Notes 11-20

11 – Directors

Information concerning individual directors’ emoluments, interests and transactions is given in the Directors’ remuneration report.

12 – Auditors’ remuneration

This note shows the total remuneration payable by the Group to our principal auditors, Ernst & Young.

The total remuneration payable by the Group, excluding VAT and any overseas equivalent thereof, to its principal auditors, Ernst & Young LLP, and its associates in respect of the audit of these financial statements is shown below, together with fees payable in respect of other work.

		2008 £000	2007 £000
Fees payable to Ernst & Young LLP for the statutory audit of the Aviva Group and Company financial statements		1,548	1,364
Fees payable to Ernst & Young LLP and its associates for other services to Group companies:
Audit of Group subsidiaries pursuant to legislation		9,981	8,388
Additional fees related to the prior year audit of Group subsidiaries pursuant to legislation		519	372
Other services pursuant to legislation		2,439	2,124
Tax services		185	201
Services relating to information technology		112	173
Services relating to corporate finance transactions		487	736
All other services	– Supplementary reporting (see below)	3,468	931
	– Other supplementary services	6,224	4,749
Fees payable to Ernst & Young LLP for services to Group pension schemes
Audit of Group pension scheme		70	67
		25,033	19,105

Fees for Supplementary reporting are in respect of the audit of the Group’s MCEV and EEV reporting. Although embedded value is a primary management reporting basis and our disclosures require a full audit, the relevant fees are not classified as being for statutory audit. These fees have increased in 2008 due to the work undertaken on the Group’s MCEV restatement that was published in February 2009.

Fees for Other supplementary services include £3.5 million (2007: £0.9 million) for assurance services in connection with the Group’s Financial Reporting Control Framework, £1.2 million (2007: £1.4 million) for examination of the Group’s ICA capital, and £1.5 million (2007: £2.5 million) for other services.

In addition to the above amounts payable to the principal auditors, fees for audit services of £2.6 million (2007: £3.8 million) were payable to other firms. The total fees payable for audit services were therefore £14.6 million (2007: £14.0 million).

13 – Tax

This note analyses the tax charge for the year and explains the factors that affect it.

(a) Tax (credit)/charged to the income statement

(i) The total tax (credit)/charge comprises:

	2008 £m	Restated 2007 £m
Current tax
For this year	527	885
Prior year adjustments	(284)	(94)
Total current tax	243	791
Deferred tax
Origination and reversal of temporary differences	(1,814)	(348)
Changes in tax rates or tax laws	(7)	(88)
Write-down of deferred tax assets	95	(6)
Total deferred tax	(1,726)	(442)
Total tax (credited)/charged to income statement (note 13c)	(1,483)	349

In February 2009 an Australian tax court case was settled in our favour, resulting in the release of tax provisions of £63 million which has reduced the tax charge in the income statement.

(ii) The Group, as a proxy for policyholders in the UK, Ireland, Singapore and Australia, is required to record taxes on investment income and gains each year. Accordingly, the tax benefit or expense attributable to UK, Irish, Singapore and Australian life insurance policyholder returns is included in the tax charge. The tax credit attributable to policyholders’ returns included in the credit above is £1,068 million (2007: £15 million charge).

(iii) The tax (credit)/charge can be analysed as follows:

	2008 £m	Restated 2007 £m
UK tax	(1,482)	94
Overseas tax	(1)	255
	(1,483)	349

(iv) Unrecognised tax losses and temporary differences of previous years were used to reduce current tax expense and deferred tax expense by £139 million and £19 million, respectively (2007: £51 million and £6 million, respectively).

(v) Deferred tax credited to the income statement represents movements on the following items:

	2008 £m	2007 £m
Long-term business technical provisions and other insurance items	591	315
Deferred acquisition costs	224	34
Unrealised losses on investments	(1,706)	(793)
Pensions and other post-retirement obligations	16	40
Unused losses and tax credits	(413)	(272)
Subsidiaries, associates and joint ventures	(199)	(33)
Intangibles and additional value of in-force long-term business	30	(75)
Provisions and other temporary differences	(269)	342
Total deferred tax credited to income statement	(1,726)	(442)

(b) Tax (credited)/charged to equity

(i) The total tax (credit)/charge comprises:

	2008 £m	2007 £m
Current tax	(16)	(19)
Deferred tax
In respect of pensions and other post-retirement obligations	(15)	269
In respect of unrealised losses on investments	(204)	(71)
	(219)	198
Total tax (credited)/charged to equity	(235)	179

(ii) The tax credit attributable to policyholders’ returns included above is £nil (2007: £nil).

