Fundswire: Aviva PLC | HY12 Part 5 of 5 | RNS Announcements

You are here:

FE Trustnet Fundswire

Announcement

Thursday 09 August, 2012

RNS Number : 6389J

Aviva PLC

09 August 2012

Part 5 of 5

Page 1

Supplement 2

MCEV Financial Statements

In this section		Page
In this section
Condensed consolidated income statement - MCEV basis		2
Earnings per share - MCEV basis		3
Condensed consolidated statement of comprehensive income - MCEV basis		4
Condensed consolidated statement of changes in equity - MCEV basis		4
Condensed consolidated statement of financial position - MCEV basis		5
Reconciliation of shareholders' equity on IFRS and MCEV bases		6
Reconciliation of IFRS total equity to MCEV net worth		6
Group MCEV analysis of earnings		7
E1 - Basis of preparation		8
E2 - Geographical analysis of life MCEV operating earnings		12
E3 - Geographical analysis of fund management operating earnings		20
E4 - Other operations		20
E5 - Exceptional items and Integration and restructuring costs		20
E6 - Segmentation of condensed consolidated statement of financial position		21
E7 - Analysis of life and pension earnings		22
E8 - Life MCEV operating earnings		24
E9 - Free surplus emergence		25
E10 - Maturity profile of business		26
E11 - Segmental analysis of life and related business embedded value		27
E12 - Risk allowance within present value of in-force (VIF)		28
E13 - Implied discount rates (IDR)		29
E14 - Summary of non-controlling interest in life and related businesses' MCEV results		30
E15 - Principal assumptions		30
E16 - Sensitivity analysis		36
Statement of directors' responsibilities in respect of the Market Consistent Embedded Value (MCEV) basis		39
Independent review report to Aviva Plc		40

This document should be read in conjunction with the Half Year Report 2012.

----------------------------------------
Page 2

MCEV financial statements

Condensed consolidated income statement - MCEV basis

For the six month period ended 30 June 2012

	6 months 2012 £m	Restated³ 6 months 2011 £m			Full year 2011 £m
	Continuing operations	Continuing operations	Discontinued operations	Total	Continuing operations	Discontinued operations	Total
Operating profit before tax attributable to shareholders' profits
United Kingdom & Ireland	471	509	-	509	1,102	-	1,102
France	200	295	-	295	1,077	-	1,077
United States	81	188	-	188	241	-	241
Italy, Spain and Other	323	248	270	518	197	270	467
Higher Growth markets	153	162	-	162	512	-	512
Long-term business	1,228	1,402	270	1,672	3,129	270	3,399
General insurance and health	461	455	1	456	935	1	936
Fund management¹	7	9	9	18	32	9	41
Other operations²	(96)	(80)	7	(73)	(204)	7	(197)
Market operating profit	1,600	1,786	287	2,073	3,892	287	4,179
Corporate centre	(64)	(66)	-	(66)	(138)	-	(138)
Group debt costs and other interest	(334)	(321)	(4)	(325)	(657)	(4)	(661)
Operating profit before tax attributable to shareholders' profits (excluding Delta Lloyd as an associate)	1,202	1,399	283	1,682	3,097	283	3,380
Share of operating profit (before tax) of Delta Lloyd as an associate	112	35	-	35	157	-	157
Operating profit before tax attributable to shareholders' profits	1,314	1,434	283	1,717	3,254	283	3,537
Integration and restructuring costs	(188)	(60)	-	(60)	(212)	-	(212)
Operating profit before tax attributable to shareholders' profit after integration and restructuring costs	1,126	1,374	283	1,657	3,042	283	3,325
Adjusted for the following:
Economic variances on long-term business	1,173	81	(316)	(235)	(6,541)	(316)	(6,857)
Short-term fluctuation in return on investments on non-long-term business	31	(80)	(60)	(140)	(266)	(60)	(326)
Economic assumption changes on general insurance and health business	(18)	(8)	-	(8)	(90)	-	(90)
Impairment of goodwill	(603)	(20)	-	(20)	(392)	-	(392)
Amortisation and impairment of intangibles	(134)	(42)	(5)	(47)	(266)	(5)	(271)
Profit on the disposal of subsidiaries and associates	(30)	(11)	159	148	565	159	724
Exceptional items	-	-	-	-	(57)	-	(57)
Non-operating items before tax (excluding Delta Lloyd as an associate and integration and restructuring costs)	419	(80)	(222)	(302)	(7,047)	(222)	(7,269)
Share of Delta Lloyd's non-operating items (before tax) as an associate	(523)	(8)	-	(8)	10	-	10
Non-operating items before tax	(104)	(88)	(222)	(310)	(7,037)	(222)	(7,259)
Share of Delta Lloyd's tax expense, as an associate	107	(7)	-	(7)	(34)	-	(34)
Profit/(loss) before tax attributable to shareholders' profits	1,129	1,279	61	1,340	(4,029)	61	(3,968)
Tax on operating profit	(414)	(487)	(74)	(561)	(974)	(74)	(1,048)
Tax on other activities	(335)	(40)	98	58	2,217	98	2,315
	(749)	(527)	24	(503)	1,243	24	1,267
Profit/(loss) for the period	380	752	85	837	(2,786)	85	(2,701)

