Aviva 2002 Annual Report Download - page 37

23 Aviva plc
Annual report + accounts 2002
In 2001 the group’s dividend cover amounted to 1.1 times
statutory operating profits after tax. The 2002 dividend cover
based on the modified statutory solvency basis operating earnings
in respect of continuing and discontinued operations was
1.65 times (1.51 times excluding discontinued operations).
The pre-tax profit on disposal of our Australian and New Zealand
general insurance operations was £234 million before deducting
goodwill previously written off through reserves. We also
completed the sale of CGU Courtage, our broker-based French
general insurance operation, and exited the Spanish general
insurance market.
The proceeds from all the disposals initiated or completed during
2002 amounted to over £1.0 billion. With the exception of
Australia and New Zealand, the remaining disposals are less
material in the context of the group, and accordingly the results
from these businesses have been treated as arising from continuing
operations.
Financial highlights
Restated*
2002 2001
Year ended 31 December £m £m
(Loss)/profit before tax:
– achieved profit basis (2,463) (546)
– modified statutory basis (282) 514
Earnings per share based on (loss)/profit for the financial year:
– achieved profit basis (91.5)p (23.1)p
– modified statutory basis (24.4)p 10.8p
Dividends per share 23.0p 38.0p
*Restated for the effect of Financial Reporting Standard 19 “Deferred Tax”.
The group reported a loss before tax on a modified statutory
basis of £282 million which was depressed by a £1.2 billion
shortfall in the actual investment return compared to the group’s
longer-term assumptions. This reflects unrealised losses on
equities held by the group’s non-life operations, particularly in the
UK and Europe where the major equity markets fell between
25% and 35%.
On an achieved profit basis, the loss before tax of £2,463 million
includes the adverse effect of economic assumption changes
of £0.6 billion and a further investment return shortfall of
£2.3 billion, reflecting the impact of market falls on the group’s
life embedded value. Approximately £1.7 billion of these items
arose in the UK with a further £0.8 billion shortfall in France and
the Netherlands. The 2001 results were depressed for similar
reasons but to a lesser extent.
Included in both the non-life and life investment variances and
economic assumption changes are a number of one-off impacts.
These relate to the impact of a changed UK with-profit asset mix,
a change in the assumed future with-profit bonus rate profiles,
some adverse tax effects following anticipated changes in UK
Inland Revenue legislation and prudent recognition of deferred tax
assets. These one-off effects together amounted to £0.5 billion,
on a post tax basis.
In preparing the 2002 financial statements we have adopted the
requirements of Financial Reporting Standard 19 “Deferred Tax”.
The principal change has been to provide, on a discounted basis,
an additional deferred tax on unrealised appreciation or
depreciation of investments. On an achieved profit basis the effect
of this new policy has resulted in a tax credit on other ordinary
activities of £982 million (2001: £740 million, restated). The tax for
the year includes a charge of £531 million (2001: £616 million,
restated) in respect of operating loss from continuing operations,
equivalent to an effective rate of 30.9% (2001: 31.8%). On a
modified statutory basis the effective rate on operating profit from
continuing operations amounted to 30.4% (2001: 32.2%).
The directors establish the appropriate level for dividends with
reference to the longer-term trend in business performance,
keeping in mind the need to retain earnings to fund future
growth. The profit for the financial year reflects the volatility of the
financial markets and is not, therefore, directly comparable to the
dividends paid by the group. The total ordinary dividends for 2002
were £519 million (2001: £857 million) representing 23 pence net
per share (2001: 38 pence net per share).
Long-term savings
On an annual premium equivalent basis (the sum of new regular
premiums and one tenth of new single premiums) total new
business sales increased by 1% in 2002 to £2,488 million.
This includes a substantial and growing contribution from our
expanding bancassurance operations, particularly in Spain and Italy,
which accounted for 21% of total sales in 2002. The life and
pensions products contributed £2,373 million, a growth of some
2% over last year with sales in our continental European
operations contributing 43% of total life and pensions new
business sales.
Our UK life and pensions business reported sales totalling
£1,231 million (2001: £1,269 million) on an annual equivalent basis
with an enhanced contribution from our alliance with The Royal
Bank of Scotland Group. Sales through the influential IFA channel on
an APE basis declined by 9% during 2002, reflecting investor caution
during the worst bear market for over a quarter of a century.
The decline in equity-related business contributed to a sales
slowdown in France and Ireland.
Long-term savings: new business contribution1
2002 2001
Year ended 31 December £m £m
UK 290 327
France 69 79
Ireland 29 29
Italy 38 28
Netherlands (including Belgium and Luxembourg) 21 38
Poland 10 11
Spain 87 63
Other Europe (5) –
International 39 16
Total 578 591
1. Excludes retail investment sales and is stated before the effect of solvency margin.