(c) Tax reconciliation

The tax on the Group's profit before tax differs from the theoretical amount that would arise using the tax rate of the home country of the Company as follows:

	2008 £m	Restated 2007 £m
(Loss)/profit before tax	(2,368)	1,847
Tax calculated at standard UK corporation tax rate of 28.5% (2007: 30%)	(675)	554
Different basis of tax – policyholders	(767)	5
Adjustment to tax charge in respect of prior years	(283)	(49)
Non-assessable income	(94)	(124)
Non-taxable profit on sale of subsidiaries and associates	(2)	(18)
Disallowable expenses	95	7
Different local basis of tax on overseas profits	(61)	56
Reduction in future UK tax rate (net of movements in unallocated divisible surplus)	–	(64)
Deferred tax not recognised	292	1
Other	12	(19)
Total tax (credited)/charged to income statement (note 13a)	(1,483)	349

14 – Earnings per share

This note shows how we calculate earnings per share, based both on the present shares in issue (the basic earnings per share) and the potential future shares in issue, including conversion of share options granted to employees (the diluted earnings per share). We have also shown the same calculations based on our operating profit as we believe this gives a better indication of operating performance.

(a) Basic earnings per share

(i) The profit attributable to ordinary shareholders is:

(ii) Basic earnings per share is calculated as follows:

(iii) The calculation of basic earnings per share uses a weighted average of 2,643 million (2007: 2,588 million) ordinary shares in issue, after deducting shares owned by the employee share trusts. The actual number of shares in issue at 31 December 2008 was 2,658 million (2007: 2,622 million).

(b) Diluted earnings per share

(i) Diluted earnings per share is calculated as follows:

(ii) Diluted earnings per share on operating profit attributable to ordinary shareholders is calculated as follows:

15 – Dividends and appropriations

This note analyses the total dividends and other appropriations we have paid during the year. The table below does not include the final dividend proposed after the year end because it is not accrued in these financial statements. The impact of scrip dividends is shown separately in note 35.

	2008 £m	2007 £m
Ordinary dividends declared and charged to equity in the year
Final 2007 – 21.10 pence per share, paid on 16 May 2008	554	–
(Final 2006 – 19.18 pence per share, paid on 18 May 2007)	–	492
Interim 2008 – 13.09 pence per share, paid on 17 November 2008	348	–
(Interim 2007 – 11.90 pence per share, paid on 16 November 2007)	–	309
	902	801
Preference dividends declared and charged to equity in the year	17	17
Coupon payments on direct capital instrument	56	53
	975	871

Subsequent to 31 December 2008, the directors proposed a final dividend for 2008 of 19.91 pence per ordinary share (2007: 21.10 pence), amounting to £529 million (2007: £554 million) in total. Subject to approval by shareholders at the AGM, the dividend will be paid on 15 May 2009 and will be accounted for as an appropriation of retained earnings in the year ending 31 December 2009.

Interest on the direct capital instrument issued in November 2004 is treated as an appropriation of retained profits and, accordingly, it is accounted for when paid. Tax relief is obtained at a rate of 28.5% (2007: 30%).

16 – Goodwill

This note analyses the changes to the carrying amount of goodwill during the year, and details the results of our impairment testing on both goodwill and intangible assets with indefinite lives.

(a) Carrying amount

	2008 £m	2007 £m
Gross amount
At 1 January	3,273	3,086
Acquisitions (note 3a(iv))	106	115
Movements in contingent consideration	(59)	(5)
Disposals	(84)	(16)
Transfers from other intangibles	11	–
Foreign exchange rate movements	651	93
At 31 December	3,898	3,273
Accumulated impairment
At 1 January	(191)	(176)
Impairment losses charged to exceptional items	(20)	–
Other impairment losses charged to expenses	(48)	(10)
Write back of impairment related to disposals	9	9
Foreign exchange rate movements	(65)	(14)
At 31 December	(315)	(191)
Carrying amount at 31 December	3,583	3,082
Less: Amounts classified as held for sale	(5)	–
	3,578	3,082

The impairment losses charged to exceptional items arise in the United Kingdom long-term business (see (b)(i) below). Of the other impairment losses charged to expenses, £46 million arises in the Netherlands (see (b)(viii) below) and £2 million arises in the Italy long-term business (see (b)(vi) below). Together with impairment charges of £18 million recognised in respect of goodwill within interests in joint ventures and associates (notes 18 and 19), the total goodwill impairment loss charged to non-exceptional expenses was £66 million.

