Aviva plc: Preliminary results for the year ended 31 December 2007

Worldwide highlights	2007	2006	Local currency growth
All operating profit is from continuing operations and all growth rates are quoted in local currency. * Including life EEV operating return, before tax and exceptional items. ** Before tax and exceptional items. *** Measured on an EEV basis, excluding preference shares, direct capital instrument and minority interests. † 2006 comparative restated for the change in IFRS operating profit definition announced 22 November 2007 (impact on EEV for FSCS levies was £6 million).
Operating profit – EEV basis*†	£3,286m	£3,251m	1%
Profit after tax – EEV basis	£2,134m	£2,879m	(26)%
Operating profit – IFRS basis** †	£2,228m	£2,609m	(15)%
Profit after tax – IFRS basis	£1,505m	£2,389m	(37)%
Earnings per share (total IFRS return)	49.2p	87.5p	(44)%
Total dividend per share	33.00p	30.00p	10%
Net asset value per share	772p	683p	13%
Equity shareholders’ funds***	£20,253m	£17,531m	16%
Return on equity shareholders’ funds	11.3%	13.1%	-

Segmental analysis of Group operating profit*
For the year ended 31 December

Continuing operations	2007 £m	2006 at 2007 exchange rates £m	Restated 2006 £m
Life EEV operating return
United Kingdom	864	744	744
France	537	405	402
Ireland	77	(40)	(40)
Italy	137	111	110
Netherlands (including Belgium and Germany)	352	331	329
Poland	206	168	162
Spain	239	223	221
Other Europe	(5)	(13)	(13)
Europe	1,543	1,185	1,171
North America	255	26	32
Asia	43	38	37
Australia	48	51	49
Asia Pacific	91	89	86
	2,753	2,044	2,033
Fund management 1
United Kingdom 2	41	38	38
France	10	10	10
Netherlands	17	33	33
Other Europe	4	3	3
Europe	31	46	46
North America	3	3	3
Asia Pacific	15	9	9
	90	96	96
General insurance and health
United Kingdom3	433	1,118	1,118
France	70	63	63
Ireland	162	173	172
Netherlands	169	140	139
Other Europe	41	44	43
Europe	442	420	417
North America	154	145	148
Asia Pacific	4	3	3
	1,033	1,686	1,686
Other operations and regional costs 4	(70)	(23)	(23)
Regional operating profit before tax	3,806	3,803	3,792
Corporate centre	(157)	(160)	(160)
Group debt costs and other interest	(363)	(381)	(381)
Group operating profit before tax	3,286	3,262	3,251
* Group operating profit before tax. All operating profit is from continuing operations. 1 Excludes the proportion of the results of Morley’s fund management businesses and of our French asset management operation Aviva Gestion d’Actifs (AGA) that arise from the provision of fund management services to our life businesses.  These results are included within the Life EEV operating return consistent with CFO Forum EEV principles. 2 Includes retail investment business trading as Norwich Union, our collective investment joint venture business with RBSG and both the UK and international businesses of Morley. 3 UK general insurance includes the results of the Group’s reinsurance operations. 4 Excludes the results of Norwich Union Equity Release. Also excludes the proportion of the results of Norwich Union Life Services relating to the services provided to the UK life business. These results are included within the Life EEV operating return.

The total IFRS operating profit for the year to 31 December 2007 was £2,228 million (2006 restated: £2,609 million; £2,615 million restated at constant exchange rates).

GROUP CHIEF EXECUTIVE’S STATEMENT

Overview
This is my first preliminary results announcement since taking up the role of group chief executive in July 2007.  In a year of considerable change for Aviva, we have delivered a robust financial result in a challenging year, with EEV operating profit of £3,286 million (2006 restated: £3,251 million). Statutory operating profit on an IFRS basis was £2,228 million (2006 restated: £2,609 million), particularly reflecting the impact of exceptional adverse weather events on our UK general insurance business.   Our dividend increase of 10% is consistent with our progressive dividend policy and reflects our confidence in the future prospects for our business.

The quality of the 2007 result confirms the operational resilience of our composite business model, which combines international long-term savings, general insurance and asset management operations.  The strong growth across all regions in our long-term savings business has offset the £475 million of losses caused by exceptional adverse weather in the UK. This is backed by a strong and well-diversified balance sheet.

We delivered an excellent result in our long-term saving business, achieving a 25% increase in long-term savings sales while improving our new business margins. New business profits grew by 32% to £1,174 million and our gross margin on sales rose to 3.7% from 3.5% in 2006.  Growth outstripped our stated targets in Europe and Asia Pacific, and we are on track to double the size of our US business within three years of the acquisition of AmerUs. In the UK, we have grown in line with the market and increased margins, while reducing cost overruns and improving service.

