Notes to the consolidated financial statements 1-10

1 – Exchange rates

The Group's principal overseas operations during the year were located within the Eurozone and the United States. The results and cash flows of these operations have been translated into sterling at an average rate for the year of €1 = £0.68 (2006: €1 = £0.68) and £1 = US$2.00 (2006: £1= US$1.84). Assets and liabilities have been translated at the year end rate of €1 = £0.73 (2006: €1 = £0.67) and £1 = US$1.99 (2006: £1= US$1.96).

Total foreign currency movements during 2007 resulted in a gain recognised in the income statement of £45 million (2006: £99 million gain).

2 – Presentation changes

(a) Change to definition of operating profit

IFRS operating profit is one of the key indicators of performance for the Group and we have changed its definition to provide greater clarity and insight into the factors driving our results, in particular the impact of economic volatility from the underlying business performance.

The new definition uses “expected rates of investment return” to report the operating profit of our long-term savings business, thus bringing this business into line with the way we report our general insurance and health operating profit. It also brings the methodology used for the IFRS basis into closer alignment with that used for the European Embedded Value (EEV) basis, which is the industry’s alternative performance measure.

The change in definition does not affect the underlying performance, the economics of our business, the profit before tax attributable to shareholders or the profit for the year being restated. It only changes the allocation of profit between operating and non-operating elements.

The key changes to our definition of IFRS operating profit are:

1. Operating profit is now based on the investment returns that the Group expects to make on the financial investments that back the shareholder and policyholder funds of its long-term business over the reporting period, rather than the actual returns on these investments. The difference between the expected return and the actual return on investments, and the corresponding impact on liabilities, is shown below the operating profit line.
2. The amortisation of acquired value of in-force business (AVIF) on both insurance and investment contracts is now included within operating profit. This change matches the emergence of benefit from the acquired book with the associated amortisation expense.
3. The criteria for treating an item as an adjustment, outside operating profit, have been refined to limit these to significant items only. The Financial Services Compensation Scheme and other levies are now included in operating profit.
4. The result for Norwich Union Life Services has been reclassified as long-term business instead of other operations, to match its treatment under EEV.

The table below sets out the effect of the above changes to IFRS operating profit for the year ended 31 December 2006:

	As reported 2006 £m	Effect of restating the definition of IFRS operating profit £m	Restated 2006 £m
Operating profit before tax attributable to shareholders’ profits
Long-term business	1,896	(562)	1,334
Fund management	155	–	155
General insurance and health	1,680	6	1,686
Other:
Other operations and regional costs	(80)	55	(25)
Corporate centre	(160)	–	(160)
Group debt costs and other interest	(381)	–	(381)
Operating profit before adjusting items and tax attributable to shareholders’ profits	3,110	(501)	2,609
Adjusted for the following:
Investment return variances and economic assumption changes on long-term business	–	401	401
Impairment of goodwill	(94)	–	(94)
Amortisation and impairment of acquired value of in-force business	(100)	100	–
Amortisation and impairment of intangibles	(70)	6	(64)
Short-term fluctuation in return on investments backing general insurance and health business	149	–	149
Profit on the disposal of subsidiaries and associates	222	–	222
Integration and restructuring costs	(246)	–	(246)
Financial Services Compensation Scheme and other levies	6	(6)	–
Profit before tax attributable to shareholders’ profits	2,977	–	2,977
Tax attributable to shareholders’ profits
Operating profit	(725)	80	(645)
Other activities	137	(80)	57
	(588)	–	(588)
Profit for the year	2,389	–	2,389

(b) Restatement of prior year figures

(i) Gross up for cash collateral received

The Group enters into stock lending transactions and receives cash or non-cash collateral to reduce the Group’s exposure to counterparty credit risk. Collateral received in the form of cash is then lent out at market rates of interest. During 2007, we identified that certain cash collateral transactions should have been historically recognised on the balance sheet, with a corresponding obligation to return this collateral, instead of showing a net nil position.

As a result, the figures for loan assets and payables and other financial liabilities as at 31 December 2006 have been restated by increasing them both by £2,129 million. The equivalent adjustment at 1 January 2006, the start of the comparative period, would have been to increase both loan assets and payables and other financial liabilities by £120 million.

In addition, we identified that the interest paid on cash collateral received and the interest earned from onlending this cash had previously been offset and reported as net interest income. The 2006 comparative figures have therefore been restated in order to report this interest expense and interest income separately, by increasing both by £17 million.

Neither of these adjustments has any impact on profit for the year, operating profit or earnings per share in 2006, nor on retained earnings, net assets or total equity at either 1 January 2006 or 31 December 2006.

(ii) Restatement of cash equivalents

As described in accounting policy X, cash equivalents include short-term highly liquid investments which normally have maturity dates of less than three months from the date of acquisition. During the year, we have reviewed the application of this policy to all such investments, as a result of which we have determined that certain investments, previously classified as cash equivalents, would be more appropriately classified as financial investments.

The application of this review to prior year balances has led to a reduction of the cash equivalents balance at 31 December 2006 by £1,425 million, with a corresponding increase in the debt securities total of the same amount. This restatement has no impact on net assets or total equity. The effect on the opening balances in the prior year is to reduce cash equivalents and increase debt securities by £1,444 million. The effect on the cash flow statement is therefore to reduce the prior year cash flows from operating activities by £19 million.

3 – Subsidiaries

This note provides details of the acquisitions and disposals of subsidiaries that the Group has made during the year, together with details of businesses held for sale at the year end. See a list of the principal Group subsidiaries.

(a) Acquisitions

(i) Erasmus Group

On 26 March 2007, the Group’s Dutch subsidiary, Delta Lloyd, acquired 100% of the shares in Erasmus Groep BV (“Erasmus”) in the Netherlands. Erasmus writes both general insurance and long-term business, and the acquisition has further strengthened Delta Lloyd’s position in the Dutch insurance market.

The Erasmus acquisition has not given rise to any goodwill on acquisition. The relevant calculation is as follows:

Purchase cost:

	£m
Cash paid	53
Attributable costs	1
Total consideration	54

The assets and liabilities at the date of acquisition were:

	Book value £m	Fair value and accounting policy adjustments £m	Fair value £m
Assets
Acquired value of in-force business on insurance contracts	–	6	6
Intangible assets	2	18	20
Investments	411	5	416
Loans	204	16	220
Reinsurance assets	33	–	33
Receivables and other financial assets	22	–	22
Prepayments and accrued income	13	–	13
Cash and cash equivalents	35	–	35
Other assets	31	1	32
Total assets	751	46	797
Liabilities
Gross insurance liabilities	(674)	(20)	(694)
Borrowings	(15)	–	(15)
Provisions	(4)	(6)	(10)
Tax liabilities	(1)	(3)	(4)
Other liabilities	(20)	–	(20)
Total liabilities	(714)	(29)	(743)
Total net assets acquired	37	17	54
Goodwill arising on acquisition			–

The value of Erasmus’s distribution channels has been identified as a separate intangible asset and valued by an independent third party at £8 million, using estimated post-tax cash flows and discount rates. It has been assessed as having a life of 20 years and is being amortised on a straight-line basis over that period. As permitted by IFRS 4, Insurance Contracts, an intangible asset of £12 million has also been recognised for the impact of discounting the non-life insurance liabilities, to bring them to fair value. This intangible asset will be amortised over the life of the relevant non-life insurance contracts.