Movements in contingent consideration relate to contingent consideration paid/received in respect of past acquisitions of subsidiaries. Goodwill arising on acquisitions completed before 1 January 1998 was charged directly to reserves. Goodwill arising on the Group’s acquisition of joint ventures and associates is included within the carrying value of those investments (see notes 18 and 19).

(b) Goodwill allocation and impairment testing

A summary of the goodwill and intangibles with indefinite useful lives allocated to cash-generating units is presented below.

As explained in accounting policy N, the carrying amount of goodwill and intangible assets with indefinite useful lives is reviewed at least annually or when circumstances or events indicate there may be uncertainty over this value. The tests led to impairment of goodwill of £68 million in 2008 (2007: £10 million).

Goodwill and intangibles with indefinite useful lives have been tested for impairment in these businesses as follows:

United Kingdom

(i) Long-term business

The United Kingdom long-term business goodwill balance is split across five cash-generating units, with no individual balance exceeding £25 million.

As disclosed in note 6, the wrap platform of the United Kingdom long-term business was terminated during the year. As a result of this termination, the goodwill relating to this business was impaired and a charge of £20 million has been recognised as an exceptional item in the income statement.

(ii) General insurance, RAC and health

Following the reorganisation of the reporting structure for the UK’s general insurance business during 2007 and 2008, further integrating the operations, management and reporting of businesses acquired with the RAC, the composition of cash-generating units to which goodwill has been allocated has been reassessed. It has been determined that goodwill should be allocated to a single ‘general insurance, RAC and health’ cash-generating unit. The analysis above reflects the revised allocation of goodwill. No impairment of goodwill has arisen or been released as a result of the reallocation.

The recoverable amount of the UK general insurance, RAC and health unit has been determined based on a value in use calculation. The calculation uses cash flow projections based on business plans approved by management covering a three year period and a risk adjusted discount rate of 10.2%. Cash flows beyond that three year period have been extrapolated using a steady 2.5% growth rate. The recoverable amount exceeds the carrying value of the cash-generating unit including goodwill and intangible assets with indefinite useful lives.

Key assumptions used for the calculation were:

• Budgeted operating profit represents the operating profit in the business plans, approved by management, and as such reflects the best estimate of future profits based on both historical experience and expected growth rates for the relevant UK industry sectors;

• Some of the assumptions that underline the budgeted operating profit include market share, customer numbers, premium rate and fee income changes, claims inflation and commission rates; and

• Growth rates represent the rates used to extrapolate future cash flows beyond the business plan period and have been based upon latest information available regarding future and past growth rates, including external sources of data such as ABI Annual Market Statistics.

As disclosed in note 17(d), as a result of the classification of The British School of Motoring Limited and its subsidiaries as held for sale, an impairment charge of £20 million in respect of intangible assets with indefinite useful lives has been recognised.

Europe

Long-term business

The recoverable amount of long-term business cash-generating units in the Europe region, with the exception of the Netherlands, has been determined based on a value in use calculation. The first step of the test was to compare the carrying value of each cash-generating unit, including goodwill, to the Market Consistent Embedded Value (MCEV) of that cash generating unit. If the MCEV is less than the carrying value of a cash generating unit the present value of profits from expected new business for that cash-generating unit is considered.

For European long-term business cash-generating units a key assumption used for the calculation was:

• Embedded value represents the shareholder interest in the life business and is calculated in accordance with the Market Consistent Embedded Value (MCEV) principles. The embedded value is the total of the net worth of the life business and the value of the in-force business.

General insurance, health and other

The recoverable amount of general insurance, health and other non-life cash-generating units in the Europe region has been determined based on a value in use calculation. Value in use is calculated for each cash-generating unit using a discounted cash flow projection based on business plans and growth assumptions approved by management for each cash-generating unit and discounted at a risk discount rate appropriate for each cash-generating unit.

