UK: With-profits bonus announcement 2007

Crawford Davidson, marketing director at Norwich Union, said: "Returns from the stock market and commercial property continued to be strong in 2006 and as a result most final bonus rates have increased significantly with all policies increasing in value in 2006.

"In addition, regular bonus rates are also being maintained for new customers and most existing customers – this follows an increase in regular bonus rates for many bond holders in mid 2006. Market value reductions (MVRs) were reduced twice last year; they have again been reduced at the start of this year and we aim to remove them completely as soon as the stock market allows.

"With-profits sales have grown strongly in the first three quarters of 2006 due to our innovative Inflation Protection Guarantee bond and we remain committed to providing competitive returns to both existing and new with-profits customers."

Figures at a glance:

• Strong performance from property (18.0%) and UK equity markets (16.2%) enabled the CGNU with-profit fund to achieve an overall return of 11.7% before tax
• Bonuses totalling Ł1.3 billion added during 2006 for around 2.5 million customers
• Most final bonus rates increased significantly. For example, for bonds invested in 2005 the final bonus increased from 2% to 11% and for those invested in 1995, the final bonus increased from 12% to 21%
• Money invested in 1998 now no longer subject to an MVR
• Policy values increased strongly during the year:
  • Cash-in value for a Ł10,000 single contribution 10-year bond is Ł16,739, an increase in value of Ł1,130 during 2006
  • A 25-year Ł50 a month mortgage endowment maturing in 2007 will pay Ł46,829, Ł12,898 over the target amount with the policy increasing in value by Ł5,054 in 2006 (excluding premiums paid in 2006)
  • A 20-year Ł200 a month pension maturing in 2007 will pay Ł110,888 – with the policy increasing in value by Ł8,653 in 2006 (excluding premiums paid in 2006).

Figures for investment and policy returns relate to the CGNU with-profit fund only. Returns quoted assume the policies mature on 1 January 2007. Endowment example is for a 29 year old male at the outset of the policy.

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Press office contacts:

Norwich Union Life press office: 01904 452617 / 452828 / 452791
Louise Soulsby 07800 699526
David Gwyer 07800 699508
Cheryl Cox 07800 695275
Rob Pell 07800 699563

Contents:
1) Investment returns and how customers money is invested
2) Increase in customers’ policy values during 2006
3) How investment bond returns compare to cash
4) Regular bonus rates for customers for 2007
5) Changes to cash-in values for unitised policies (known as MVRs)
6) Investment markets overview 2006 and economic outlook for 2007
7) Potential reattribution of the inherited estate of CGNU and CULAC funds
8) General information and further facts and figures

1) Investment returns and how customers money is invested
We have seen another year of good returns on the CGNU and CULAC with-profit funds, with a return in 2006 of 11.7% before tax. The comparable returns in 2005 and 2004 were 17.7% and 11.6% respectively (all before tax). The UK stock market further improved with the FTSE 100 Index ending the year up 11% at 6221 - but still remains 10% below its peak at the end of 1999.

The return on the NULAP with-profit fund was 10.7% before tax, while the return on the Provident Mutual (PM) fund was 1.8% before tax. The PM figures reflect the higher proportion of assets invested in fixed interest investments. For those PM endowment policyholders who opted during 2005 to switch future investment returns to the CGNU with-profit fund, the return in 2006 was 11.7% before tax.

The investment return has been passed on to policyholders through an increase in the underlying value of their policies (known as asset share).

The equity backing ratio (proportion in shares & property) increased from 72% at the start of 2006 to 74% at the end of the year. A significant EBR is important for long-term performance. The equity backing ratio of the CULAC fund is 74%, the NULAP fund is 65% and the Provident Mutual fund is 14%.

2) Increase in customers’ policy values during 2006

The examples above are based on a Ł10,000 single contribution for a male aged under 75 at outset.

* investments not switched to CGNU mid-2005

* investments not switched to CGNU mid-2005

The above endowment examples are based on a male aged 29 investing Ł50 a month for 25 years with the policy starting on 1 January 1982.

The above examples are based on a male, investing Ł200 a month for 20 years from January 1987 with the policy maturing at age 65, with a return of fund death benefit. In most cases the effective policy return is enhanced by the right to a valuable guaranteed annuity rate.