1. Excludes the proportion of the results of Aviva Investors fund management businesses and other fund management operations within the Group that arises from the provision of fund management services to our life businesses.
These results are included within the life MCEV operating earnings consistent with the MCEV methodology.

2. Excludes the proportion of the results of subsidiaries providing services to the Life business. These results are included within the life MCEV operating earnings consistent with the MCEV methodology.

3. The half year 2011 results have been restated for US as outlined in E1 Basis of preparation.

Page 3

Earnings per share - MCEV basis

	6 months 2012	Restated 6 months 2011			Full year 2011
Earnings per share	Continuing operations	Continuing operations	Discontinued operations	Total	Continuing operations	Discontinued operations	Total
Operating earnings per share on an MCEV basis after tax, attributable to ordinary shareholders of Aviva plc
Basic (pence per share)	24.7p	28.5p	3.9p	32.4p	71.3p	3.8p	75.1p
Diluted (pence per share)	24.3p	28.0p	3.8p	31.8p	70.0p	3.8p	73.8p
(Losses)/earnings after tax on an MCEV basis, attributable to ordinary shareholders of Aviva plc
Basic (pence per share)	(1.8p)	26.1p	4.0p	30.1p	(67.3p)	4.0p	(63.3p)
Diluted¹ (pence per share)	(1.8p)	25.6p	4.0p	29.6p	(67.3p)	3.9p	(63.3p)

¹ Losses have an anti-dilutive effect. Therefore the basic and diluted earnings have remained the same.

Total Group MCEV operating profit before shareholder tax was £1,314 million (HY11: £1,717 million), a decrease of 23%. Within this total the long-term business operating profit before shareholder tax was £1,228 million (HY11: £1,672 million), a decrease of 27%.

Page 4

Condensed consolidated statement of comprehensive income - MCEV basis

For the six month period ended 30 June 2012

	6 months 2012 £m	Restated 6 months 2011 £m	Full year 2011 £m
Profit/(loss) for the period from continuing operations	380	752	(2,786)
Profit for the period from discontinued operations	-	85	85
Profit/(loss) for the period	380	837	(2,701)
Other comprehensive income from continuing operations
Fair value losses on AFS securities, owner-occupied properties and hedging instruments	-	(60)	(9)
Actuarial gains on pension schemes	123	22	996
Actuarial losses on pension schemes transferred to unallocated divisible surplus and other movements	-	(30)	(22)
Share of other comprehensive expense from joint ventures and associates	(7)	-	(141)
Foreign exchange rate movements	(202)	400	(461)
Aggregate tax effect - shareholder tax	(41)	(11)	(160)
Other comprehensive (expense)/income, net of tax from continuing operations	(127)	321	203
Other comprehensive income, net of tax from discontinued operations	-	131	131
Other comprehensive (expense)/income, net of tax	(127)	452	334
Total comprehensive income/(expense) for the period from continuing operations	253	1,073	(2,583)
Total comprehensive income for the period from discontinued operations	-	216	216
Total comprehensive income/(expense) for the period	253	1,289	(2,367)