In contrast, 2007 was a challenging year for our general insurance business and we experienced a combination of exceptional weather losses, higher claims and competitive conditions in many of our markets.  As a result, our overall general insurance results reduced to £1,033 million (2006 restated: £1,686 million).  We took action to improve our position as early as 2006 by increasing motor rates in the UK and we have since taken further steps on both rating and costs during 2007. In light of this, I am confident that the outlook is positive and that we will meet or beat our 98% combined operating ratio (COR) target while maintaining our strong balance sheet to back this business. We have also reviewed our reinsurance retention levels to ensure that they remain appropriate in light of current economic and environmental conditions.

Our general insurance result continued to benefit from profits emerging on the settlement of prior year claims reflecting our ongoing conservative approach to claims reserving and our focus on claims management initiatives.  At the half year we reported releases of £330 million.  The total full year releases of £832 million net of reinsurance (2006: £598 million) include £440 million in respect of the UK, £310 million for Europe, £52 million for North America and £30 million for Aviva Re. We continue to manage our reserves prudently to avoid future adverse claims experience and so emerging prior year profits will continue to be a feature of our general insurance results.

Our conservative approach to managing investment risk has served us well.  We have today published new information to provide reassurance to shareholders on the credit quality of our assets.  We continue to manage our position actively and in the autumn we reduced our exposure to equity market volatility by selling £3.4 billion of equities in our general insurance shareholder funds and UK pension scheme; this was done at a time when equity markets were considerably higher than they are today. We invested the proceeds into high grade investment bonds and also increased our downside protection through derivatives.

‘One Aviva, twice the value’
In taking up my new role I appointed a new and energetic executive team which has a proven track record of delivery.  We have a clear vision: ‘One Aviva, twice the value.’ It signals a period of transformation and a clear focus on growth and efficiency.  We will measure the value created by reference to an additional group target: to double IFRS total earnings per share by 2012 at the latest, thus driving further dividend growth for our shareholders. This target aligns closely with our other targets and will be achieved by delivering strong, profitable growth across our portfolio, particularly in our life business, by achieving our £350 million cost and efficiency savings and by continuing to manage capital more effectively.

We have a new organisational structure to reflect our scale and international reach, with four regions: UK, Europe, North America and Asia-Pacific. Each regional CEO has taken a fresh look at the strategy for the region and is implementing plans to deliver our ambitious growth targets, with a clear focus on profitability.  Our priority is to realise the full potential of our existing businesses.  We will also explore new markets and growth opportunities where they can be financed from our internal resources.  For example, we entered into multiple new bancassurance partnerships in 2007, bringing access to over 50 million potential new customers, and we will see the full benefit flowing through to our 2008 results.

Review of 2007 results
UK

• Total long-term savings sales up 6% to £14,406 million
• Life EEV operating profit up 16% to £864 million
• Life new business gross margin up to 3.1%
• UK general insurance result down 61% to £433 million, due primarily to exceptional adverse weather

UK Life: We are transforming our UK Life business and growing its profitability.  Our objective is to grow new business sales at least as fast as the market, while maintaining margins, and to drive value from our back book.  We wish to maintain a leadership position in our home market and generate value for customers and shareholders from our focus on costs, customer retention and service. In 2007, this strategy delivered record sales and profits, with lower costs and improved service.  We also negotiated an innovative arrangement with Swiss Re to outsource the administration of almost three million policies, thereby enabling us to rationalise our legacy systems and accelerate improvements in customer service.

We remain positive in our outlook for our performance in the UK in 2008, given our broad product range and strong distribution.  We believe that this will give us some resilience in uncertain markets, but expect market growth to be slightly lower than in 2007.

Earlier this month we announced a £2.3 billion special bonus distribution from the inherited estate of two of our with-profits funds.  We have led the industry on this issue in a new regulatory environment.  This distribution of around half of the inherited estate was made possible by the funds’ financial strength and performance, and by the changes made to our investment strategy.  90% of the value will be paid to qualifying policyholders and 10% to shareholders.

In addition, our negotiations with the Policyholder Advocate regarding the potential reattribution of the remainder of the inherited estate of £2.6 billion continue.  We are keen to bring this to a conclusion soon so that we can put an offer to policyholders as early as possible so that they can decide whether they wish to accept it or not. Further delay is leading to significant numbers of policyholders becoming ineligible in any reattribution offer.  We can only complete this process if we are able to negotiate an arrangement that is fair to policyholders and shareholders.

UK General Insurance: Our UK General Insurance business had a difficult year. We saw competitive conditions in most lines of business and the worst floods for 60 years.  Our priority has been to provide first-class service to our 45,000 home insurance customers and 6,000 business customers who made claims during these difficult times and I am pleased to report that we have made interim or full payments in 99% of cases.