Further examples of payouts for conventional and unitised policies over different terms are available on request.

3) How investment bond returns compare to cash

Examples based on a Ł10,000 single contribution made on 1 January 1997. The original investment plus Retail Price Index (RPI) would be Ł13,180. Returns are quoted net of basic rate tax.

The bank/building society savings account illustration is compiled from an aggregate of 19 bank and building society rates, chosen to represent the industry as a whole, for a deposit of Ł2,500 to Ł25,000. Source: Micropal S&P. When comparing different types of investment and savings products you should bear in mind that access, tax treatment and risk to your money may differ.

4) Regular bonus rates for customers for 2007
Regular bonus rates have been held with the exception of one policy type (Implicit charged pensions - NULAP policies reduced from 3% to 2%). Some regular bonus rates were also increased mid-year 2006.

• Explicit charged unitised policies: 4.25% (investment) and 4.5% (pensions), 4% (stakeholder pension). For NU International (NUIL) offshore bonds 5% sterling or 4.75% euro/$
  
  (Expressed as a gross rate before the deduction of the 1% annual fund management charge)
• Implicit charged investment policies: 3.25% for CGNU & CULAC (post-October 1998 policy rates increased mid-2006 from 2% to 3.25%) and 2% for NULAP
• Implicit charged pensions: 3.5% (CGNU & CULAC). NULAP policies reduced from 3% to 2%. This reduction is necessary to manage the level of further guarantees added to the fund. Awarding more investment performance through final bonus (increased this year) gives us greater flexibility for the benefit of all policyholders.
  
  (Implicit charged products mean that the annual management charge for the policy is deducted from the investment return before the annual bonus rate is set)
  
  (The different levels of bonus rates for the implicit and explicit (net of charges) policies reflects the level of guarantees built up in the different ranges of policies and the differing investment periods during which money has been invested)

Conventional policies:
Life, investment and pension policies for CGNU, CULAC, NULAP and PM policies - no changes to regular bonus rates. Regular bonus rates on the main policies range from 0% to 2%. These bonus rates reflect the level of valuable guarantees in the funds.

The above bonus rates on unitised and conventional policies are applicable until further notice.

5) Changes to cash-in values for unitised policies (known as a Market Value Reduction (MVR))
Average MVR rates* for money invested in a specific year are:

*across CGNU/CULAC/NULAP and includes Bonds and Pensions

An MVR is a mechanism used to ensure fair treatment to all members of the with-profit fund. It is designed to ensure that people who choose to leave the fund do not take more than their fair share of assets at the expense of those who remain in the fund.

6) Investment markets overview 2006 and economic outlook for 2007
Markets in 2006 - Most equity markets performed strongly over the year. Having steadily climbed to six-year highs in May 2006 on the back of ongoing global economic expansion, swelling corporate earnings and a raft of bid activity, stocks fell back sharply in May and early June over concerns about excessive monetary tightening by the world’s central banks. However, the decision by the US Federal Reserve to pause its protracted monetary tightening policy in August helped equity markets rebound strongly. Also helping to drive bullish sentiment towards stocks over the last few months was falling energy prices, benign inflation data and rebounding consumer optimism in the US.

Over the 12-month period, UK, European, the bulk of Asian and other emerging markets fared particularly well, while the US and Japanese markets were in a comparatively subdued state. The positive trend in the commercial property market continued. Strong investor demand remains the major factor driving markets and the reassuring qualities of property suggest that it will remain a favourite for some time to come. For a period the retail sector strongly outperformed. However, more recently the office sector has staged a strong recovery, particularly in the West End and City offices. The recovery in office occupier markets is being driven by robust activity levels in the financial and business services sector. The expectation of further significant rental growth is also driving very strong investor demand for offices.

Further stockmarket gains in 2007 - After three years of exceptionally good returns around the world, stock markets are expected to make further modest gains in 2007 and returns of 6-10% look plausible. Bond yields are higher than the recent cycle lows but do not offer great value. Although inflation should remain under control and fears of outright deflation have dissipated, yields around the world still look too low. With little likelihood of a global recession, yields look unlikely to fall much further, which implies disappointing returns for investors.