Attributable to:
Equity shareholders of Aviva plc	(134)	1,139	(1,419)
Non-controlling interests	387	150	(948)
	253	1,289	(2,367)

Condensed consolidated statement of changes in equity - MCEV basis

For the six month period ended 30 June 2012

	6 months 2012 £m	Restated 6 months 2011 £m	Full year 2011 £m
Balance at 1 January	15,495	20,205	20,205
Total comprehensive (expense)/income for the year	253	1,289	(2,367)
Dividends and appropriations	(474)	(460)	(813)
Shares issued in lieu of dividends	38	184	307
Capital contributions from minority shareholders	6	25	68
Movements in ordinary shareholder equity following deconsolidation of Delta Lloyd	-	(316)	(316)
Movements in non controlling interests following deconsolidation of Delta Lloyd	-	(1,484)	(1,484)
Minority share of dividends declared in the year	(66)	(76)	(126)
Issue of fixed rate tier 1 notes	392	-	-
Recycling of reserves to income statement on disposal of subsidiary	-	-	(3)
Non-controlling interest in (disposed)/acquired subsidiaries	5	-	-
Changes in non-controlling interest in existing subsidiaries	-	(11)	(11)
Shares acquired by employee trusts	(3)	-	(29)
Reserves credit for equity compensation plans	23	18	48
Aggregate tax effect - shareholder tax	-	-	16
Total equity	15,669	19,374	15,495
Non-controlling interests	(1,808)	(2,580)	(1,476)
Balance at 30 June/31 December	13,861	16,794	14,019

Page 5

Condensed consolidated statement of financial position - MCEV basis

As at 30 June 2012

	30 June 2012 £m	Restated 30 June 2011 £m	Full year 2011 £m
Assets
Goodwill	1,794	2,823	2,640
Acquired value of in-force business and intangible assets	1,649	2,396	2,021
Additional value of in-force long-term business¹	1,064	4,169	132
Interests in, and loans to, joint ventures	1,689	2,154	1,700
Interests in, and loans to, associates	979	1,427	1,118
Property and equipment	445	467	510
Investment property	11,001	11,236	11,638
Loans	26,918	24,828	28,116
Financial investments	213,270	228,006	216,058
Reinsurance assets	7,239	6,570	7,112
Deferred tax assets	262	136	238
Current tax assets	74	112	140
Receivables	8,456	9,271	7,937
Deferred acquisition costs and other assets	6,444	5,956	6,444
Prepayments and accrued income	3,176	3,390	3,235
Cash and cash equivalents	25,251	23,106	23,043
Assets of operations classified as held for sale	3,962	728	426
Total assets	313,673	326,775	312,508
Equity
Ordinary share capital	729	716	726
Capital reserves	4,441	4,455	4,444
Other reserves	1,066	1,634	1,262
Shares held by employee trusts	(14)	(32)	(43)
Retained earnings	4,854	5,303	5,954
Additional retained earnings on an MCEV basis¹	1,203	3,528	486
Equity attributable to ordinary shareholders of Aviva plc	12,279	15,604	12,829
Preference share capital, direct capital instruments and fixed rate tier 1 notes	1,582	1,190	1,190
Non-controlling interests¹	1,808	2,580	1,476
Total equity	15,669	19,374	15,495
Liabilities
Gross insurance liabilities	148,003	149,515	150,101
Gross liabilities for investment contracts	107,386	119,284	110,644
Unallocated divisible surplus	3,162	3,273	650
Net asset value attributable to unitholders	11,138	8,735	10,352
Provisions	1,097	1,103	992
Deferred tax liabilities	1,324	1,166	1,171
Current tax liabilities	200	249	232
Borrowings	8,071	8,882	8,450
Payables and other financial liabilities	11,061	12,029	11,230
Other liabilities	2,927	2,822	2,828
Liabilities of operations classified as held for sale	3,635	343	363
Total liabilities	298,004	307,401	297,013
Total equity and liabilities	313,673	326,775	312,508

The condensed consolidated statement of financial position presented above is unaltered from the corresponding IFRS summarised consolidated statement of financial position with the exception of the following:

1. Adding the excess of the Life MCEV, including non controlling interests, over the corresponding Life IFRS net assets represented as the additional value of in-force long-term business; corresponding item within equity represented by the additional retained profit on an MCEV basis; and, corresponding adjustments to non-controlling interests.

