UK life

Our UK long-term savings business, Norwich Union, continues to be a leader in the UK market. Our broad product offering, respected brand, wide distribution reach and financial strength mean that we are uniquely placed to deliver growth and returns for customers and shareholders.

Our ambition is to create value for our customers and protect what is important to them. We aim to be easy to do business with and to keep the promises we make to both our customers and shareholders.

We aspire to be the clear leader in our market. We will achieve this by simplifying our business structure to improve service and reduce costs, by extending our distribution model through building our presence in the direct to customer and corporate sectors, further strengthening our relationship with IFAs and continuing to focus on offering products that satisfy customer needs.

The UK long-term savings market continues to grow*. Customers’ needs for pension products remain high following A-Day regulatory changes in 2006 with advisers continuing to review their customers’ product portfolio into 2007. Furthermore, consumer appetite for investment products continues to be driven by population demographics and retirement planning.

In the first six months of 2007, we have again delivered a record new business sales performance, with total sales up 7% at £7,415 million (2006: £6,899 million), including collective investment sales of £1,595 million (2006: £1,083 million). In addition, our market share** has risen to 11.2% for the first quarter of 2007 (full year 2006: 10.9%).

In March 2007 we announced a partnership with Swiss Re to outsource the administration of almost three million of our existing life and pension policies. This will enable us to decommission 220 of our 550 product systems and deliver improvements in both our customer service and cost efficiency. Ultimately, we aim to reach a position whereby we have 80% of our business by value on five core contract systems.

We continue to pursue the potential reattribution of the inherited estates of the CGNU and CULAC with-profit funds and are currently engaged in complex and lengthy negotiations with the independent policyholder advocate, Clare Spottiswoode. This is the first time a reattribution on this scale has been proposed under the new regulatory process. We are committed to working towards a deal but will only go ahead with a reattribution if the negotiated outcome is fair to policyholders and shareholders. We expect to provide an update on the negotiations later in the year.

Our operational review, announced in September 2006, remains on track to deliver £125 million annualised savings by the end of this year. As at 30 June 2007 we had achieved estimated annualised savings of £96 million, contributing a £35 million improvement to our first half financial results.

Our customer service has continued to improve and our service capability is now well placed to support our overall objectives. Customer satisfaction improved, with the percentage of customers who are either extremely or very satisfied rising to 73% (2006: 63%). Customer advocacy is rising and customer service complaints have reduced by 34% on 2006. We have introduced several new service promises, which aim to provide customers and advisers with a consistent and easy service experience.

In addition, independent research shows that the percentage of advisers who rate our service as excellent or good has increased to 65% (2006: 35%) with adviser service complaints down by 45% on 2006.

We have improved our profitability with new business margin increasing to 3.1% (2006: 2.9%), driven by a combination of the savings from our ongoing operational review and our commitment to maximising shareholder value through balancing price, volume and mix. After required capital, our new business contribution was £143 million (2006: £135 million), a margin of 2.5% (2006: 2.3%).

Life EEV operating return was 18% higher at £413 million (2006: £350 million), reflecting the increased profitability of our new business, combined with a strong improvement in expense and persistency experience.

The improvement in our overall expense experience is due to the impact of our operational review. We continue to record adverse experience due to our ongoing investment in our ambition of offering simpler products to customers combined with the simplification of our processes.

Our improvement in persistency experience reflects the implementation of our customer retention strategy including active customer calling and targeting poor performing distributors. We continue to review our adviser and sales force remuneration model to encourage good persistency behaviour. Overall persistency experience for the period is broadly in line with expectations.

The UK life operating profit on an IFRS basis was 42% higher at £303 million, (2006: £213 million), driven by both with-profit and non-profit business. The increase in operating profit for with-profits business to £85 million (2006: £68 million) is driven by strong investment performance conditions, which continue to drive higher policyholder bonuses. The increase in the non-profit business is driven by the FSA rule change PS 06/14, which contributed £76 million to the result, and has been partially offset by investment losses caused by adverse interest rate movements.

Alongside our strong financial performance in the first half of 2007, we have continued to invest in corporate distribution channels and direct to customer propositions while further improving our product offerings.

We believe wrap platforms will be a key distribution channel for future growth with advisers and investors seeking greater flexibility, wider diversity of fund choice and simple to use technology. We are investing in this capability and aim to become a key player in this emerging market. We expect our Lifetime wrap platform to form an increasing part of our business in 2007 and beyond.

We have further enhanced our “make sense of it” website, which includes guidance on investments, pensions, retirement and protection options. This consumer website makes it easy for users to make sense of their personal financial situation and to determine what options are available to them.

Collective investments continue to play an important part in our strategy demonstrated by our broad fund range, including socially responsible investment, UK equity and property funds. In the UK all companies sector, three of our funds were placed in the first quartile over the year to 30 June: the NU sustainable futures growth, NU UK ethical and NU UK focus funds.

The strategy we have put in place is reflected in our half year performance. We will continue to drive value from our business for the long-term benefit of both our customers and shareholders. Our aim remains to grow our new business sales at least in line with the market while maintaining or increasing our overall new business margin from current levels.