(iii) France (long-term business)

The recoverable amount of the indefinite life intangible asset has been assessed as part of the recoverable amount of the French long-term business cash-generating unit. The MCEV of the French long-term business was significantly greater than its carrying value, including indefinite life intangible assets.

(iv) Ireland (long-term business)

The MCEV of the Irish long-term business is greater than its carrying value so the recoverable value will be significantly in excess of its carrying value, including goodwill.

(v) Ireland (general insurance and health)

The recoverable amount of the Irish general insurance and health business exceeds the carrying value of the cash-generating unit including goodwill.

Key assumptions used for the calculation were:

• Budgeted operating profit for an initial three year period represents the operating profit in the business plans, approved by management and as such reflects the best estimate of future profits based on both historical experience and expected growth rates for the Irish economy. Some of the assumptions that underline the budgeted operating profit include market share, premium rate changes, claims inflation and commission rates;
• Growth rate of 4.6% represents the rate used to extrapolate future cash flows beyond the business plan period. Prices are assumed to remain static in the foreseeable future and volumes are assumed to increase in line with
  real GDP; and
• A risk adjusted discount rate of 8.1%.

(vi) Italy (long-term business)

This calculation is an actuarially determined appraisal value and is based on the embedded value of the business together with the present value of expected profits from future new business.

Key assumptions (in addition to MCEV principles) used for the calculation were:

• New business contribution represents the present value of projected future distributable profits generated from business written in a period. This is initially based on the most recent three year business plans approved by management;
• Growth rate represents the rate used to extrapolate new business contributions beyond the business plan period, and is based on management’s estimate of future growth of 2.0%; and
• Risk adjusted discount rate of 10.2% represents the rate used to discount expected profits from future new business. The discount rate includes a risk-free rate and a risk margin to make prudent allowance for the risk that experience in future years for new business may differ from that assumed.
  

As a result of an Italian off-shore long-term business entering run off, the goodwill relating to this business of £2 million has been fully impaired and recognised as an impairment charge in the income statement. For the rest of the Italian long-term business the recoverable amount exceeds the carrying value of the cash-generating unit including goodwill.

(vii) Italy (non-life)

The recoverable amount exceeds the carrying value of the cash-generating unit including goodwill.

Key assumptions used for the calculation were:

• Budgeted operating profit for an initial three year period represents the operating profit in the most recent business plans, approved by management and as such reflects the best estimate of future profits based on both historical experience and expected growth rates for the Italian economy;
• Growth rate of 2.5% represents the rate used to extrapolate future cash flows beyond the business plan period; and
• A risk adjusted discount rate of 10.2%.

(viii) Netherlands (long-term, general insurance, health and fund management)

The recoverable amount of the Netherlands life and general insurance and health cash-generating units has been determined on the basis of a value in use calculation. This calculation is an appraisal value and is based on the discounted expected future cash flows from the operations over a 25-year period. Expected cash flows for future periods have been obtained from the plan figures for a three year period. Expected cash flows for later periods have been extrapolated, taking into account the growth rate.

Key assumptions used for the calculation were:

• Expected cash flows for future periods have been obtained from the plan figures for a three year period;
• Growth rate of 2.0% represents the rate applied to extrapolate new business contributions beyond the business plan period, for the life and general insurance business. In the fund management business growth rates are based on management's prudent best estimate of future growth; and
• Risk-adjusted discount rate of 9.2% for long-term, general insurance and health business, and 11.53% for fund management business represents the rate used to discount expected profits from future new business. The discount rate includes a risk margin to make prudent allowance for the risk that experiences in future years may differ from those assumed.
  

During the year, goodwill allocated to a non-insurance cash-generating unit in Belgium, was tested for impairment. Following the impairment test, an impairment charge of £46 million has been recognised in the income statement.

After recognition of this impairment charge, the recoverable amount of the Dutch cash-generating units exceeds their carrying value. An increase in the risk adjusted discount rate of 1% would result in the recoverable amount of the ABN Amro cash-generating unit being equal to its carrying value.

(ix) Spain (long-term business)

This calculation is based on the embedded value of the business together with the present value of expected profits from future new business. The recoverable amount exceeds the carrying value of the cash-generating unit including goodwill.