Page 6

Reconciliation of shareholders' equity on IFRS and MCEV bases

For the six month period to 30 June 2012

30 June 2012	IFRS £m	Adjustment £m	MCEV £m
Ordinary share capital	729	-	729
Capital reserves	4,441	-	4,441
Other reserves	1,514	(448)	1,066
Shares held by employee trusts	(14)	-	(14)
Retained earnings	4,854	-	4,854
Additional retained earnings on an MCEV basis	-	1,203	1,203
Equity attributable to ordinary shareholders of Aviva plc	11,524	755	12,279
Preference share capital	200	-	200
Direct capital instruments and fixed rate tier 1 notes	1,382	-	1,382
Non-controlling interests	1,499	309	1,808
Total equity	14,605	1,064	15,669

Restated 30 June 2011	IFRS £m	Adjustment £m	Restated MCEV £m
Ordinary share capital	716	-	716
Capital reserves	4,455	-	4,455
Other reserves	1,729	(95)	1,634
Shares held by employee trusts	(32)	-	(32)
Retained earnings	5,303	-	5,303
Additional retained earnings on an MCEV basis	-	3,528	3,528
Equity attributable to ordinary shareholders of Aviva plc	12,171	3,433	15,604
Preference share capital	200	-	200
Direct capital instruments	990	-	990
Non-controlling interests	1,844	736	2,580
Total equity	15,205	4,169	19,374

Reconciliation of IFRS total equity to MCEV net worth

For the six month period to 30 June 2012

	30 June 2012 £m	Restated 30 June 2011 £m	Full year 2011 £m
Net assets on a statutory IFRS net basis	14,605	15,205	15,363
Adjusting for general business and other net assets on a statutory IFRS net basis	291	350	301
Life and related businesses net assets on a statutory IFRS net basis	14,896	15,555	15,664
Goodwill and other intangibles	(1,234)	(2,378)	(2,117)
Acquired value of in-force business	(830)	(1,285)	(960)
Adjustment for share of joint ventures and associates	(11)	(5)	(7)
Adjustment for assets to regulatory value net of tax	(2,238)	(1,005)	(1,880)
Adjustment for DAC and DIR net of tax	(2,499)	(2,899)	(2,622)
Adjustment for differences in technical provisions	3,065	2,806	2,904
Other accounting and tax differences	(827)	(616)	(507)
MCEV net worth	10,322	10,173	10,475
MCEV value of in-force¹	3,732	6,977	2,619
MCEV²	14,054	17,150	13,094

1. Comprises PVFP of £6,721 million (30 June 2011: £9,649 million; 31 December 2011: £5,847 million), FC of £(579) million (30 June 2011: £(760)million; 31 December 2011: £(642) million), CNHR of £(1,063) million (30 June 2011: (£942) million; 31 December 2011: £(1,046) million), and TVOG of £(1,347) million (30 June 2011: (£970) million; 31 December 2011: £(1,540) million).

2. Comprises embedded value of £12,902 million (30 June 2011: £15,300 million; 31 December 2011: £12,274 million) and non-controlling interest in long-term business assets of £ 1,152 million (30 June 2011: £1,850 million; 31 December 2011: £820 million).

The adjustment for assets to regulatory value and differences in technical provisions relate mainly to the US, reflecting differences between the IFRS and local solvency reserving basis. The DAC and DIR adjustment relates mainly to the UK and US.

