Aviva to sell its general insurance businesses in Australia and New Zealand to Insurance Australia Group

• Aviva to sell its general insurance businesses in Australia and New Zealand to IAG
• Total cash consideration of A$1,855 million (Ł651 million), including pre-completion dividend
• Consideration equivalent to 2.1 times net asset value
• Businesses account for 2% of Aviva net premiums written for the six months ended 30 June 2002

Aviva plc (“Aviva”) announces that it has entered into an agreement to sell its general insurance operations in Australia and New Zealand (the “Businesses”) to Insurance Australia Group Limited (“IAG”), Australia’s largest general insurer, for A$1,855 million (Ł651 million) in cash, including a pre- completion dividend. The agreement follows an unsolicited approach from IAG.

Aviva is retaining its long-term savings and asset management operations in Australia, including Navigator, Norwich Union Life Australia and Portfolio Partners. They operate with different brands, management teams, platforms and distribution networks to the Businesses.

The sale is subject only to regulatory approval and is expected to complete in the fourth quarter of 2002. Had the sale of the Businesses been completed on 30 June 2002, it would have resulted in an estimated increase in Aviva Group’s reported net asset value per share of 11 pence to 522 pence. Aviva will not provide any guarantees in respect of the claims reserves of the Businesses and, beyond customary warranties, will not retain continuing operating risk. There will be no price adjustments to reflect the Businesses’ results leading up to or on the date of completion.

Under the terms of the agreement, IAG will acquire CGU Insurance Australia Ltd. and Belves Investments Ltd. These two subsidiaries are the holding companies for all of Aviva’s general insurance businesses in Australia (including CGU Insurance, Swann Insurance, CGU-VACC and 51% of MCGI) and New Zealand (New Zealand Insurance Limited (“NZI”)) respectively.

As at 30 June 2002, the Businesses had net assets, excluding acquired goodwill, of Ł309 million (based on current exchange rates). In the six months ended 30 June 2002, they reported net premiums written of Ł335 million and operating profit after tax of Ł16 million.

Richard Harvey, Group Chief Executive, said: “This is an excellent deal for Aviva’s shareholders. We assessed IAG’s approach from a perspective of creating shareholder value. This was the key driver to accepting this unsolicited but compelling offer at a multiple of more than twice net asset value.

“The price is equivalent to 6% of our market capitalisation. In contrast, the Businesses account for approximately 2% of our results, whether measured by premium or profit. The proceeds of the sale and the consequent capital released will increase our financial flexibility and enable us to pursue attractive growth opportunities in the profitable development of our long- term savings business.

“While this transaction marks our exit from general insurance in Australia and New Zealand, we remain committed to long- term savings and asset management in Australia and to further developing our businesses outside Europe.”

Enquiries:

Analysts/Investors:
Steve Riley, Investor Relations Director +44 (0)20 7662 8115

Media in Australia and New Zealand (on 18 October 2002):
Philip Twyman, Group Executive Director +61 (0)29 818 9310 or +61 (0)42 521 2317

Media Outside of Australia and New Zealand:
Richard Harvey, Group Chief Executive +44 (0)20 7662 7544
Hayley Stimpson, Director of External Affairs +44 (0)20 7662 7544
Alex Child-Villiers, Financial Dynamics +44 (0)20 7269 7107

Notes to Editors:

Information on the Businesses

• The Businesses are headquartered in Melbourne and Auckland, with 3,611 employees as at 30 June 2002. They accounted for 8% of Group general insurance net premiums written and 5% of Group general insurance operating profit after tax for the six months ended 30 June 2002 as well as for 3% of Group net assets as at 30 June 2002.
• The two main operating companies of the Businesses are:
  • CGU Insurance Australia Ltd., the fourth largest general insurance company in Australia in terms of gross premiums written, with a market share of 11%. It offers a broad range of personal, rural and commercial lines products, with specific strengths in motor and credit insurance. The company has been operating in Australia since 1830. As at 30 June 2002, the company had net assets of Ł238 million excluding the value of acquired goodwill of Ł44 million.
  • NZI, the third largest general insurance company in New Zealand in terms of gross premiums written, with a market share of 18%. It offers a broad range of personal, rural and commercial insurance products. The company was formed in 1859 and is one of New Zealand’s largest and longest serving fire and general insurance companies. As at 30 June 2002 the company had net assets of Ł71 million.

Information on operations retained in Australia

• Aviva is retaining its long-term savings and asset management operations in Australia. These include:
  • Navigator, the second largest Master Trust ‘funds supermarket’ platform in Australia (in terms of net inflows) with funds under administration of Ł3.2 billion as at 30 June 2002 and market share of 10%.
  • Norwich Union Life Australia, the tenth largest life insurer in Australia in terms of new business premiums, with a market share of 2%. Norwich Union Life Australia provides a wide range of life insurance products including yearly renewable term, critical illness, disability income, savings plans, bonds and immediate annuities.
  • Portfolio Partners, a manager of wholesale funds and retail unit trusts in Australia with funds under management of Ł3.3 billion as at 30 June 2002.

Financial effects of the transaction

1. Subject to completion, the increase in net asset value per share related to the sale of the Businesses to be reported in the Group’s financial statements for the year ended 31 December 2002 will differ from the estimated 11 pence per share stated above. This will reflect:
   1. Fluctuations in exchange rates; and
   2. Transaction costs associated with the disposal of the Businesses.
2. Financial Reporting Standard 10 (FRS 10) requires that goodwill arising on acquisitions pre-1998 previously written-off to reserves be taken into account when calculating the profit/loss on disposal of a business. Accordingly, the pre-tax accounting profit/loss on sale to be reported within the Group’s financial statements for the year ended 31 December 2002 will be calculated after deducting acquired goodwill carried on the balance sheet of Ł44 million and, as required by FRS 10, after the write back of goodwill previously written off to reserves of Ł300 million. The write back of goodwill previously written off to reserves does not affect shareholders’ funds nor the incremental impact of the transaction on the net asset value per share.
3. In reporting the Group’s six months results to 30 June 2002 Aviva disclosed aggregate net assets relating to the combined Australia and New Zealand general insurance operations of Ł370 million, equivalent to Ł353 million when translated at current exchange rates, including the value of acquired goodwill of Ł44 million.

Information on IAG

• IAG is the largest Australian general insurance company with a market capitalisation of A$3.8 billion (Ł1.3 billion). The group provides a range of personal and commercial insurance products, primarily motor vehicle and home insurance.
• In February 2001, IAG acquired State Insurance, a general insurance subsidiary of Aviva in New Zealand, for Ł125 million.

Exchange rate information

The following exchange rates have been used to convert Australian dollar and New Zealand dollar amounts into pounds sterling throughout this announcement:

	Australia	New Zealand
	A$:Ł	NZ$:Ł
Premiums and profits for the 6 months ended 30 June 2002	2.71	3.25
Consideration for net assets of the Businesses and IAG’s market capitalisation (at current exchange rates)	2.85	3.25