and small commercial lines. While this disposal was not without significant cost, we believe this was the correct action to take and will improve the quality of our general business future earnings. We also completed the sale of State Insurance Limited, one of our two general insurance businesses in New Zealand, which generated a profit on sale of £52 million.

Integration
We continued to make rapid integration progress and are on course to complete this process and realise the cost savings by the end of the year as planned. Annualised savings at the end of March totalled £172 million with £32 million included within the results.

The strong results achieved in the first three months provide an excellent base for further growth and increased shareholder returns.

Richard Harvey
Group Chief Executive

3 months results 2001 (detail) (PDF 168KB)