The assets and liabilities as at the acquisition date in the table above are stated at their provisional values, and may be amended in 2008, in accordance with paragraph 62 of IFRS 3, Business Combinations.

The results of Erasmus have been included in the consolidated financial statements of the Group with effect from 26 March 2007, and have contributed £5 million to the consolidated profit before tax.

(ii) Bancassurance partnership with Cajamurcia

On 6 June 2007, the Group announced that it had entered into a long-term bancassurance agreement with Spanish savings bank Caja de Ahorros de Murcia (Cajamurcia) that will enhance the Group’s leading position in the Spanish life market. Cajamurcia will provide exclusive access to its network of branches to Caja Murcia Vida y Pensiones, de Seguros y Reaseguros SA (Cajamurcia Vida), the newly-created life insurance company jointly-owned by the Group and Cajamurcia, to sell insurance and pension products. Regulatory approval to write new business was received on 21 November 2007 and the new company began trading on 30 November 2007.

On signing the agreement, the Group acquired 5% of the share capital of Cajamurcia Vida and Cajamurcia granted the Group a call option over a further 45% of the shares in this company which may be exercised in the two month period following the first anniversary of the agreement being signed. Further consideration of £69 million would be payable on exercising the option, with additional amounts of up to £187 million payable, dependent on the performance of the new company. If it does not exercise this option during this period, the Group has granted a call option over its 5% holding to Cajamurcia.

The Group paid £8 million for the initial 5% holding on completion on 6 June 2007. The Group has the power to control the financial and operating policies of Cajamurcia Vida through having the majority vote at meetings of the company’s board of directors. We have therefore consolidated its results and balance sheet since that date.

The acquisition of the initial 5% shareholding has given rise to goodwill on acquisition of £2 million, calculated as follows:

Purchase cost:

	£m
Cash paid	8
Attributable costs	1
Total consideration	9

The book and fair values of the assets and liabilities at the date of acquisition were:

	£m
Assets
Intangible assets	202
Other assets	–
Total assets	202
Liabilities
Deferred tax on acquired assets	(60)
Total liabilities	(60)
Total net assets	142
Net assets acquired (initial 5% share)	7
Goodwill arising on acquisition of this holding	2

The value of the agreement to distribute through Cajamurcia’s branch network has been identified as a separate intangible asset with a value of £202 million, using estimated post-tax cash flows and discount rates.

As noted above, the results of Cajamurcia Vida have been included in the consolidated financial statements of the Group and have contributed £nil to the consolidated profit before tax since it began trading on 30 November 2007.

(iii) Italian transactions with Banco Popolare

During the year, the Group’s Italian holding company has entered into three sets of transactions with an Italian bank, Banco Popolare Societa Cooperativa (Banco Popolare). Details of these transactions are as follows :

(a) Petunia and Banca Network

On 18 September 2007, the Group made a capital contribution of £19 million to Petunia SpA (Petunia), an investment holding company, previously held as a financial investment. The Group’s holding in Petunia has increased to 40.62% but, as the Group has 51% of voting rights and management control the Group has consolidated this company as a subsidiary. The total capitalisation of the company at this date was £47 million, which was used to purchase a 49.75% stake in Banca Bipielle Network SpA, an Italian distribution network, from Banco Popolare on 26 September 2007. The acquired company has since been renamed Banca Network Investimenti SpA (Banca Network).

The Group does not have management control of Banca Network and so accounts for it as an investment in an associate. The total consideration was £49 million, comprising cash consideration of £46 million and contingent consideration of £3 million (representing the present value of future expected performance-related consideration). The fair value of the Group’s share of Banca Network’s identifiable net assets at the date of acquisition was £27 million. The residual goodwill of £22 million has been included in the carrying value of the investment in associate (see note 19).

This residual goodwill has been calculated based on the provisional fair values of the net assets and liabilities of Banca Network, and may be restated in 2008, in accordance with paragraph 62 of IFRS 3, Business Combinations.

(b) Area Life

On 26 September 2007, the Group acquired a 55% stake in Area Life International Assurance Limited (Area Life), a life assurance company based in Ireland, selling exclusively to Italian residents, from Banco Popolare for £7 million.

This acquisition has not given rise to any goodwill on acquisition. The relevant calculation is as follows:

Purchase cost:

	£m
Cash paid	7

The assets and liabilities at the date of acquisition were:

	Book value £m	Fair value and accounting policy adjustments £m	Fair value £m
Assets
Acquired value of in-force business on insurance contracts	–	20	20
Investments	284	–	284
Reinsurance assets	20	–	20
Cash and cash equivalents	12	–	12
Other assets	4	–	4
Total assets	320	20	340
Liabilities
Gross insurance liabilities	(278)	(14)	(292)
Deferred tax liability	(5)	(1)	(6)
Payables and other financial liabilities	(26)	–	(26)
Other liabilities	(3)	–	(3)
Total liabilities	(312)	(15)	(327)
Total net assets	8	5	13
Net assets acquired (55%)	4	3	7
Goodwill arising on acquisition			–

The assets and liabilities above have been stated at their provisional fair values and may be amended in 2008, in accordance with paragraph 62 of IFRS 3, Business Combinations.

The results of Petunia, Banca Network and Area Life have been included in the consolidated financial statements of the Group with effect from 26 September 2007, and have contributed £nil to the consolidated profit before tax.

(c) Bancassurance agreement via Avipop Assicurazioni

On 14 December 2007, the Group entered a long-term bancassurance partnership in protection and non-life insurance with Banco Popolare that will further strengthen the Group’s bancassurance presence in Italy and creates a new opportunity in the fast-growing protection sector.

The Group paid £184 million to secure the long-term bancassurance agreement with Banco Popolare and to acquire 50% plus one share of Avipop Assicurazioni SpA (Avipop Assicurazioni), a non-life subsidiary of the bank. Life protection business will be written in a subsidiary of Avipop Assicurazioni, which will begin trading later in 2008, subject to regulatory approval. The Group has the majority of the voting rights and management control of Avipop Assicurazioni and has therefore fully consolidated it as a subsidiary.

