Aviva releases its full year 2004 results restated in accordance with International Financial Reporting Standards ('IFRS')

Statutory basis:	UK GAAP £m	IFRS changes £m	Restated for IFRS changes £m	Discretionary changes to LTIR £m	Restated for IFRS and discretionary changes to LTIR £m
Operating profit before tax	1,861	(95)	1,766	(97)	1,669
Operating profit after tax and minorities	1,291	(7)	1,284	(68)	1,216
Profit before tax	1,488	154	1,642	-	1,642
Profit for the year	1,133	238	1,371	-	1,371
Shareholders' funds	8,320	(237)	8,083	-	8,083
Dividend cover	2.25 times		2.23 times		2.11 times

Segmental results

The Group will present its results under four key business segments: Long term business, general insurance and health business, fund management and all other non-insurance businesses. The impact of IFRS on the 2004 results on the key segments is discussed further below.

	UK GAAP £m	IFRS Changes £m	Restated for IFRS changes £m	Discretionary changes to LTIR £m	Restated for IFRS and discretionary changes to LTIR £m
Operating profit
Long-term business	1,185	(69)	1,116	-	1,116
Fund management	43	(3)	40	-	40
General insurance and health businesses	1,384	(28)	1,356	(97)	1,259
Non-insurance operations	(108)	(13)	(121)	-	(121)
Corporate costs	(178)	(10)	(188)	-	(188)
Unallocated interest charges	(465)	-	(465)	-	(465)
Centre unallocated income	-	28	28	-	28
Operating profit before tax attributable to shareholders' profits	1,861	(95)	1,766	(97)	1,669
Statutory shareholders' funds	8,320	(237)	8,083	-	8,083

Long-term business

The 2004 results for Aviva’s life businesses on an EEV basis remain unchanged and the directors consider that embedded value continues to be the best measure of added value for long term insurance business. This means that the Group’s reported life new business contribution, margin and internal rate of return remain unchanged following the introduction of IFRS.

On an IFRS basis statutory life operating profit before shareholders’ tax falls by £69 million from £1,185 million to £1,116 million. The principal reasons for this change are as follows:

• The adoption of IAS 39 for non-participating investment contracts and other related changes reduce operating profit by £77 million in total;
• A change in approach for allocating tax between policyholders and shareholders, reduces operating profit before shareholders’ tax by £93 million. This presentational change has no impact on the tax charged to the policyholder life funds nor on operating profit after tax or dividend cover;
• Increased pension costs of £27 million arise as a result of applying IAS 19 Employee benefits;
• Changes to the valuation of investments increases profit by £44 million while changes to investment accounting result in £67 million of returns being incorporated within operating profit;
• Other sundry differences increasing operating profit by £17 million.

These changes are explained further within Appendix A (PDF 0.11MB) to this announcement.

General insurance and health business

Operating profit before tax falls by £28 million from £1,384 million under UK GAAP to £1,356 million under IFRS. This reduction is principally due to increased pension costs under IAS 19 Employee Benefits.

As outlined above, in addition to the required IFRS changes, Aviva has, at its discretion, chosen to review the methodology previously adopted for recording longer term investment return for general insurance and health business. As noted with our preliminary 2004 results, with effect from 2005, Aviva has chosen to apply the same long term rates of investment return in respect of economic assumptions for equities and property as those used to arrive at life operating returns under EEV principles. Applying this change to the 2004 results for general insurance and health business reduces the longer term investment returns on equities and property by £25 million.

In addition we have reviewed the longer term investment return methodology in respect of fixed income securities. Under UK GAAP the amount included within operating profit reflected the actual income received with realised and unrealised gains or losses being included within short term fluctuations. At its discretion, Aviva has now chosen to include within the operating profit the amortisation of the premium/discount arising upon the acquisition of such securities to arrive at an investment return which is equivalent to the gross redemption yields of fixed income securities. The effect of applying this change to 2004 is to reduce operating profit before tax by £72 million.

Shareholders’ funds

Upon conversion to IFRS, Group’s shareholders’ funds fall by £237 million to £8,083 million. The principal reasons for this reduction are as follows:

• Removal of the claims equalisation reserve net of deferred tax increases shareholders’ funds by £271 million;
• Changes in the timing of dividend recognition increases shareholders’ funds by £364 million;
• Investment valuation changes increase shareholders’ funds by £284 million before tax;
• Removal of the pension prepayment valued in accordance with SSAP 24 Accounting for Pension Costs (UK GAAP) and recognition of the pension deficit valued under IAS 19 Employee Benefits, decreases shareholders’ funds by £909 million, net of deferred tax. Aviva has apportioned substantially all the pension deficit to shareholders.
• The prohibition from discounting deferred tax balances decreases shareholders’ funds by Ł215 million.