Page 7

Group MCEV analysis of earnings

30 June 2012	Covered business¹ £m A	Non-covered but related to life business² £m B	Total life business³ £m A+B	Non-covered relating to non-life £m C	Total non-covered business £m B+C	Total £m A+B+C
Opening Group MCEV	12,274	2,533	14,807	(788)	1,745	14,019
Operating MCEV earnings	744	-	744	(19)	(19)	725
Non-operating MCEV earnings	483	(873)	(390)	(377)	(1,250)	(767)
Total MCEV earnings	1,227	(873)	354	(396)	(1,269)	(42)
Other movements in IFRS net equity	-	87	87	(12)	75	75
Capital and dividend flows	(508)	-	(508)	484	484	(24)
Foreign exchange variances	(108)	(34)	(142)	(25)	(59)	(167)
Acquired/divested businesses	17	31	48	(48)	(17)	-
Closing Group MCEV	12,902	1,744	14,646	(785)	959	13,861
Preference share capital, direct capital instruments and fixed rate tier 1 notes						(1,582)
Equity attributable to ordinary shareholders of Aviva plc on an MCEV basis						12,279

1. Covered business represents the business that the MCEV calculations cover, as detailed in the Basis of preparation note. The embedded value is presented net of non-controlling interests and tax.

2. Non-covered but related to life business represents the adjustments to the MCEV, including goodwill, to calculate the long-term business net assets on an MCEV basis. An analysis of net assets on an MCEV basis gross of non-controlling interests is provided in E6.

3. Net assets for the total life businesses on an MCEV basis presented net of non-controlling interests.

Restated 30 June 2011	Covered business¹ £m A	Non-covered but related to life business² £m B	Total life business³ £m A+B	Non-covered relating to non-life £m C	Total non-covered business £m B+C	Total £m A+B+C
Opening Group MCEV	15,874	2,339	18,213	(1,985)	354	16,228
Operating MCEV earnings	990	-	990	(67)	(67)	923
Non-operating MCEV earnings	50	(41)	9	(74)	(115)	(65)
Total MCEV earnings	1,040	(41)	999	(141)	(182)	858
Other movements in IFRS net equity	-	23	23	(92)	(69)	(69)
Capital and dividend flows	(417)	-	(417)	(156)	(156)	(573)
Foreign exchange variances	322	23	345	5	28	350
Acquired/divested businesses	(1,519)	34	(1,485)	1,485	1,519	-
Closing Group MCEV	15,300	2,378	17,678	(884)	1,494	16,794
Preference share capital and direct capital instruments						(1,190)
Equity attributable to ordinary shareholders of Aviva plc on an MCEV basis						15,604

1. Covered business represents the business that the MCEV calculations cover, as detailed in the Basis of preparation note. The embedded value is presented net of non-controlling interests and tax.

3. Net assets for the total life businesses on an MCEV basis presented net of non-controlling interests.

Full year 2011	Covered business¹ £m A	Non-covered but related to life business² £m B	Total life business³ £m A+B	Non-covered relating to non-life £m C	Total non-covered business £m B+C	Total £m A+B+C
Opening Group MCEV	15,874	2,339	18,213	(1,985)	354	16,228
Operating MCEV earnings	2,193	-	2,193	4	4	2,197
Non-operating MCEV earnings	(3,530)	(218)	(3,748)	(189)	(407)	(3,937)
Total MCEV earnings	(1,337)	(218)	(1,555)	(185)	(403)	(1,740)
Other movements in IFRS net equity	-	412	412	270	682	682
Capital and dividend flows	(493)	-	(493)	(297)	(297)	(790)
Foreign exchange variances	(251)	(30)	(281)	(80)	(110)	(361)
Acquired/divested businesses	(1,519)	30	(1,489)	1,489	1,519	-
Closing Group MCEV	12,274	2,533	14,807	(788)	1,745	14,019
Preference share capital and direct capital instruments						(1,190)
Equity attributable to ordinary shareholders of Aviva plc on an MCEV basis						12,829

1 Covered business represents the business that the MCEV calculations cover, as detailed in the Basis of preparation note. The embedded value is presented net of non-controlling interests and tax.