We have taken action to address underlying general insurance profitability through previously announced rate increases in motor, homeowner and commercial lines. In addition, we have embarked on a transformational programme for our UK general insurance business which will drive our expense ratio down. Our strategy is to focus on insurance fundamentals to maximise returns through the insurance cycle.  This means disciplined underwriting and pricing, controlling the impact of claims inflation and providing excellent customer service. 

In 2007, we benefited from prior year reserve releases of £430 million. This includes £215 million in respect of non-recurring bodily injury experience, additional reinsurance recoveries and the benefit of claims management initiatives.  We have also reviewed our reinsurance programme and have put in place additional cover to protect us against multiple weather events.

Europe

• Total long-term savings sales up 19% to £16,486 million
• Life EEV operating profit up 30% to £1,543 million
• Life new business gross margin up to 4.0%
• COR of 89%

In Europe, we delivered growth well in excess of our medium-term target to grow new business sales by an average of 10% a year to 2010, while increasing new business profit at least as fast. In our substantial businesses of France, Italy and Spain we outperformed the market, demonstrating our distribution strength and competitive product offerings.

We will continue to seize the unique growth opportunities this region presents.  We draw strength from our combination of mature businesses in northern Europe and the faster growing markets of central and eastern Europe, where we have already established strong businesses. Through our regional approach we plan to leverage our scale across our markets and will continue to grow our distribution reach and access to customers, particularly through our significant bancassurance capability.

Our composite model is reflected in the region with our general insurance business supporting the development of our long-term savings business. At 89%, the regional COR was well ahead of our group ‘meet or beat’ target.  In 2007, we benefited from prior year reserve releases of £310 million, including £130 million for Ireland, where new initiatives reduced the cost of bodily injury claims, and £173 million for the Netherlands, which includes releases from disability provisions and better than expected claims settlement experience.

North America

• Total long-term savings sales up 39% to £3,602 million (on a pro forma basis)
• Life EEV operating profit up 29% to £255 million (on a pro forma basis)
• Life new business gross margin up to 4.3%
• COR of 98%

In the US, we delivered record sales and improved margins. Aviva’s financial backing and brand strength, combined with the strong fundamentals of the AmerUs business we acquired at the end of 2006, has fuelled our growth.  We completed the integration of AmerUs and will exceed the targeted $45 million cost savings target (£23 million). As anticipated, our US business was upgraded by AM Best and this, together with the increasing power of the Aviva brand, is already bringing us access to new distribution.

Our US business offers resilience in a recessionary environment as our products primarily provide guaranteed capital returns for customers seeking to invest their accumulated funds to provide an income during retirement.  We remain optimistic about our growth prospects in the US and remain on track to double new business sales within three years of the acquisition of AmerUs, while maintaining margins.

The Canadian general insurance business performed well.  In 2007, we benefited from prior year reserve releases of £52 million in respect of positive experience on bodily injury personal motor claims and mandatory motor industry pools.

Asia-Pacific

• Total long-term savings sales up 60% to £4,089 million
• Life EEV operating profit up 6% to £91 million
• Life new business gross margin remaining strong at 4.3%

In Asia-Pacific, we are growing fast and creating value. We have operations in eight markets and the region is becoming an increasingly important part of our business, now accounting for 11% of our new long-term savings business.

We entered two new markets in 2007: Taiwan and Malaysia. In January 2008 we also announced our plans to enter the South Korean long-term savings market.  In each case, Aviva was selected as a partner of choice by highly reputable banking partners.  We are making strong progress in our more established markets, growing by over 200% in China during the year and building our leading bancassurance capability in India, where we now have over 35 distribution agreements.

We continue to explore new markets to increase our footprint in this fast-growing region.  We are committed to our medium-term target to grow long-term savings new business sales by an average of at least 20% a year to 2010.

Asset management

• IFRS operating profit consistent at £155m
• Funds under management by Aviva fund managers at 31.12.07 up 10% to £316 billion

In September 2007, I appointed Alain Dromer with a brief to harness the power and scale of our investment operations by creating a globally integrated asset management business.

We are announcing today our plans for ‘Aviva Investors’.   This is a clear example of our ‘One Aviva, twice the value’ strategy in action.  Our fund managers manage £316 billion across a broad range of asset classes. We plan to grow significantly and accelerate the profit contribution of asset management to group profits.  We will do this by increasing the proportion of third party business, notably through cross border sales, and focusing on the fastest growing markets and client segments. Our strategy will mean transforming our investment model to deliver greater specialism and focus.  This will mean offering the power and scale of our combined resource through one global investment division as well as generating out-performance through small, autonomous teams engaged in active portfolio management.