The acquisition of Avipop Assicurazioni has given rise to goodwill on acquisition of £52 million, calculated as follows:

Purchase cost:

	£m
Cash paid	184
Attributable costs	4
Total consideration	188

The assets and liabilities of the company at the date of acquisition were:

	Book value £m	Fair value and accounting policy adjustments £m	Fair value £m
Assets
Intangible assets	–	386	386
Investments	9	–	9
Other assets	3	–	3
Total assets	12	386	398
Liabilities
Gross insurance liabilities	(1)	–	(1)
Deferred tax liability	–	(125)	(125)
Other liabilities	(1)	–	(1)
Total liabilities	(2)	(125)	(127)
Total net assets	10	261	271
Net assets acquired (50%)			136
Goodwill arising on acquisition			52

The value of the agreement to distribute through Banco Popolare’s branch network has been identified as a separate intangible asset and has been valued by an independent third party at £386 million (100% share), using estimated post-tax cash flows and discount rates. The intangible asset has been assessed as having an indefinite useful life, subject to annual tests for impairment. The distribution agreement is initially for ten years, with five year automatic renewal periods. It is expected to be renewed indefinitely, due to the unfavourable terms of the put option for failure to renew.

The residual goodwill represents the impact of recognising a deferred tax liability on the intangible asset.

The assets and liabilities as at the acquisition date in the table opposite are stated at their provisional values, and may be amended in 2008, in accordance with paragraph 62 of IFRS 3, Business Combinations.

The results of Avipop Assicurazioni have been included in the consolidated financial statements of the Group with effect from 14 December 2007, and have contributed £nil to the consolidated profit before tax.

(iv) Cyrte Investments

On 27 September 2007, the Group acquired an 85% stake in Cyrte Investments BV (Cyrte Investments), a Dutch fund management company, for £37 million. The net assets of Cyrte Investments at the date of acquisition were £nil, giving rise to residual goodwill of £37 million.

The residual goodwill represents the value of the company’s workforce and a premium paid for the investment concepts developed in the company, based on Cyrte’s expertise in the telecommunications, media and technology sectors. No material intangible assets were identified.

The net assets as at the acquisition date are stated at their provisional values, and may be amended in 2008, in accordance with paragraph 62 of IFRS 3, Business Combinations.

The results of Cyrte Investments have been included in the consolidated financial statements of the Group with effect from 27 September 2007, and have contributed £2 million to the consolidated profit before tax.

The Group has also invested £209 million in three funds, managed by Cyrte Investments, giving it an ownership interest in the three funds of between 13% and 18%. These funds have been accounted for as investments in associates, as Cyrte Investments is the general partner of the funds and the Group’s holding gives it significant influence on the investment committee, the management board of the funds. The Group’s investment of £209 million has been included in interests in associates in note 19.

(v) Hamilton Insurance Company Limited and Hamilton Life Assurance Company Limited

On 1 November 2007, the Group completed the acquisition of Hamilton Insurance Company Limited and Hamilton Life Assurance Company Limited (the Hamilton companies) from HFC Bank Limited, a subsidiary of HSBC Finance Corporation. In addition, the Group’s UK general insurance businesses signed a number of five-year agreements to underwrite creditor business for HFC Bank and some of its subsidiaries, and to provide home, protection and travel insurance products to 10.2 million of HSBC Bank’s UK customers.

The acquisition of Hamilton Insurance Company Limited has given rise to goodwill on acquisition of £2 million, calculated as follows:

Purchase cost:

	£m
Cash paid	55
Attributable costs	2
Total consideration	57

The book and fair values of the assets and liabilities at the date of acquisition were:

	£m
Assets
Investments	68
Reinsurance assets	24
Cash and cash equivalents	25
Other assets	24
Total assets	141
Liabilities
Gross insurance liabilities	(67)
Other liabilities	(19)
Total liabilities	(86)
Total net assets acquired	55
Goodwill arising on acquisition	2

The acquisition of Hamilton Life Assurance Company Limited (Hamilton Life) has given rise to goodwill on acquisition of £21 million, calculated as follows:

Purchase cost:

	£m
Cash paid	44
Attributable costs	1
Total consideration	45

The assets and liabilities at the date of acquisition were:

	Book value £m	Fair value and accounting policy adjustments £m	Fair value £m
Assets
Acquired value of in-force business on investment contracts	–	3	3
Investments	122	–	122
Other assets	5	–	5
Total assets	127	3	130
Liabilities
Gross insurance liabilities	(34)	–	(34)
Investment contract liabilities	(68)	–	(68)
Other liabilities	(4)	–	(4)
Total liabilities	(106)	–	(106)
Total net assets acquired	21	3	24
Goodwill arising on acquisition			21

Included in the consideration paid and goodwill arising on the Hamilton Life acquisition is £20 million in respect of unrecognised deferred tax assets, which the Group may be able to utilise in future years but cannot recognise now.

The assets and liabilities as at the acquisition date in both the tables above are stated at their provisional values, and may be amended in 2008, in accordance with paragraph 62 of IFRS 3, Business Combinations.

The results of the Hamilton companies have been included in the consolidated financial statements of the Group with effect from 1 November 2007, and have contributed £1 million to the consolidated profit before tax.

(vi) Material acquisitions summary

	2007 £m
Total net assets	283
Less: Minority interests	–
Net assets acquired	283
Goodwill arising on acquisition	114
Total consideration	397
The total consideration comprised:
Cash paid	388
Attributable costs	9
	397

(vii) Other

In addition to the goodwill arising on the above acquisitions, the Group also made a number of smaller acquisitions, giving rise to additional goodwill of £1 million. Total goodwill arising in the year was £115 million (see note 16(a)).

(viii) Unaudited pro forma combined revenues and profit

Shown below are unaudited pro forma figures for combined revenues and profit as though the acquisition date for all business combinations effected during the year had been 1 January 2007, after giving effect to purchase accounting adjustments and the elimination of intercompany transactions. The pro forma financial information is not necessarily indicative of the combined results that would have been attained had the acquisitions taken place at 1 January 2007, nor is it necessarily indicative of future results.

	2007 £m
Revenues (net earned premiums and fee income)	31,390
Profit before tax attributable to shareholders	1,862

Of the above pre-tax profit, £17 million has arisen since acquisition.

