Group chief executive's statement

Dear Shareholder,

Introduction

This is my first opportunity since becoming group chief executive to report on our progress. I am pleased to say that we have delivered a robust set of results for the first half of 2007 in a challenging environment. We have a huge opportunity to gain new customers and establish ourselves as the world’s most trusted provider of savings, investments and insurance. It will be a battle to win this business, but I am determined that we shall succeed and take the group to its next stage of growth.

Richard Harvey

I would like to wish my predecessor Richard Harvey all the best for his retirement and extend the thanks of everyone involved with Aviva for his contribution to the success of the group. Richard guided the group through many challenges and significant merger activity. He leaves the group in a strong position to continue the progress it made under his leadership. I wish Richard well for his upcoming African adventure, where I’m sure he will bring his customary energy and enthusiasm to the voluntary work that he and his wife, Kay, will be undertaking with the international development agency Concern Universal.

Strategy

I spent a significant amount of time over the first half of the year consulting with business colleagues, the board and leading external thinkers on the future direction of the group. These discussions confirmed to me that our strategy remains fundamentally sound and I don’t propose to make any changes to the core priorities of our business.

I would, however, like to focus on two aspects of that strategy which I consider vitally important for our continued progress: realising the full potential of our existing businesses through operational excellence and the rigorous allocation of capital for growth and value.

One Aviva

Since July, Aviva has been managed as four strong regions by a new executive team, reflecting the increasingly multi-national nature of the group’s business and creating greater clarity of roles and responsibilities. The interests of our customers and shareholders are best served by our businesses acting as one group and we are headlining the changes we are making as a move to “One Aviva”. The regions comprise Europe, Asia Pacific, North America and the UK. Europe will continue to be led by Tidjane Thiam, Simon Machell is heading up Asia Pacific, Tom Godlasky has expanded his responsibilities to include the whole of North America, Mark Hodges retains the UK life business and Igal Mayer has moved from Canada to head the UK general insurance business. Furthermore, Alain Dromer has been appointed as chief executive of Morley and will join our executive committee in September. In addition to his role at Morley, he will have a mandate to create and lead a global asset management operation, Aviva Global Investors, designed to capitalise on the existing strengths of our asset management business around the world. I’m excited to be working with such a talented executive team and together we will look to drive aggressive, high-quality growth for Aviva.

Operational excellence

If we are to produce the financial results that our shareholders are seeking, we need to have efficient and robust operations that deliver a high-quality service to customers. We have already announced this year an innovative deal with Swiss Re to outsource the administration of almost three million Norwich Union Life policies. This deal will allow us to decommission 220 systems, make significant progress in improving service levels to the financial adviser community and to focus attention on further improving customer satisfaction.

Investing in the business

To grow and generate value it is crucial that we invest our capital in the right markets and at the right time. Additionally, it is important that we have businesses at different stages of their development.

Our Northern European businesses have scale and are able to generate sustainable returns that can be reinvested in higher-growth areas.

In Southern Europe, we have further strengthened our bancassurance proposition. In Spain, we have entered into a bancassurance joint venture with Cajamurcia, the leading financial institution in Murcia, which provides an excellent geographic fit with our existing bancassurance network. In Italy, we have established a bancassurance joint venture with Banco Popolare, Italy’s third-largest bank, to sell protection and non-life insurance.

In Central and Eastern Europe, we see continued economic growth presenting excellent future prospects. Our commitment to this region was demonstrated by signing an agreement in Turkey to merge our existing operations with Aksigorta AŞ. The merged business has signed a long-term bancassurance agreement with Akbank TAŞ, Turkey’s second-largest privately owned bank. We have also agreed a number of significant bancassurance partnerships that will help build our new business in Russia.

In Asia, we announced that we are entering the Malaysian long-term savings market through a joint venture with the CIMB group. In turn, the joint venture will enter into an exclusive bancassurance agreement with CIMB bank, which has more than 4.5 million customers. We have also agreed to establish a joint venture in Taiwan with First Financial to manufacture long-term savings and pension products and distribute them through an exclusive bancassurance agreement with First Commercial Bank, Taiwan’s second-largest network. Furthermore, we have signed additional bancassurance agreements in India and Sri Lanka.

In the UK, we announced an agreement with HSBC to underwrite and distribute general insurance products to their 10 million customers. This agreement brings together our underwriting and customer management expertise with HSBC’s distribution network to offer customers a broad product range and good service.

In aggregate, these new arrangements provide access to over 30 million potential customers, giving us strong prospects for growth across a number of diverse markets. It is worth bearing in mind that these deals are in addition to the strong growth generated by the acquisition of AmerUs at the end of 2006. The US market provides compelling demographics as over 70 million “baby boomers” are approaching or entering retirement.

While I have talked about our growth prospects, it is important to remember some of the core strengths of our business. We have a leading bancassurance network and are increasingly seen as a partner of choice for banks. These deals are long-term in nature and continue to provide high new business margins. Additionally, the scale of this franchise means that we are not in any sense dependent on any one partner.

Financial results

Our pre-tax EEV operating profit of £1,541 million (2006: £1,699 million) reflects a strong operational performance that was offset by the cost of the severe flooding in the UK in June. Our return on equity shareholders’ funds was 11.6% (2006: 14.0%). On an IFRS basis, the group operating profit before tax was £1,375 million (2006: £1,376 million).

Interim dividend

I am pleased to announce that the board has recommended an interim dividend of 11.90 pence (2006: 10.82 pence), an increase of 10%. It remains our intention to increase the total dividend on a basis judged prudent using a dividend cover in the 1.5 to 2.0 times range, while retaining capital to support future business growth.

Outlook

It is an exciting time at Aviva. Demographic changes are leading increasing numbers of people to protect their assets and invest for their future financial wellbeing. This presents a significant opportunity for us, particularly given the overall buoyancy in the world economy driven, to a great extent, by emerging markets. Our increasing scale and international reach, combined with our ability to deliver a wide range of superior products and services relevant to our customers, gives us every confidence that the group is well placed to deliver further significant growth.

Andrew Moss
Group chief executive