Summary and outlook
The fundamentals of our business are strong.  Our composite model brings together our long-term savings business with its compelling demographic drivers, a global asset management capability, with significant growth potential, and our general insurance business providing valuable protection for customers and important capital generation for the group. 

Although the external environment is uncertain, customers need the products we provide and we draw strength and resilience from our composite model, broad product portfolio and geographic spread.  Our business is backed by a strong and well-diversified balance sheet, which has not been materially affected by global credit concerns.  We remain confident about the growth prospects for our business and are committed to our growth and efficiency targets.  Our new target, to double IFRS total earnings per share by 2012 at the latest, will align delivery behind our ‘One Aviva, twice the value’ vision and drive further dividend growth and value for our shareholders.

Andrew Moss
Group chief executive

Enquiries:

Andrew Moss	Group chief executive	+44 (0)20 7662 2679
Philip Scott	Group finance director	+44 (0)20 7662 2264
Analysts:
Charles Barrows	Investor relations director	+44 (0)20 7662 8115
Jessie Burrows	Head of investor relations	+44 (0)20 7662 2111
Media:
Hayley Stimpson	Director of external affairs	+44 (0)20 7662 7544
Sue Winston	Head of group media relations	+44 (0)20 7662 8221
Danielle Anthony	Group media relations manager	+44 (0)20 7662 9511
Vanessa Rhodes	Group media relations manager	+44 (0)20 7662 2482
James Murgatroyd/Ed Simpkins	Finsbury	+44 (0)20 7251 3801

NEWSWIRES:  There will be a conference call today for wire services at 8.15am (GMT) on +44 (0)20 7162 0025 Quote: Aviva, Andrew Moss.

ANALYSTS:  A presentation to investors and analysts will take place at 9.30am (GMT) at the London Stock Exchange, 10 Paternoster Square, London, EC4M 7LS. The investors and analysts presentation is being filmed for live webcast and can be viewed on this website or on www.cantos.com. In addition a replay will be available on these websites later today. There will also be a live teleconference link to the investor and analyst meeting on +44 (0) 20 7138 0839. A replay facility will be available until 11 March 2008 on +44 (0)20 7806 1970. The pass code is 8404414# for the whole presentation including the question & answer session or 4665957# for the question & answer session only.

The presentation slides will be available on this website, from 9.00am (GMT).

The Aviva media centre includes images, company information and news release archive. Photographs are available from the Aviva media centre at www.aviva.com/media

Notes to editors

• Aviva is a leading provider of life and pensions to Europe with substantial positions in other markets around the world, making it the world’s fifth largest insurance group based on gross worldwide premiums at 31 December 2006.
• Aviva’s principal business activities are long-term savings, fund management and general insurance, with worldwide total sales* of £49.2 billion and total funds under management of £364 billion at 31 December 2007.
  * Based on life and pensions PVNBP, total investment sales and general insurance and health net written premiums including share of associates’ premiums.
• Income statements and cash flows of foreign entities are translated at average exchange rates while their balance sheets are translated at the closing exchange rates on 31 December 2007.
• The present value of new business premiums (PVNBP) is equal to total single premium sales received in the year plus the discounted value of annual premiums expected to be received over the term of the new contracts, and is expressed at the point of sale.
• All growth rates are quoted in local currency.
• This preliminary announcement may include oral and written “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.  These forward-looking statements sometimes use words such as ‘anticipate’, ‘target’, ‘expect’, ‘estimate’, ‘intend’, ‘plan’, ‘goal’, ‘believe’ or other words of similar meaning.  By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which may be beyond Aviva’s control, including, among other things, UK domestic and global economic and 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, the possible effects of inflation or deflation, the timing impact and other uncertainties relating to acquisitions by the Aviva Group and relating to other future acquisitions or combinations within relevant industries, the impact of tax and other legislation and regulations in the jurisdictions in which Aviva and its affiliates operate, as well as the other risks and uncertainties set forth in our 2006 Annual Report to Shareholders.  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, and persons receiving this announcement should not place undue reliance on forward-looking statements.
  Aviva undertakes no obligation to update the forward-looking statements made in this announcement or any other forward-looking statements we may make. Forward-looking statements made in this announcement are current only as of the date on which such statements are made.
• Following a number of requests from analysts who will be participating in an investor event being held by another company, the Q1 trading update has been rescheduled to Friday, 25 April 2008, instead of 23 April 2008.  
  
  This amendment has resulted in a slightly altered timetable for 25 April 2008, detailed as follows:
  

  07:00		Release to Stock Exchange
  08:45-09:30		Media Conference call
  09:45-10:30		Analyst Conference call

  
  In line with the new EU transparency reporting standards, Aviva plc will be amending the format of the quarterly update.  The new format will provide new business information and will also provide an update on our other businesses.  We will provide detailed margin disclosures at the interim results announcement and year end results announcement.

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