Key assumptions (in addition to MCEV principles) used for the calculation were:

• New business contribution represents the present value of projected future distributable profits generated from business written in a period. This is initially based on the most recent three year business plans approved by management;
• Growth rate represents the rate used to extrapolate new business contributions beyond the business plan period, and is based on management’s conservative estimate of future growth of 3.0%. This growth rate is in line with industry expectations; and
• Risk adjusted discount rate of 10.1% represents the rate used to discount expected profits from future new business. The discount rate is a combination of a risk-free rate and a risk margin to make prudent allowance for the risk that experience in future years for new business may differ from that assumed.

(x) United States (long-term business)

The recoverable amount of the United States long-term cash generating unit has been determined based on a value in use calculation.

This calculation is an actuarially determined appraisal value and is based on an embedded value of the business (the total of the net worth of the life business and the value of the in-force business) together with the present value of expected profits from future new business. The value in use exceeds the carrying value of the cash-generating unit including goodwill.

Key assumptions used for the calculation were:

• Embedded value represents the shareholder interest in the life business and is based on projected cash flows of the business including expected investment returns.
• Risk adjusted discount rate of 10% is used to calculate the embedded value;
• New business contribution represents the present value of projected future distributable profits generated from business written in a period. This is initially based on the most recent three year business plans approved by management;
• Growth rate represents the rate used to extrapolate new business contributions beyond the business plan period, and is based on management’s estimate of future growth of 5% for life and annuity business; and
• Risk adjusted discount rate of 12% represents the rate used to discount expected profits from future new business. The discount rate includes an additional margin to make prudent allowance for the risk that experience in future years for new business may differ from that assumed.

17 – Acquired value of in-force business (AVIF) and intangible assets

This note shows the movements in cost and amortisation of the in-force business and intangible assets acquired when we have purchased subsidiaries.

(a) Additions to gross AVIF on insurance contracts in 2008 includes £327m for the movement in the shadow adjustment made to the carrying value of AVIF in Aviva USA.

(b) Intangible assets with indefinite useful lives comprise:

(i) the RAC brand, and the value of the Union Financière de France Banque distribution channel, where the existing lives of the assets and their competitive position in, and the stability of, their respective markets support this classification; and

(ii) the bancassurance distribution agreement with Banco Popolare, signed in December 2007, which 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.

(c) During the year the Italian business unit finalised the valuation of Avipop Assicurazioni SpA which was acquired during 2007, and its bancassurance agreement with Banco Popolare. This has resulted in a reallocation of £31 million from intangible assets with indefinite useful lives to goodwill and other assets.

Impairment testing of these intangibles is covered in note 16(b).

Other intangible assets with finite useful lives consist primarily of the value of bancassurance and other distribution agreements.

(d) As disclosed in note 6, the wrap platform of the United Kingdom long-term business was terminated during the year. As a result of this termination the intangible asset relating to this business was impaired and a charge of £32 million has been recognised as an exceptional item in the income statement.

The impairment of intangible assets with indefinite useful lives relates to the classification of The British School of Motoring Limited and its subsidiaries as held for sale. This has been recognised as an exceptional item in the income statement.

(e) Following a review for indicators of impairment of the finite-lived intangible assets held by the UK general insurance, RAC and health business, an impairment charge of £9 million has been recognised in the income statement in respect of the intangible asset representing the right to future income from a book of creditor business. The impairment charge arose as a result of current adverse trading experience.

18 – Interests in, and loans to, joint ventures

In several business units, Group companies and other parties jointly control certain entities. This note analyses these interests and describes the principal joint ventures in which we are involved.

(a) Carrying amount

(i)The movements in the carrying amount comprised:

(ii) The balances at 31 December comprised:

The loans are not secured and no guarantees were received in respect thereof. They are interest-bearing and are repayable on termination of the relevant partnership.

(b) Property management undertakings

The principal joint ventures are as follows:

Company	GP proportion held	PLP proportion held
Airport Property Partnership	50.0%	50.0%
Ashtenne Industrial Fund Limited Partnership	66.7%	37.4%
The Junction Limited Partnership	50.0%	46.0%
The Mall Limited Partnership	50.0%	53.8%
Queensgate Limited Partnership	50.0%	50.0%
Quercus Healthcare Property Partnership Limited	50.0%	39.6%
The 20 Gracechurch Limited Partnership	50.0%	50.0%

All the above entities perform property ownership and management activities, and are incorporated and operate in Great Britain. All these investments are held by subsidiary entities.

