Preliminary announcement - 12 months ended 31 December 2000

• Operating profit before tax from ongoing business*, including life achieved profit, of £1,407 million (1999: £1,534 million) is after a £133 million investment in developing our e-enabled UK wealth management service. On a modified statutory basis, operating profit before tax was £1,028 million (1999: £1,299 million)
• Life achieved operating profit up 14% to £1,569 million
• Worldwide long-term savings new business sales up 24% to £13.5 billion, 21% up in the UK with margins maintained
• General insurance operating profit from ongoing businesses* of £412 million after UK flood and French storm costs of £285 million
• Full year dividend of 38.0 pence net per share
• Rapid and successful merger integration progress
• Major restructuring of business achieved in the year

 

Financial highlights

	2000 £m	Restated 1999 £m	Local currency growth %
Total long-term savings new business
:life & pensions premiums	11,023	9,638	17%
:investment sales	2,501	1,578	63%
Total premiums written (after reinsurance) and investment sales from ongoing business	27,026	23,823	16%
Operating profit before tax from ongoing business(i)	1,407	1,534	(6%)
(Loss)/profit on ordinary activities after tax(ii)	(1,576)	2,141
Operating earnings from ongoing business per ordinary share(i)	39.7p	45.4p
Shareholders' funds(iii)	13,633	15,673
Net asset value per ordinary share(iv)	606p	700p

Basis of preparation - the 2000 results have been prepared according to the principles of merger accounting, using common accounting policies, and have been taken from the Group's unaudited Annual Report and Accounts 2000. The 1999 results have been restated to this same basis and have been revised to comply with FRS16 "Current Tax".

(i) Operating profit before tax and earnings shown above includes life achieved operating profit and excludes the operating loss of businesses discontinued and to be discontinued £554 million (1999: profit of £201 million), the profit arising from the change in risk margin £nil (1999: £89 million), amortisation of goodwill £92 million (1999: £34 million) and exceptional items £425 million (1999: £163 million). It does not incorporate the use of the expected proceeds from businesses sold or sales of businesses to be completed.

(ii) Loss on ordinary activities after tax, including life achieved operating profit, is after providing for the loss on the impending sale of the US general insurance business, the withdrawal from UK London Market operations and exceptional items.

(iii) Based on equity and non-equity shareholders' funds which have been reduced by the equalisation provision of £216 million (1999: £212 million).

(iv) Based on equity shareholders' funds, adding back the equalisation provision.

Life profits reporting

In reporting the headline operating profit, life profits have been included using the achieved profit basis. This is used throughout the CGNU Group and by many in the investment community to assess performance. We have focused on the achieved profit basis, as we believe life achieved operating profit is a more realistic measure of the performance of life businesses than the modified statutory basis. The modified statutory basis is used in our financial statements and, on this basis, the life operating profit before tax amounted to £1,190 million. The basis used for reporting achieved profit is consistent with the draft guidance set out by the Association of British Insurers.

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Enquiries:

Bob Scott, Group Chief Executive
Telephone +44 (0)20 7662 2023

Richard Harvey, Group Chief Executive (designate)
Telephone +44 (0)20 7662 2286

Peter Foster, Group Finance Director
Telephone +44 (0)20 7662 2955

GROUP CHIEF EXECUTIVE'S STATEMENT

When the merger took effect in May last year, we had a clear strategy; to become a leading European-based financial services group through focusing on long-term savings business, building a world class fund management business and raising the quality of our general insurance earnings. We also recognised that a clear focus was needed on those markets where CGNU can achieve a leading position, and this underpins our objective of creating real value for shareholders. These principles lie behind everything we have done this year.

We are pleased to report that this strategy is already producing results. While channelling energies into the merger process during 2000, we have also been actively investing in a number of long-term savings distribution initiatives, both in the UK and internationally. We have achieved strong profitable growth on our long-term savings business, gaining market share in the UK, France, Netherlands and Spain. At the same time we have exited or are in the process of exiting a number of businesses, the most significant being the sale of our US general insurance interests and our UK London Market operations; actions which have not been without significant cost, but have refocused the Group and will improve the quality of future earnings.

The Group operating profit before tax from ongoing business, including life achieved profit, was £1,407 million (1999: £1,534 million). This is after the strategic investment of £133 million for developing our on-line wealth management service and £285 million (1999: £69 million) of exceptional weather-related costs arising from late storm claims in France and floods in the UK. Excluding these items operating profit from ongoing business increased by 17%. On a modified statutory basis, operating profit before tax from ongoing business was £1,028 million (1999: £1,299 million).

Continued growth in long-term savings

Our worldwide long-term savings business made strong progress during 2000 with life, pensions and investment sales increasing by 24% to £13.5 billion, a remarkable achievement given the integration activity. Life operating profit on an achieved profit basis increased by 14% to £1,569 million with the majority of our businesses returning improved profits. We became the leading UK life company through strong organic growth in the year and our UK distribution capability has been significantly strengthened by the partnership with the The Royal Bank of Scotland and NatWest.

In addition to our agreement with Banca Popolare di Lodi, we recently announced a further bancassurance arrangement with UniCredito Italiano, which builds on our distribution capability in Italy. We have a close working relationship with Société Générale and continue to explore opportunities for further co-operation between our two Groups. Although we have not been able to reach an agreement on a life distribution venture in France, we have agreed smaller projects such as a bancassurance agreement in Romania, and have others under discussion. During the year we reached a new bancassurance agreement with Bancaja, Spain's fourth largest savings bank, boosting new business sales to over 600%.

We have completed the sale of the Norwich Union life and pensions operations in Poland for a price equivalent to 2.3 times embedded value. We have also announced the sale of our Canadian life operations, which are expected to complete later this year.

Strong investment capability

Our retail sales increased to £2,501 million (1999: £1,578 million) while total assets under management at 31 December 2000 rose to £220 billion (1999: £208 billion).

Market leading performance during 2000 enabled our Dutch business to record mutual fund sales in excess of £1.0 billion, up 381%. In the UK we are the leading provider of corporate bond and Cat-standard Isas and record Isa sales of £517 million were achieved in 2000. Continuing the trend established in earlier years, sales from our Navigator product in Australia, which are excluded from the headline figures, rose by 36% to £824 million and funds under administration totalled £2.4 billion.

Progress in general insurance

Operating profit from ongoing business of £412 million (1999: £459 million) was depressed by £285 million exceptional weather-related costs arising from late storm claims in France and floods in the UK. In the UK, our largest general insurance business, we continue to be amongst the lowest cost providers with an improved expense ratio of 10.7%, down from 11.8%. Strong premium action has improved the quality and rating of the UK personal lines business which, excluding the effect of the autumn floods, has a combined operating ratio of 100% (including floods: 104%). We continue to take the necessary steps to improve profitability in our worldwide general insurance business towards the Group's target combined operating ratio of 102% by the end of 2001.

Rapid and successful integration progress

Excellent progress has been made in integrating our businesses. Annualised savings at the end of 2000 totalled £111 million, with £26 million included in the results, while the full amount of one-off costs of £425 million has been provided in 2000.

The Group has made significant progress in refocusing the business in line with the strategy set out at the time of the merger, while maintaining momentum in its day-to-day operations. We are well placed to use our leadership position to increase shareholder value and look forward to another year of vigorous and profitable growth.

Bob Scott, Group Chief Executive