In the UK, the Bank of England raised interest rates in November to 5% and we anticipate that they will rise once more in early 2007 to reach 5.25%. Inflation is above target and may rise further. The Bank of England is concerned that higher inflation will lead to higher wage demands over the key winter pay round.

The US economy is slowing as the housing market cools and spreads to the retail and manufacturing sectors. The economy is growing more slowly than usual but there are several reasons to be optimistic. Companies have plenty of cash and are investing and hiring. Consumers are still willing to spend and interest rates are relatively low. Unemployment is expected to rise a little as the economy slows, but not by enough to cause a consumer meltdown.

In Europe, economic growth has improved but will slow again in 2007. Eurozone growth slowed in the third quarter of 2006, and weak consumer spending in Germany is likely to be made worse because the country is about to experience one of the biggest tax increases ever seen. Inflation is below target but the European Central Bank is concerned that it could push higher in early 2007, partly because of the increase in German VAT.

The Japanese economy is finally recovering from the problems of the 1990s, but there is still too much optimism about prospects for growth. The Japanese economy will grow in 2007 but more slowly than most commentators think.

7) Potential reattribution of inherited estate of CGNU and CULAC funds
Aviva announced on 27 October 2005 that it was investigating the potential to reattribute the inherited estate of the CGNU and CULAC funds. On 21 November 2006 Aviva announced that it had appointed an independent policyholder advocate, Clare Spottiswoode, to represent policyholders in negotiations on the potential reattribution. Aviva has not yet made a decision as to whether it will proceed with a reattribution and will proceed only if it is clear that any negotiated outcome is fair to its policyholders and shareholders. It is important to stress that eligible customers will be completely free to choose whether or not to participate in any offer.

8) General information and further facts and figures

Mortgage endowment shortfall status: Statistics for the mailing undertaken by Norwich Union in 2006 show the following status: 10.5% of policies on green and 89.5% of policies on red (previous 7% green, 21% amber, 72% red). NU no longer uses amber as a separate designation.

Note:
Mortgage endowment promise: Norwich Union launched its mortgage endowment promise in 2000 to assist policyholders who, at the time of the announcement, were in a position of shortfall on their mortgage endowment. This promise was designed to help people make up the shortfall on a mortgage endowment policy when it matured and is needed to pay off the mortgage. The mortgage promise was conditional on the company earning a sufficient investment return on its free reserves.

The company has already committed around Ł1 billion of capital for future endowment shortfall assistance – underlining the strength of our with-profit funds. Norwich Union believes that its mortgage endowment promise remains fully viable under the current and improving market conditions and, as a result, is not under review. If market conditions were to change significantly in the future then the promise may be reviewed. Norwich Union has committed to its customers that if it was to review the promise, it will give policyholders at least three years’ notice of any proposed changes.

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Notes to editors:
Norwich Union has approximately 2.5 million with-profit customers of which 1 million are endowments, 0.9 million are pensions and 0.6 million are investment bonds. At the end of June 2006, the total value of Norwich Union’s with-profit funds was approximately Ł61 billion. (CGNU Ł15 billion, CULAC Ł16 billion, NULAP Ł27 billion, PM Ł3 billion).

Important notes: Future bonus rates are not guaranteed and may vary, as they depend on profits yet to be earned. Past performance is not a guide to the future. The value of investment linked funds can go down as well as up and is not guaranteed. The illustrative maturity amounts include periods of high inflation and high investment returns. We may apply a market value reduction on encashments but not on most maturities and on all deaths, which will reduce what you get back from the unitised with-profit fund. Past performance is based on the charging structures applicable to the products at the time the policies were effected. Different charging structures apply to the current products.

About Norwich Union
Norwich Union is the UK’s largest general insurer with a market share of around 15%, with a focus on insurance for individuals and small businesses.

It is a leading provider of life, pensions and investment products and one of the largest financial adviser (FA) providers. FAs provide over 70% of the company's long-term savings business in the UK.

Norwich Union’s news releases and a selection of images are available from Aviva's internet press centre at www.aviva.com/media

The information published in this section is solely intended for use by members of the media. Customers should not rely on the information contained within these news releases to form the basis of investment decisions.