(ix) Non-adjusting post-balance sheet events

(a) Acquisition of UBI Assicurazioni Vita

On 17 January 2008, the Group announced that it had reached an agreement with Unione di Banche Italiane Scpa (UBI Banca) for the acquisition of 50% plus one share in UBI Assicurazioni Vita SpA., an Italian life insurance company wholly-owned by UBI Banca, for a consideration of £49 million. Completion of the transaction is subject to certain conditions and the approval of the relevant regulatory authorities, and is expected to take place in the first half of 2008.

(b) Acquisition of Swiss Life Belgium

On 21 January 2008, the Group announced that it had signed a memorandum of understanding with SNS REAAL to buy Swiss Life Belgium, a multi-line insurer, for €135 million. By combining Swiss Life Belgium with its Belgian insurance operation, managed through its Dutch subsidiary Delta Lloyd, the Group would further strengthen its position in the Belgian group life insurance market.

The transaction is conditional upon completion of SNS REAAL’s acquisition of the Dutch and Belgian activities of Swiss Life Holding, which was announced on 19 November 2007. The completion of Delta Lloyd’s acquisition of Swiss Life Belgium will be subject to approval from the relevant regulators and works council, and is expected to take place in the second quarter of 2008.

(c) Investment in LIG Life Insurance Co. Ltd.

On 31 January 2008, the Group announced that it would be entering the South Korea life insurance market by agreeing to acquire jointly with Woori Finance Holdings Company Ltd (“Woori”) a 91.65% stake in LIG Life Insurance Co. Ltd (“LIG Life”), a South Korean life insurance company, for KRW 137.2 billion (£73 million). After completion, the Group will hold 40.65% of LIGLife. Aviva and Woori plan to develop LIGLife’s business distribution, predominantly through bancassurance via Woori’s banking network and independent financial advisors.

(b) Disposal of subsidiaries, joint ventures and associates

The profit on the disposal of subsidiaries, joint ventures and associates comprises:

	2007 £m	2006 £m
United Kingdom (see note 19(b))	(7)	69
Turkey (see note 18(c))	71	–
Ireland	–	86
France	–	79
Other small operations	(15)	(12)
Profit on disposal before tax	49	222
Tax on profit on disposal	3	13
Profit on disposal after tax	52	235

(c) Integration and restructuring costs

£153 million of integration and restructuring costs have been included in the results to 31 December 2007 (2006: £246 million). These include £45 million relating to the UK cost and efficiency programme announced in 2006. This initiative has now been completed at a total cost of £250 million. The costs also include £82 million relating to the new savings targets announced in October 2007. Further costs of this programme are expected to be £248 million, spread over the next two years. The balance of £26 million relates to the completion of integration activity on Ark Life in Ireland and the former AmerUs business in the United States, which were both acquired in 2006.

(d) Operations classified as held for sale

(i) Assets and liabilities of operations classified as held for sale

The assets and liabilities of operations classified as held for sale as at 31 December 2007 relate to our Dutch health insurance businesses, and were as follows:

	2007 £m	2006 £m
Financial investments	316	–
Receivables and other financial assets	554	–
Prepayments and accrued income	146	–
Tax assets	16	–
Cash and cash equivalents	96	–
Total assets	1,128	–
Gross insurance liabilities	(627)	–
Borrowings	(12)	–
Payables and financial liabilities	(72)	–
Other liabilities	(220)	–
Tax liabilities and other provisions	(11)	–
Total liabilities	(942)	–
Net assets	186	–

(ii) Dutch health insurance business

On 16 July 2007, the Group announced that its Dutch subsidiary, Delta Lloyd Group (DL), had reached an agreement to sell its health insurance business to OWM CZ Groep Zorgverkeraar UA (CZ), a mutual health insurer, and create a long-term alliance for the cross-selling of insurance products. Under the terms of the agreement, CZ will purchase the DL health insurance business and take on its underwriting risk and policy administration. DL will continue to market and distribute health insurance products from CZ to its existing customers, and to provide asset management for the transferred business. DL will also have exclusive rights to market life, general insurance and income protection products to CZ’s customers. The transaction is expected to take effect on 1 January 2009, subject to regulatory, competition and other relevant approvals.

The relevant assets and liabilities of the DL health insurance business have been classified as held for sale, at their carrying values, in the consolidated balance sheet as at 31 December 2007.

(e) Other information

See a list of principal subsidiaries at 31 December 2007.

One of the Group’s wholly-owned subsidiaries, Delta Lloyd NV, is subject to the provisions of Dutch corporate law and particularly the Dutch “structure company” regime. Under this regime, Delta Lloyd operates under a Supervisory Board which has a duty to have regard to the interests of a wide variety of stakeholders. The Supervisory Board includes two Aviva Group representatives and is responsible for advising and supervising Delta Lloyd’s Executive Board. The shareholder is one of the most important stakeholders to whom the Supervisory Board has a duty.

Dutch Law changed in October 2004 to ensure that Supervisory Board directors in Dutch companies were henceforth to be elected by a company’s shareholders voting on nominations made by its Supervisory Board and the Works Council. Under the previous system, Supervisory Board directors appointed their own successors. In 2006, Delta Lloyd commenced proceedings against Aviva plc to try to compel the Company to adhere to the system that existed prior to the change in the law, on the basis of agreements they say were entered into in 1973 when the Group acquired Delta Lloyd. The Company disputes these claims and does not expect the litigation, whatever its outcome, to have any adverse effect on the financial or operational performance of Delta Lloyd or the Group. We expect a judgement from the court on this issue sometime in 2008, which either party will then have the ability to appeal.

4 – Segmental information

The Group’s results can be segmented, either by activity or by geography. Our primary reporting format is by business activity, whilst our secondary segmentation is by geographical area. This note provides segmental information on the consolidated income statement and balance sheet.

(a) Primary reporting format – business segments

(i) Reporting segments

The principal activity of the Group is financial services, which is managed using the following reportable segments: long-term business, fund management, general insurance and health.

Long-term business

Our long-term business comprises life insurance, long-term health and accident insurance, savings, pensions and annuity business written by our life insurance subsidiaries, including managed pension fund business and our share of the other life and related business written in our associates and joint ventures, as well as the Lifetime mortgage business written in the UK.

Fund management activities

Our fund management business invests policyholders’ and shareholders’ funds, provides investment management services for institutional pension fund mandates and manages a range of retail investment products, including investment funds, unit trusts, OEICs and ISAs. Clients include Aviva Group businesses and third-party financial institutions, pension funds, public sector organisations, investment professionals and private investors.

General insurance and health

Our general insurance and health business provides insurance cover to individuals and to small- and medium-sized businesses, for risks associated mainly with motor vehicles, property and liability, such as employers’ liability and professional indemnity liability, and medical expenses.

Other

Other activities not related to the core business segments or which are not reportable segments due to their immateriality, such as the RAC non-insurance operations, our banking businesses and service companies, are included as “Other” in the following tables.