Appendices

The following appendices are attached to this announcement:

• Appendix A: Summarised consolidated pro forma operating profit statement, statement of recognised income and expense and summarised consolidated statement of changes in equity, for the year ended 31 December 2004 restated on an IFRS basis, including the discretionary change to LTIR, with a reconciliation to the Group’s results published under UK GAAP (MSSB).
• Appendix B: Restated summarised consolidated balance sheet on an IFRS basis at 31 December 2004, with a reconciliation to the balance sheet published under UK GAAP (MSSB).
• Appendix C: Restated summarised consolidated balance sheet on an IFRS basis at 1 January 2004, with a reconciliation to the balance sheet published under UK GAAP (MSSB).
• Appendix D: Summarised consolidated profit and loss account on an EEV basis for the year ended 31 December 2004, restated to incorporate the results of non-long term business on an IFRS basis, including the discretionary change to LTIR, together with summarised consolidated balance sheet on an EEV basis for the year ended 31 December 2004.

Enquiries:

Analysts/Investors:
Andrew Moss, group finance director
+44 (0)20 7662 2679

Nic Nicandrou, group financial control director
+44 (0)20 7662 2118

Siobhan Boylan, director of group financial reporting
+44 (0)20 7662 2176

Media:
Sue Winston, head of group media relations
+44 (0)20 7662 8221

Dominick Peasley, Financial Dynamics
+44 (0)20 7269 7243

NEWSWIRES: There will be a conference call today for newswires at 07:45am (BST) hosted by Andrew Moss, group finance director, and Nic Nicandrou, group financial control director on +44 (0) 20 7365 1842.

ANALYSTS: There will be a conference call today for analysts at 09:30am (BST) on +44 (0)20 7784 1015. The conference call will be hosted by Andrew Moss, group finance director and Nic Nicandrou, group financial control director. Replay will be available for two weeks until 18 July 2005. The dial-in number for replay is +44 (0)20 7784 1024 and the pass code is 2860643# for the presentation and questions and answers and 5233848# for questions and answers only.

Notes to editors:

• Aviva is the world’s fifth-largest insurance group based on gross worldwide premiums and one of the leading providers of life and pensions to Europe with substantial positions in other markets around the world.
• Aviva’s principal business activities are long-term savings, fund management and general insurance, with worldwide premium income and retail investment sales from continuing operations of £33 billion for the year ended 31 December 2004 and assets under management of £272 billion at 31 December 2004.
• The Aviva media centre at www.aviva.com/media includes images, company and product information and a news release archive.
• The key accounting policy changes under IFRS can be summarised as follows:
  1. All policies currently classified as insurance under UK GAAP must be classified into investment or insurance contracts. Those contracts meeting the definition of insurance or those investment contracts with a discretionary participating feature will continue to be accounted for under UK GAAP, except that FRS 27 Life Assurance has been applied to the UK with-profits liabilities and an active valuation basis has been adopted for certain technical liabilities to reflect the fact that substantially all assets will be held at fair value. All other investment contracts must be accounted for under IAS 39 which, amongst other things, has the effect of reducing the level of costs that can be deferred.
  2. Claims equalisation provisions can no longer be held.
  3. The balance sheet now incorporates the pension deficit as recorded under International Accounting Standard 19, Employee Benefits (IAS 19).
  4. Substantially all investments (excluding certain originated mortgages and loans) will be held at fair value, including those currently held at amortised cost.
  5. All future business combinations will be treated as acquisitions and intangibles acquired, such as brands, customer lists and distribution agreements explicitly valued. Goodwill will no longer be amortised but will subject to annual impairment review.
• This announcement may contain “forward-looking statements” with respect to certain of Aviva’s plans and its current goals and expectations relating to its future financial condition, performance and results. By their nature, all forward looking statements involve risk and uncertainty because they relate to future events and circumstances which are beyond Aviva’s control, including amongst other things, UK domestic and global economic business conditions, market-related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities, the impact of competition, inflation, deflation, the timing impact and other uncertainties of future acquisitions or combinations within relevant industries, as well as the impact of tax and other legislation and other regulations in the jurisdictions in which Aviva and its affiliates operate. As a result, Aviva’s actual future financial condition, performance and results may differ materially from the plans, goals and expectations set forth in Aviva’s forward-looking statements.
• Aviva undertakes no obligation to update the forward-looking statements contained in this announcement or any other forward-looking statements we may make.

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