(c) Long-term business undertakings

The principal joint ventures are as follows:

All investments in the above companies are unlisted and are held by subsidiaries except for the shares in Aviva-COFCO Life Insurance Co. Limited, which are held by the Company. The Group’s share of net assets of that company are £57 million (2007: £44 million) and have a fair value of £61 million (2007: £52 million).

On 4 April 2008, the Group acquired 40.65% of LIG Life Insurance Co. Ltd (LIG Life), a South Korean life insurance company, for £34 million. This company was renamed Woori Aviva Life Insurance Co. Ltd and distributes life insurance products through multiple distribution channels, focusing on the Busan metropolitan area in the south-eastern region of the country. Further shareholdings of 5.51% and 0.63% were acquired on 7 April and 29 May 2008 respectively for a total of £4 million. The contractual arrangements with the other major shareholder have led us to account for this investment as an interest in a joint venture.

(d) Impairment testing

CIMB Aviva Assurance Berhad and CIMB Aviva Takaful Berhad

The Group’s investments in CIMB Aviva Assurance Berhad and CIMB Aviva Takaful Berhad have been tested for impairment by comparing their carrying values (which include goodwill which arose on their acquisition) with their recoverable amounts. The recoverable amounts for both the investments have been determined based on value in use calculations. This calculation is an actuarially determined appraisal value and is based on the embedded value of the business together with the present value of expected profits from future new business. The recoverable amounts exceeds the carrying values of both the investments.

Key assumptions used for the calculation were:

• The calculations use cash flow projections based on the policy portfolio existing at the valuation date and the future sales based on plans approved by management covering the subsequent three year period. The cashflows from existing policy portfolio is calculated using best estimate assumptions, which have been supported by experience investigation where available and prudent estimates typical for the market where experience investigations are not available;
• The calculations use a risk adjusted discount rate of 10.5%; and
• New sales beyond the three year period have been extrapolated using a growth rate of 7.5%.

AvivaSA Emeklilik ve Hayat A.S.

The Group’s investment in AvivaSA Emeklilik ve Hayat A.S. has been tested for impairment by comparing its carrying value (which includes goodwill which arose on its acquisition) with its recoverable amount.

The recoverable amount has been determined based on a value in use calculation.

This calculation is an actuarially determined appraisal value and is based on the embedded value of the business together with the present value of expected profits from future new business. The recoverable amount exceeds the carrying value of the cash-generating unit including goodwill.

Key assumptions used for the calculation were:

• Embedded value represents the shareholder interest in the life business and is calculated in accordance with the Market Consistent Embedded Value (MCEV) principles. The embedded value is the total of the net worth of the life business and the value of the in-force business. The underlying methodology and assumptions have been reviewed by a firm of actuarial consultants;
• New business contribution represents the present value of projected future distributable profits generated from business written in a period. This is initially based on the most recent three year business plans approved by management;
• Growth rate represents the rate used to extrapolate new business contributions beyond the business plan period, and is based on management’s estimate of future growth of 5%; and
• Risk adjusted discount rate of 21% represents the rate used to discount expected profits from future new business. The discount rate reflects a risk margin to make prudent allowance for the risk that experience in future years for new business may differ from that assumed.

(e) Additional information

Summarised aggregate financial information on the Group’s interests in its joint ventures is as follows:

	2008 £m	2007 £m
Income, including unrealised (losses)/gains on investments	(876)	242
Expenses	(153)	(579)
Share of results before tax	(1,029)	(337)
Long-term assets	3,115	4,263
Current assets	529	395
Share of total assets	3,644	4,658
Long-term liabilities	(1,968)	(1,684)
Current liabilities	(434)	(762)
Share of total liabilities	(2,402)	(2,446)
Share of net assets	1,242	2,212

The joint ventures have no significant contingent liabilities to which the Group is exposed, nor has the Group any significant contingent liabilities in relation to its interests in them.

19 – Interests in, and loans to, associates

This note analyses our interests in entities which we do not control but where we have significant influence.

(a) Carrying amount

The loans are interest-bearing but are not secured, and no guarantees were received in respect thereof.