Head office expenses, such as Group treasury and finance functions are also reported as “Other”, together with eliminations and any other reconciling items. Certain financing costs and taxes are not allocated across the segments. The accounting policies of the segments are the same as those for the Group as a whole. Any transactions between the business segments are on normal commercial terms and market conditions.

Segment assets and liabilities comprise operating assets and liabilities, being the majority of the balance sheet but excluding items such as tax and certain borrowings.

(ii) Segmental results by business segment

For the year ended 31 December 2007	Long-term business £m	Fund management £m	General insurance and health £m	Other £m	Total £m
Gross written premiums	19,622	–	11,369	–	30,991
Premiums ceded to reinsurers	(858)	–	(800)	–	(1,658)
Net written premiums	18,764	–	10,569	–	29,333
Net change in provision for unearned premiums	–	–	(21)	–	(21)
Net earned premiums	18,764	–	10,548	–	29,312
Fee and commission income	698	488	179	395	1,760
	19,462	488	10,727	395	31,072
Net investment income	8,529	45	827	427	9,828
Inter-segment revenue	–	152	–	–	152
Profit /(Loss) on the disposal of subsidiaries and associates	–	–	(7)	56	49
Segment income	27,991	685	11,547	878	41,101
Claims and benefits paid, net of recoveries from reinsurers	(19,640)	–	(7,481)	–	(27,121)
Change in insurance liabilities, net of reinsurance	(3,900)	–	393	–	(3,507)
Change in investment contract provisions	(2,018)	–	–	–	(2,018)
Change in unallocated divisible surplus	2,922	–	–	–	2,922
Fee and commission expenses	(1,281)	(135)	(2,907)	(60)	(4,383)
Other operating expenses
Depreciation	(31)	(2)	(7)	(89)	(129)
Amortisation of acquired value of in-force business	(160)	–	–	–	(160)
Net impairment of acquired value of in-force business	–	–	–	–	–
Amortisation and net impairment of intangible assets	(62)	(6)	(25)	(17)	(110)
Impairment of goodwill	(1)	(9)	–	–	(10)
Other impairment losses recognised in the income statement	(45)	–	(10)	(2)	(57)
Inter-segment expense	(140)	–	(11)	(1)	(152)
Other expenses	(1,230)	(361)	(788)	(628)	(3,007)
Finance costs	(537)	(24)	3	(391)	(949)
Segment expenses	(26,123)	(537)	(10,833)	(1,188)	(38,681)
Segment result before share of profit/(loss) of joint ventures and associates	1,868	148	714	(310)	2,420
Share of profit/(loss) of joint ventures and associates	(297)	(9)	3	(1)	(304)
Segment result before tax	1,571	139	717	(311)	2,116
Unallocated costs
Finance costs on central borrowings					(259)
Tax attributable to policyholders’ returns					(15)
Tax attributable to shareholders’ profits					(337)
Profit for the year					1,505

Finance costs on central borrowing comprise interest payable on borrowings by holding companies within the Group which are not allocated to operating companies.

Impairment losses, and reversal of such losses, recognised directly in equity were £(1) million and £nil respectively in long-term business.

Pro forma reconciliation to operating profit before tax attributable to shareholders’ profits

For the year ended 31 December 2007	Long-term business £m	Fund management £m	General insurance and health £m	Other £m	Total £m
Segment result before tax	1,571	139	717	(311)	2,116
Finance costs on central borrowings	–	–	–	(259)	(259)
Adjusted for the following:
Investment return variances and economic assumption changes on long-term business	(15)	–	–	–	(15)
Impairment of goodwill	1	9	–	–	10
Amortisation and impairment of intangibles	55	6	25	17	103
Short-term fluctuation in return on investments backing general insurance and health business	–	–	184	–	184
(Profit)/loss on the disposal of subsidiaries and associates	–	–	7	(56)	(49)
Integration and restructuring costs	37	1	100	15	153
	1,649	155	1,033	(594)	2,243
Less:
Tax attributable to policyholders’ returns	(15)	–	–	–	(15)
Operating profit before tax attributable to shareholders’ profits	1,634	155	1,033	(594)	2,228

For the year ended 31 December 2006	Long-term business £m	Fund management £m	General insurance and health £m	Other £m	Restated Total £m
Gross written premiums	17,308	–	11,427	–	28,735
Premiums ceded to reinsurers	(776)	–	(725)	–	(1,501)
Net written premiums	16,532	–	10,702	–	27,234
Net change in provision for unearned premiums	–	–	93	–	93
Net earned premiums	16,532	–	10,795	–	27,327
Fee and commission income	704	452	172	542	1,870
	17,236	452	10,967	542	29,197
Net investment income	13,947	17	1,299	227	15,490
Inter-segment revenue	–	199	–	–	199
Profit on the disposal of subsidiaries and associates	11	–	88	123	222
Segment income	31,194	668	12,354	892	45,108
Claims and benefits paid, net of recoveries from reinsurers	(16,523)	–	(6,921)	–	(23,444)
Change in insurance liabilities, net of reinsurance	(2,594)	–	(26)	–	(2,620)
Change in investment contract provisions	(6,002)	–	–	–	(6,002)
Change in unallocated divisible surplus	(558)	–	–	–	(558)
Fee and commission expenses	(2,125)	(111)	(2,742)	(65)	(5,043)
Other operating expenses
Depreciation	(22)	(3)	(19)	(79)	(123)
Amortisation of acquired value of in-force business	(58)	–	–	–	(58)
Net impairment of acquired value of in-force business	(28)	–	–	–	(28)
Amortisation and net impairment of intangible assets	(32)	(1)	(18)	(19)	(70)
Impairment of goodwill	–	–	–	(94)	(94)
Other impairment losses recognised in the income statement	6	–	(5)	(1)	–
Inter-segment expense	(191)	–	(8)	–	(199)
Other expenses	(1,109)	(392)	(806)	(877)	(3,184)
Finance costs	(384)	–	(3)	(230)	(617)
Segment expenses	(29,620)	(507)	(10,548)	(1,365)	(42,040)
Segment result before share of profit/(loss) of joint ventures and associates	1,574	161	1,806	(473)	3,068
Share of profit/(loss) of joint ventures and associates	471	(7)	5	16	485
Segment result before tax	2,045	154	1,811	(457)	3,553
Unallocated costs
Finance costs on central borrowings (see below)					(230)
Tax attributable to policyholders’ returns					(346)
Tax attributable to shareholders’ profits					(588)
Profit for the year					2,389

Finance costs on central borrowings comprise interest payable on borrowings by holding companies within the Group which is not allocated to operating companies.