2 Non-covered but related to life business represents the adjustments to the MCEV, including goodwill, to calculate the long-term business net assets on an MCEV basis. An analysis of net assets on an MCEV basis gross of non-controlling interests is provided in E6.

3 Net assets for the total life businesses on an MCEV basis presented net of non-controlling interests.

Page 8

E1 - Basis of preparation

The condensed consolidated income statement and condensed consolidated statement of financial position on pages 2 to 5 present the Group's results and financial position for the covered life and related businesses on the Market Consistent Embedded Value (MCEV) basis and for its non-covered businesses and non-covered but related to life businesses on the International Financial Reporting Standards (IFRS) basis. The MCEV methodology adopted is in accordance with the MCEV Principles published by the CFO Forum in October 2009. The CFO Forum MCEV principles (17.3.29) indicate that changes to models to reflect improvements or rectify errors should be included in the 'other operating variances' line. Where possible, such model refinements have been reported in the analysis of earnings on the line where the impact would have occurred in order to provide better information when considering assumption changes / experience variances over multiple reporting periods.

The directors consider that the MCEV methodology gives useful insight into the drivers of financial performance of the Group's life and related businesses. This basis values future cash flows from assets consistently with market prices, including more explicit allowance for the impact of uncertainty in future investment returns and other risks. Embedded value is also consistent with the way pricing is assessed and the business is managed.

The results for our half year report have been reviewed by our auditors, PricewaterhouseCoopers LLP. Their report in respect of the half-year can be found on page 40.

Covered business

The MCEV calculations cover the following lines of business: life insurance, long-term health and accident insurance, savings, pensions and annuity business written by our life insurance subsidiaries, including managed pension fund business and our share of certain life and related business written in our associated undertakings and joint ventures, as well as the equity release business written in the UK.

Covered business includes the Group's share of our joint ventures including our associated undertakings in India, China, Turkey, Malaysia, Taiwan and South Korea. In addition, the results of Group companies providing significant administration, fund management and other services and of Group holding companies have been included to the extent that they relate to covered business. Together these businesses are referred to as "Life and related businesses".

Aviva's associate holding of Delta Lloyd is not included within covered business as MCEV is not used to manage Delta Lloyd. For 'Group' MCEV reporting, which includes general insurance and other non-covered business, Delta Lloyd is included on an IFRS basis.

New business premiums

New business premiums include:

n premiums arising from the sale of new contracts during the period;

n non-contractual additional premiums; and

n expected renewals on new contracts and expected future contractual alterations to new contracts.

The Group's definition of new business under MCEV includes contracts that meet the definition of "non-participating investment" contracts under IFRS.

For products sold to individuals, premiums are considered to represent new business where a new contract has been signed,
or where underwriting has been performed. Renewal premiums include contractual renewals, non-contractual variations that are reasonably predictable and recurrent single premiums that are pre-defined and reasonably predictable.

For group products, new business includes new contracts and increases to aggregate premiums under existing contracts. Renewal premiums are based on the level of premium received during the reporting period and allow for premiums expected to be received beyond the expiry of any guaranteed premium rates.

Life and pensions operating earnings

For life and pensions operating earnings, Aviva uses normalised investment returns. The use of asset risk premia reflects management's long-term expectations of asset returns in excess of the swap yield from investing in different asset classes.

The normalised investment return on equities and property has been calculated by reference to the ten-year swap rate in the relevant currency plus an appropriate risk premium. The expected return on bonds has been calculated by reference to the swap rate consistent with the duration of the backing assets in the relevant currency plus an appropriate risk margin (expected return is equivalent to the gross redemption yield less an allowance for defaults).