Additions in 2008 comprise additional capital invested in Aviva Life Insurance Company India Limited, Banca Network Investimenti SpA, RBSG Collective Investments Limited, and RBS Life Investments Limited.

(b) Principal associates

The principal associates included above are:

All investments in principal associates are unlisted and are held by subsidiaries.

Although the Group’s holding in the three Cyrte funds is less than 20%, it has significant influence through ownership of the fund manager, Cyrte Investments BV, a subsidiary of which acts as general partner to the funds, and through membership of its investment committee.

The Group’s Dutch subsidiary owns 30.1% of the shares, and depositary receipts for shares, in Van Lanschot NV, a financial services company in the Netherlands. The Group is not able to appoint management representation on the board of this company and is therefore unable to exert significant influence over its affairs. Accordingly, this investment is treated as a financial investment rather than as an associate.

(c) Additional information

Summarised aggregate financial information on the Group’s interests in its associates is as follows:

	2008 £m	2007 £m
Share of revenues	460	385
Share of results before tax	(54)	51
Share of assets	3,812	3,123
Share of liabilities	(2,974)	(2,324)
Share of net assets	838	799

The associates have no significant contingent liabilities to which the Group is exposed, nor has the Group any significant contingent liabilities in relation to its interest in them.

(d) Impairment testing

RBS Life Investments Limited and RBSG Collective Investments Limited

The Group’s investments in RBS Life Investments Limited and RBSG Collective Investments Limited have been tested for impairment by comparing their carrying values (which include goodwill which arose on their acquisition) with their recoverable amounts.

The recoverable amounts for both investments have been determined based on value in use calculations, using an appraisal value methodology. The appraisal value comprises MCEV and a value of future new business. Future new business is valued using a similar approach as used for the in-force business. The value of 2009 planned new business is based on planned volumes, planned margins for manufactured business and current margins for adopted business all approved by management. This value is then multiplied by an annuity in perpetuity factor to give the value of all years of future new business and then discounted from mid-2009 back to the valuation date. The annuity factor allows for new business growth of 4.5% and a risk discount rate of 7.3%. This value is adjusted to allow for future expense over-runs and under-runs, based on the projected expenses and sales volumes.

The recoverable amounts exceed the carrying values of both the investments.

Banca Network Investimenti SpA

The Group’s investment in Banca Network Investimenti SpA has been tested for impairment by comparing its carrying value (which includes goodwill which arose on its acquisition) with its recoverable amount.

The recoverable amount has been determined based on a value in use calculation prepared by an external valuation expert. Value in use was calculated using a discounted cash flow projection based on business plans and growth assumptions approved by management and discounted at an appropriate risk discount rate.

Key assumptions used for the calculation were:

• A cash flow project based on a three year plan period. Cash flows beyond that three year period have been extrapolated using a steady 2% growth rate;
• Risk adjusted discount rate of 8.5% based on the weighted average cost of capital of similar Italian listed companies; and

As a result of the testing, an impairment of £12 million has been recognised.

20 – Property and equipment

This note analyses our tangible fixed assets, which are primarily properties occupied by Group companies and computer equipment.

Fair value losses of £37 million have been charged (2007: £23 million gains credited) to equity (note 34), with the remainder being charged to the income statement.

Owner-occupied properties are stated at their revalued amounts, as assessed by qualified external valuers or by local qualified staff of the Group in overseas operations, all with recent relevant experience. These values are assessed in accordance with the relevant parts of the current RICS Appraisal and Valuation Standards in the UK, and with current local valuation practices in other countries. This assessment, on the basis of Existing Use Value and in accordance with UK Practice Statement 1.3, is the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction, after proper marketing wherein the parties had acted knowledgeably, prudently and without compulsion, assuming that the buyer is granted vacant possession of all parts of the property required by the business and disregarding potential alternative uses. The valuation assessment adopts market-based evidence and is in line with guidance from the International Valuation Standards Committee and the requirements of IAS 16, Property, Plant and Equipment, for all but specialised-use properties which are valued on a depreciated replacement cost (DRC) basis as permitted by paragraph 33 of IAS 16.

If owner-occupied properties were stated on a historical cost basis, the carrying amount would be £414 million (2007: £301 million).

The Group has no material finance leases for property and equipment.