Impairment losses, and reversal of such losses, recognised directly in equity were £nil and £2 million respectively in long-term business.

Pro forma reconciliation to operating profit before tax attributable to shareholders’ profits

For the year ended 31 December 2006	Long-term business £m	Fund management £m	General insurance and health £m	Other £m	Restated Total £m
Segmental result before tax	2,045	154	1,811	(457)	3,553
Finance costs on central borrowings	–	–	(2)	(228)	(230)
Adjusted for the following items:
Investment return variances and economic assumption changes on long-term business	(401)	–	–	–	(401)
Impairment of goodwill	–	–	–	94	94
Amortisation and impairment of intangibles	26	1	18	19	64
Short-term fluctuation in return on investments backing general insurance and health business	–	–	(149)	–	(149)
Profit on the disposal of subsidiaries and associates	(12)	–	(88)	(122)	(222)
Integration and restructuring costs	21	–	95	130	246
Other interest and cost reallocation	1	–	1	(2)	–
	1,680	155	1,686	(566)	2,955
Less:
Tax attributable to policyholders’ returns	(346)	–	–	–	(346)
Operating profit before tax attributable to shareholders’ profits	1,334	155	1,686	(566)	2,609

(iii) Segmental balance sheet by business segment

As at 31 December 2007	Long-term business £m	Fund management £m	General insurance and health £m	Other £m	Total £m
Goodwill	1,414	3	418	1,247	3,082
Acquired value of in-force business and intangible assets	2,628	12	424	133	3,197
Interests in, and loans to, joint ventures and associates	3,509	47	4	222	3,782
Property and equipment	435	9	70	428	942
Investment property	14,701	–	360	16	15,077
Loans	26,600	–	960	8,633	36,193
Financial investments	201,455	32	10,420	3,461	215,368
Other assets	28,202	630	11,688	593	41,113
Segment assets	278,944	733	24,344	14,733	318,754
Unallocated assets – tax assets					966
Total assets					319,720
Insurance liabilities	135,014	–	18,026	–	153,040
Liability for investment contracts	98,244	–	–	–	98,244
Unallocated divisible surplus	6,785	–	–	–	6,785
Net asset value attributable to unitholders	3,934	–	46	–	3,980
External borrowings	3,947	–	–	4,399	8,346
Other liabilities, including inter-segment liabilities	13,714	348	212	10,430	24,704
Segment liabilities	261,638	348	18,284	14,829	295,099
Unallocated liabilities
Central borrowings (see below)					4,311
Tax liabilities					3,718
Total liabilities					303,128
Total equity					16,592
Total equity and liabilities					319,720
Capital expenditure (excluding business combinations)
Intangible assets	47	3	(340)	371	81
Property and equipment	46	5	13	163	227
	93	8	(327)	534	308

As at 31 December 2006	Long-term business £m	Fund management £m	General insurance and health £m	Other £m	Restated Total £m
Goodwill	1,317	9	390	1,194	2,910
Acquired value of in-force business and intangible assets	2,301	18	287	122	2,728
Interests in, and loans to, joint ventures and associates	3,526	44	39	81	3,690
Property and equipment	460	4	94	346	904
Investment property	14,714	–	384	25	15,123
Loans	20,934	–	735	6,905	28,574
Financial investments	189,082	30	11,400	3,766	204,278
Other assets	23,558	534	9,603	1,406	35,101
Segment assets	255,892	639	22,932	13,845	293,308
Unallocated assets – tax assets					1,543
Total assets					294,851
Insurance liabilities	126,224	–	18,006	–	144,230
Liability for investment contracts	88,358	–	–	–	88,358
Unallocated divisible surplus	9,465	–	–	–	9,465
Net asset value attributable to unitholders	3,786	1	23	–	3,810
External borrowings	3,894	–	11	4,037	7,942
Other liabilities, including inter-segment liabilities	8,904	313	(712)	9,943	18,448
Segment liabilities	240,631	314	17,328	13,980	272,253
Unallocated liabilities
Central borrowings (see below)					4,195
Tax liabilities					4,339
Total liabilities					280,787
Total equity					14,064
Total equity and liabilities					294,851
Capital expenditure (excluding business combinations)
Intangible assets	29	14	15	32	90
Property and equipment	55	3	13	224	295
	84	17	28	256	385

Central borrowings are borrowings by holding companies within the Group which are not allocated to operating companies.

(b) Secondary reporting format – geographical segments

(i) Reporting segments

The Group’s business is managed on a regional basis in four main geographical areas. These are United Kingdom (UK), Europe, North America and Asia Pacific.

Revenue by destination does not differ materially from revenue by geographical origin, as most risks are located in the countries where the contracts were written.

(ii) Segmental results and balance sheets – geographical segment

Year ended 31 December 2007	United Kingdom £m	Europe £m	North America £m	Asia Pacific £m	Total £m
Gross written premiums	12,166	13,539	4,628	658	30,991
Premiums ceded to reinsurers	(1,021)	(389)	(194)	(54)	(1,658)
Internal reinsurance revenue	28	(19)	(7)	(2)	–
Net written premiums	11,173	13,131	4,427	602	29,333
Net change in provision for unearned premiums	42	(22)	(40)	(1)	(21)
Net earned premiums	11,215	13,109	4,387	601	29,312
Fee and commission income	789	766	37	168	1,760
	12,004	13,875	4,424	769	31,072
Other income	6,211	2,661	875	282	10,029
Segment income	18,215	16,536	5,299	1,051	41,101
Segmental result before tax	866	1,216	(13)	47	2,116
Segment assets	150,363	139,684	23,957	4,750	318,754
Unallocated assets – tax assets					966
Total assets					319,720
Segment liabilities	140,289	129,399	21,314	4,097	295,099
Unallocated liabilities – central borrowings and tax liabilities					8,029
Total liabilities					303,128
Capital expenditure (excluding business combinations)	180	112	9	7	308

Year ended 31 December 2006	United Kingdom £m	Europe £m	North America £m	Asia Pacific £m	Restated Total £m
Gross written premiums	12,280	13,449	2,424	582	28,735
Premiums ceded to reinsurers	(1,012)	(354)	(91)	(44)	(1,501)
Internal reinsurance revenue	32	(20)	(12)	–	–
Net written premiums	11,300	13,075	2,321	538	27,234
Net change in provision for unearned premiums	126	(22)	(9)	(2)	93
Net earned premiums	11,426	13,053	2,312	536	27,327
Fee and commission income	995	721	21	133	1,870
	12,421	13,774	2,333	669	29,197
Other income	9,986	5,031	520	374	15,911
Segment income	22,407	18,805	2,853	1,043	45,108
Segmental result before tax	1,749	1,540	188	76	3,553
Segment assets	144,285	123,087	21,816	4,120	293,308
Unallocated assets – tax assets					1,543
Total assets					294,851
Segment liabilities	135,639	114,342	18,818	3,454	272,253
Unallocated liabilities – central borrowings and tax liabilities					8,534
Total liabilities					280,787
Capital expenditure (excluding business combinations)	287	66	28	4	385

5 – Details of income

This note gives further detail on the items appearing in the first section of the consolidated income statement.

