Aviva 2006 Annual Report Download - page 24

Aviva plc
Annual Report and Accounts 2006 20
Group performance continued
Financial highlights
2006 2005
Worldwide sales* £41,464m £35,894m
Life and pensions new business contribution before
required capital £892m £808m
Life and pensions new business contribution after
required capital £683m £612m
Life and pensions margin before required capital 3.5% 3.6%
Life and pensions margin after required capital 2.6% 2.8%
General insurance business combined operating ratio 94% 95%
Return on equity shareholders’ funds 13.1% 15.0%
Earnings per share
Basic – EEV operating profit after tax basis 79.2p 74.5p
Basic – IFRS operating profit after tax basis 86.9p 60.5p
* Based on worldwide long-term savings new business sales, plus general insurance
and health business net written premiums.
Worldwide sales
We achieved strong sales growth in 2006, with total worldwide
sales increasing to £41,464 million (2005: £35,894 million).
Our long-term savings new business sales were up 21% to
£30,762 million (2005: £25,583 million).The overall increase
reflects growth in life and pension sales of 17% to £25,852 million
(2005: £22,246 million),and exceptional growth in investment sales
of 48% to £4,910 million (2005: £3,337 million).Net written
premiums increased to £10,702 million (2005: £10,311 million).
Our UK total long-term sales increased by 31% to £13,601 million
(2005: £10,345 million). Within this total, life and pension
new business sales grew by 21% to £11,146 million (2005:
£9,185 million),benefiting from strong growth in pension and
bond sales. Investment sales wereexceptionally strong, up 112%
to £2,455 million (2005: £1,160 million),benefiting from new fund
offerings and strong investment markets. Our share of sales
through the joint venture with The Royal Bank of Scotland Group
wereup by 58% to £1,169 million (2005: £742 million), reflecting
an increased focus from both partners and a rise in the number of
sales advisers.
Our European and International total long-term savings new
business sales increased by 13% to £17,161 million (2005:
£15,238 million),reflecting strong growth in a number of our main
markets and from businesses acquired during the year in Ireland
and the United States. Growth in Asia was 91% and the region
now accounts for 6% of our total international sales. Life and
pension new business sales were13% higher at £14,706 million
(2005: £13,061 million),while investment sales grew by 14% to
£2,455 million (2005: £2,177 million),primarily reflecting increased
sales through our Navigator platform in Australia and Singapore.
In the UK, our net written premium reduced to £5,940 million
(2005: £6,127 million),reflecting our continuing commitment to
create value by writing profitable business and a degree of
softening in commercial premium rates.
Our European and International net written premium increased
to £4,762 million (2005: £4,184 million),benefiting primarily from
strong sales growth in the Netherlands as a result of healthcare
reforms that amalgamated public healthcare provision into the
private sector.The majority of our other European and International
business units have produced modest growth in net written premium
as they continue to focus on strict underwriting disciplines.
Business review continued
Long-term new business contribution and margin
Our new business contribution before the effect of required capital
grew by 11% to £892 million (2005: £808 million),generating a
group-wide new business margin of 3.5% (2005: 3.6%).Within
the total, our UK margin was maintained at 2.9% (2005: 2.9%),
with the combined margin of our European and International
business units falling to 3.8% (2005: 4.1%).This reduction was
caused primarily by a lower margin in Ireland, resulting from an
adverse lapse and other experience variances leading to
consequential changes in operating assumptions. Additionally, the
margin in our Dutch business was adversely affected by lower bond
yields at the start of the year being included in our EEV operating
assumptions. Conversely, the continued focus on higher-margin
capital-efficient unit-linked business led to a higher margin in
France, our second-largest business unit.
After the effect of required capital, our new business contribution
increased by 12% to £683 million (2005: £612 million),producing
anew business margin of 2.6% (2005: 2.8%).The movement in
the margin reflects the factors affecting our European and
International businesses noted above, and the strong growth in
sales in the United States, wherethe margin is lower than the
group average.
Combined operating ratio
Our general insurance combined operating ratio (COR) improved
to 94% (2005: 95%),and is ahead of our stated target to meet
or beat a worldwide COR of 98% for the foreseeable future.
The improvement in the COR reflects our continued focus on
disciplined underwriting and efficient claims handling.
The group COR benefited from better than expected weather in the
UK, of £75 million (2005: neutral) below the longer term average.
Additionally,the COR in our Dutch operations improved to 89%
(2005: 93%),reflecting a strong premium rating environment and a
favourable claims experience, including a low incidence of large
claims. Across our other major general insurance businesses, the
CORs were largely stable.
Our reserves are set conservatively with the aim to protect against
adverse futureclaims experience and development. Our business is
predominantly short tail in nature and loss development experience
is generally stable. As a result of the prudence applied in setting the
reserves, there are some releases in 2006 that reflect releases from
the 2005 accident year and prior. The releases mainly arise in the
UK and this favourable development benefits the UK underwriting
result by £435 million with the remainder of releases arising mainly
in our European businesses. We have increased our confidence
levels in our reserves over the past few years and continue to
maintain our reserves at very strong levels.
Return on equity shareholders’ funds
Our post-tax operating returnon equity shareholders’ funds was
13.1% (2005: 15.0%),ahead of our 12.5% target despite opening
shareholders’ funds being £3.2 billion higher and therefore
impacting the return. The return is based on the post-tax operating
profit from continuing operations, including the EEV operating
return, expressed as a percentage of the opening equity
shareholders’ funds.