Aviva 2002 Annual Report Download - page 23

09 Aviva plc
Annual report + accounts 2002
UK
With nearly six million customers, Norwich Union Life is Aviva’s
largest long-term savings operation, producing around 50% of
our worldwide new business in 2002.
Our UK business seeks to achieve its strategic objective of strong,
profitable growth by providing a comprehensive range of life
insurance, pensions, savings and investment products through a
wide choice of distribution channels.
Independent financial advisers (IFAs) continue to represent the
dominant source of business, providing around 70% of our sales.
We also have a salaried direct sales force, a telesales operation, an
internet service and partnerships with The Royal Bank of Scotland
Group (RBSG), Tesco Personal Finance and 18 building societies.
We are operating in a very competitive market facing significant
regulatory change at a time when uncertain investment returns
have severely weakened consumer confidence. In this context, total
new business sales of £7.4 billion (2001: £8.1 billion) was a good
result, and demonstrated the underlying strength of our business.
Overall, pension sales were higher at £2.7 billion (2001:
£2.5 billion), including stakeholder sales of £651 million (2001:
£282 million). We are developing this strong platform by seeking
to improve our margins on stakeholder business through reduced
commissions and a focus on large group schemes for new
business.
Bond sales were lower at £2.8 billion (2001: £3.7 billion) as
investors remained cautious about equity-related products.
In response to these changing needs, we introduced a series of
new and innovative products which offer a degree of capital or
income protection.
New business sales from our partnership with RBSG grew
impressively, building on the momentum established in the latter
part of 2001. Through this joint venture we hold a 50% interest in
two life businesses which market products under the Royal Bank of
Scotland and NatWest brands. An expanded product range helped
total sales through the partnership rise by 83% to £880 million
(2001: £480 million). In reporting our financial numbers we include
our share of the total partnership sales.
Our market-leading equity release business, which enables
customers to free up capital tied up in their homes, continued
its strong growth with sales up 74% to £361 million (2001:
£208 million).
UK operating profit in 2002 was down at £699 million
(2001: £850 million) after a £123 million net charge (2001:
£78 million) for strengthening annuity reserves. This charge
reflected new evidence that suggests improvements in life
expectancy are increasing at a faster rate than previously thought.
During the year we took firm action to maintain our capital
position. We led the industry in cutting with-profit bonus rates
and introduced market value reductions on with-profit policies.
While tough in the short term, this action was necessary for the
protection of our customers’ long-term interests. Policyholders
have, however, continued to enjoy good payouts. A typical
Norwich Union 25-year with-profit endowment has on average
produced a return of about 11% a year, compared with inflation
of around 4% over the same period.
Our orphan estate, which is used to support business development
for the benefit of policyholders and shareholders alike, provides a
more realistic indication of the underlying strength of our with-
profit funds. At 31 December 2002 it stood at £4.3 billion (2001:
£5.2 billion). The orphan estate is calculated on the basis of
realistic assumptions, as distinct from the statutory basis of
reserving which uses rules specified by statute. We are examining
the possible reattribution of the orphan estate between
policyholders and shareholders. This follows the proposals in the
Sandler report issued in July 2002, although this work is unlikely
to be completed before the end of 2004.
We need to be more efficient in this changing world. We continue
to cut costs and deliver efficiency improvements. For instance, we
were the first UK life insurer to offer IFAs the choice of handling
term assurance electronically both online and offline. We have also
signed an innovative agreement with Misys, the leading IFA
network, to deliver full e-trading to the IFA industry through the
AssureWeb portal. The accelerating move towards e-only products
will benefit providers, IFAs and customers through a more
streamlined policy administration process.
Life achieved operating profit £million
1998 1,410*
1999 1,455*
2000 1,533*
2001 1,665*
2002 1,524
*Reclassification of other life and savings business from “Life” to
“Non-insurance operations”.