	2007 £m	Restated 2006 £m
Gross written premiums (note 4a)
Long-term:
Insurance contracts	15,589	13,188
Participating investment contracts	4,033	4,120
General insurance and health	11,369	11,427
	30,991	28,735
Less: premiums ceded to reinsurers (note 4a)	(1,658)	(1,501)
Gross change in provision for unearned premiums (note 38e)	(24)	89
Reinsurers’ share of change in provision for unearned premiums (note 41c(iii))	3	4
Net change in provision for unearned premiums	(21)	93
Net earned premiums	29,312	27,327
Fee and commission income
Fee income from investment contract business	416	410
Fund management fee income	576	395
Other fee income	481	779
Reinsurance commissions receivable	223	204
Other commission income	110	98
Net change in deferred revenue	(46)	(16)
	1,760	1,870
Total revenue	31,072	29,197
Net investment income
Interest and similar income
From financial instruments designated as trading and other than trading	6,427	5,444
From AFS investments and financial instruments at amortised cost	1,485	968
	7,912	6,412
Dividend income	2,095	2,115
Other income from investments designated as trading
Realised gains and losses	49	124
Unrealised gains and losses (see policy J)	65	208
	114	332
Other income from investments designated as other than trading
Realised gains and losses	5,017	4,989
Unrealised gains and losses (see policy J)	(5,968)	(998)
	(951)	3,991
Realised gains on AFS investments	391	162
Net income from investment properties
Rent	844	757
Expenses relating to these properties	(27)	(27)
Realised gains on disposal	105	46
Fair value (losses)/gains on investment properties	(745)	1,507
	177	2,283
Realised gains on loans	7	59
Foreign exchange gains and losses on investments other than trading	11	128
Other investment income	72	8
Net investment income	9,828	15,490
Share of (loss)/profit after tax of joint ventures (note 18a)	(339)	462
Share of profit after tax of associates (note 19a)	35	23
Share of (loss)/profit after tax of joint ventures and associates	(304)	485
Profit on disposal of subsidiaries and associates (note 3b)	49	222
Total income	40,645	45,394

6 – Details of expenses

This note gives further detail on the items appearing in the second section of the consolidated income statement.

	2007 £m	Restated 2006 £m
Claims and benefits paid
Claims and benefits paid to policyholders on long-term business
Insurance contracts	14,743	12,460
Participating investment contracts	5,604	4,350
Non-participating investment contracts	64	428
Claims and benefits paid to policyholders on general insurance and health business	7,779	7,232
	28,190	24,470
Less: Claim recoveries from reinsurers
Insurance contracts	(1,056)	(1,009)
Participating investment contracts	(13)	(17)
Claims and benefits paid, net of recoveries from reinsurers	27,121	23,444
Change in insurance liabilities
Change in insurance liabilities	3,360	1,649
Change in reinsurance asset for insurance provisions	147	971
Change in insurance liabilities, net of reinsurance	3,507	2,620
Change in investment contract provisions
Investment income allocated to investment contracts	885	3,122
Other changes in provisions
Participating investment contracts	1,025	2,683
Non-participating investment contracts	90	198
Change in reinsurance asset for investment contract provisions	18	(1)
Change in investment contract provisions	2,018	6,002
Change in unallocated divisible surplus	(2,922)	558
Fee and commission expense
Acquisition costs
Commission expenses for insurance and participating investment contracts	3,351	2,919
Change in deferred acquisition costs for insurance and participating investment contracts	(627)	210
Deferrable costs for non-participating investment contracts	265	230
Other acquisition costs	1,348	1,376
Change in deferred acquisition costs for non-participating investment contracts	(279)	(159)
Reinsurance commissions and other fee and commission expense	325	467
	4,383	5,043
Other expenses
Other operating expenses
Staff costs and other expenses	2,724	2,750
Central costs and sharesave schemes	163	160
Depreciation (note 20)	129	122
Impairment of goodwill on subsidiaries (note 16a)	10	94
Amortisation of acquired value of in-force business (note 17)	160	58
Amortisation of intangible assets (note 17)	106	72
Net impairment of acquired value of in-force business (note 17)	–	28
Impairment/(reversal of impairment) of intangible assets (note 17)	4	(2)
Integration and restructuring costs (note 3c)	153	246
	3,449	3,528
Impairments
Net impairment/(reversal of impairment) on loans	9	(4)
Net impairment/(reversal of impairment) on financial investments	49	(1)
Net impairment on receivables and other financial assets	1	5
Net impairment on non-financial assets	(1)	–
	58	–
Other net foreign exchange (gains)/losses	(34)	29
Finance costs (note 7)	1,208	847
Total expenses	38,788	42,071

7 – Finance costs

This note analyses the interest costs on our borrowings (which are described in note 47) and similar charges.

Finance costs comprise:

	2007 £m	Restated 2006 £m
Interest expense on core structural borrowings
Subordinated debt	179	169
Debenture loans	25	32
Commercial paper	55	29
	259	230
Interest expense on operational borrowings
Amounts owed to credit institutions	38	69
Securitised mortgage loan notes
At amortised cost	222	197
At fair value	103	94
	325	291
	363	360
Interest on banking customer deposits	166	95
Interest on reinsurance deposits	37	38
Interest on collateral received	190	32
Other similar charges	193	92
Total finance costs	1,208	847
These are analysed as:
Allocated interest and similar charges	845	466
Group debt costs and other interest	363	381
	1,208	847

8 – Long-term business economic volatility

The long-term nature of much of the Group’s operations means that, for management’s decision-making and internal performance management, the effects of short-term economic volatility are treated as non-operating items. The Group focuses instead on an operating profit measure that incorporates an expected return on investments supporting its long-term business. This note explains the methodology behind this.

(a) Definitions

Operating profit for long-term business is based on expected investment returns on financial investments backing shareholder and policyholder funds over the reporting period, with consistent allowance for the corresponding expected movements in liabilities. Operating profit includes the effect of variance in experience for non-economic items, such as mortality, persistency and expenses, and the effect of changes in non-economic assumptions. Changes due to economic items, such as market value movements and interest rate changes, which give rise to variances between actual and expected investment returns, and the impact of changes in economic assumptions on liabilities, are disclosed separately outside operating profit.

(b) Economic volatility

The investment variances and economic assumption changes excluded from the long-term business operating profit are as follows:

	Long-term business
	2007 £m	2006 £m
Investment variances and economic assumption changes	15	401

Economic items had a neutral net impact on profit in 2007, with favourable investment variances in the Europe region largely offset by negative effects in the USA and UK. In Europe, positive variances related mainly to realisation of capital gains on securities in the Netherlands and France. In the USA, realised and unrealised losses on investments were driven by the widening of credit spreads on debt securities, while in the UK there was a negative investment variance on surplus assets backing annuity business due to interest rate changes.

This compares to a significantly positive net impact of economic items on profit in 2006. In 2006 the positive investment variance was driven primarily by favourable equity market performance worldwide and increases in market interest rates in the Euro zone. In particular, there was a significant reduction in the cost of investment guarantees in the Netherlands as market interest rates increased.

(c) Methodology

The expected investment returns and corresponding expected movements in long-term business liabilities are calculated separately for each principal long-term business unit.

The expected return on investments for both policyholder and shareholders funds is based on opening economic assumptions applied to the expected funds under management over the reporting period. Expected funds under management are equal to the opening value of funds under management, adjusted for sales and purchases during the period arising from expected operating experience. The actual investment return is affected by differences between the actual and expected funds under management and changes in asset mix. To the extent that these differences arise from the operating experience of the long-term business, or management decisions to change asset mix, the effect is included in the operating profit. The residual difference between actual and expected investment return is included in investment variances.

The movement in liabilities included in operating profit reflects both the change in liabilities due to the expected return on investments and the impact of experience variances and assumption changes for non-economic items. The effect of differences between actual and expected experience on liabilities, and changes to economic assumptions used to value liabilities, are taken outside operating profit. For many types of long-term business, including unit-linked and with-profits funds, movements in asset values are offset by corresponding changes in liabilities, limiting the net impact on profit. For other long-term business the profit impact of economic volatility depends on the degree of matching of assets and liabilities, and exposure to financial options and guarantees.

(d) Assumptions

The expected rate of investment return is determined using consistent assumptions between operations, having regard to local economic and market forecasts of investment return and asset classification under IFRS.

Where assets are classified as fair value through profit or loss, the Group has applied the same “real-world” economic assumptions for fixed interest securities, equities and properties as are used under EEV principles. The principal assumptions underlying the calculation of the expected investment return are:

	Expected return Fixed interest			Expected return Equities			Expected return Properties
	2007 %	2006 %		2007 %	2006 %		2007 %	2006 %
United Kingdom	4.6	4.1		7.6	7.1		6.6	6.1
France	4.0	3.3		7.0	6.3		6.0	5.3
Netherlands	4.0	3.3		7.0	6.3		6.0	5.3

Where fixed interest securities are classified as available for sale, the expected investment return comprises the expected interest or dividend payments and amortisation of the premium or discount at purchase.

9 – Longer term investment return for general insurance and health business

For general insurance and health business, the total investment income, including realised and unrealised gains, is split between a calculated longer term return and short-term fluctuations from this. This note gives details of the longer term return calculation and the relevant assumptions.

(a) The longer term investment return, net of expenses, attributable to the general insurance and health business result was £1,029 million (2006: £1,073 million).

(b) The longer term investment return and short-term fluctuation are as follows:

	General insurance and health business
	2007 £m	2006 £m
Net investment income (note 4a(ii))	827	1,299
Internal charges included under other headings	18	(77)
	845	1,222
Analysed between:
Longer term investment return	1,029	1,073
Short-term fluctuation in investment return	(184)	149
	845	1,222

(c) The longer term investment return is calculated separately for each principal general insurance and health business unit. In respect of equities and properties, the return is calculated by multiplying the opening market value of the investments, adjusted for sales and purchases during the year, by the longer term rate of investment return. The longer term rate of investment return is determined using consistent assumptions between operations, having regard to local economic and market forecasts of investment return. The allocated longer term return for other investments is the actual income receivable for the year.

(d) The total assets supporting the general insurance and health business, which contribute towards the longer term return were £18,291 million (2006: £19,718 million).

The principal assumptions underlying the calculation of the longer term investment return are:

	Longer term rates of return Equities			Longer term rates of return Properties
	2007 %	2006 %		2007 %	2006 %
United Kingdom	7.6	7.1		6.6	6.1
France	7.0	6.3		6.0	5.3
Ireland	7.0	6.3		6.0	5.3
Netherlands	7.0	6.3		6.0	5.3
Canada	7.1	7.0		6.1	6.0

The Group has applied the same economic assumptions for equities and properties as are used under EEV principles to calculate the longer term investment return for its general insurance and health business.

(e) The table below compares the actual return on investments attributable to the general insurance and health business, after deducting investment management expenses and charges, with the aggregate longer term return over a four year period. This table will be built up over time to give aggregate and comparative figures over a five year period.

	2004 – 2007 £m
Actual return attributable to shareholders	4,779
Longer term return credited to operating results	(4,136)
Excess of actual returns over longer term returns	643

(f) The table below shows the sensitivity of the Group’s general insurance and health operating profit before tax to changes in the longer term rates of return:

Movement in investment return for	By	Change in	2007 £m	2006 £m
Equities	1% higher/lower	Group operating profit before tax	27	31
Properties	1% higher/lower	Group operating profit before tax	4	4

10 – Employee information

This note shows where our staff are employed throughout the world and analyses the total staff costs.

The number of persons employed by the Group was:

	At 31 December			Average for the year
	2007 Number	2006 Number		2007 Number	2006 Number
* Including support staff in India and Sri Lanka. ** The lower average number in 2006 reflects the inclusion of AmerUs staff only since November 2006.
United Kingdom operations*	33,686	33,251		33,560	35,340
Europe	16,059	16,942		15,839	16,770
North America**	4,717	4,659		4,853	3,623
Asia Pacific	2,052	1,784		2,005	1,784
Corporate centre	497	502		497	502
	57,011	57,138		56,754	58,019

Total staff costs were:

	2007 £m	2006 £m
Wages and salaries	1,831	1,798
Social security costs	229	216
Post-retirement obligations
Defined benefit schemes (note 46d)	191	213
Defined contribution schemes (note 46d)	63	71
Profit sharing and incentive plans	169	148
Equity compensation plans (note 29d)	50	48
Termination benefits	9	31
	2,542	2,525

These costs are charged within:

	2007 £m	2006 £m
Acquisition costs	592	597
Claims handling expenses	318	253
Central costs and sharesave schemes	109	76
Other operating expenses	1,523	1,599
	2,542	2,525