The expected existing business contribution (in excess of reference rate) is calculated using the implied discount rate (IDR), which itself is based on the normalised investment returns. The methodology applies the IDR to the Value of In Force (VIF) and Required Capital (RC) components of the MCEV and adds to this the total expected return for Free Surplus (FS) to derive the total expected return, in a manner consistent with that previously used under European Embedded Value reporting. This total is presented as the expected existing business contribution (reference rate), expected existing business contribution (in excess of reference rate) and expected return on shareholders' net worth (grossed up for tax for pre-tax presentation), with only the excess contribution being impacted by the approach. For businesses where the IDR is unpublished, the expected return in excess of the reference rate is calculated as the excess of the real world equivalent embedded value (EqEV) over the MCEV amortised over the average duration of the portfolio. The approach to expected return has no impact on total return or on the closing balance sheet.

Page 9

E1 - Basis of preparation continued

MCEV methodology

Overview

Under the MCEV methodology, profit is recognised as it is earned over the life of products defined within covered business. The total profit recognised over the lifetime of a policy is the same as under the IFRS basis of reporting, but the timing of recognition is different.

Calculation of the embedded value

The shareholders' interest in the life and related businesses is represented by the embedded value. The embedded value is the total of the net worth of the life and related businesses and the value of in-force covered business. Calculations are performed separately for each business and are based on the cash flows of that business, after allowing for both external and intra-Group reinsurance. Where one life business has an interest in another, the net worth of that business excludes the interest in the dependent company.

The embedded value is calculated on an after-tax basis applying current legislation and practice together with future known changes. Consistent with CFO Forum guidance issued in 2011, no explicit allowance has been made for the developing European regulation regime (Solvency II) and associated consequences. Where gross results are presented, these have been calculated by grossing up post-tax results at the full rate of corporation tax for each country based on opening period tax rates, apart from the UK, where a 24% tax rate was used for 2012 for grossing up.

Net worth

The net worth is the market value of the shareholders' funds and the shareholders' interest in the surplus held in the non-profit component of the long-term business funds, determined on a statutory solvency basis and adjusted to add back any non-admissible assets, and consists of the required capital and free surplus.

Required capital is the market value of assets attributed to the covered business over and above that required to back liabilities for covered business, for which distribution to shareholders is restricted. Required capital is reported net of implicit items permitted on a local regulatory basis to cover minimum solvency margins which are assessed at a local entity level. The level of required capital for each business unit is generally set equal to the higher of:

n The level of capital at which the local regulator is empowered to take action;

n The capital requirement of the business unit under the Group's economic capital requirements; and

n The target capital level of the business unit.

For Aviva US, the required capital is set at 325% of the NAIC Company Action Level in line with management targets and target credit ratings.

This methodology reflects the level of capital considered by the directors to be appropriate to manage the business, and includes any additional shareholder funds not available for distribution, such as the reattributed inherited estate in the UK. The same definition of required capital is used for both existing and new business except in Italy where new business reflects the targeted capital level which better reflects the capital requirements of the new business.

The free surplus is the market value of any assets allocated to, but not required to support, the in-force covered business at the valuation date. The level of required capital across the business units expressed as a percentage of the EU minimum solvency margin (or equivalent) can be found in E15.

Value of in-force covered business (VIF)

The value of in-force covered business consists of the following components:

n present value of future profits;

n time value of financial options and guarantees;

n frictional costs of required capital; and

n cost of residual non-hedgeable risks.

Present value of future profits (PVFP)

This is the present value of the distributable profits to shareholders arising from the in-force covered business projected on a best estimate basis.

Distributable profits generally arise when they are released following actuarial valuations. These valuations are carried out in accordance with any local statutory requirements designed to ensure and demonstrate solvency in long-term business funds. Future distributable profits will depend on experience in a number of areas such as investment return, discontinuance rates, mortality, administration costs, as well as management and policyholder actions. Releases to shareholders arising in future years from the in-force covered business and associated required capital can be projected using assumptions of future experience.

Future profits are projected using best estimate non-economic assumptions and market consistent economic assumptions. In principle, each cash flow is discounted at a rate that appropriately reflects the riskiness of that cash flow, so higher risk cash flows are discounted at higher rates. In practice, the PVFP is calculated using the "certainty equivalent" approach, under which the reference rate is used for both the investment return and the discount rate. This approach ensures that asset cash flows are valued consistently with the market prices of assets without options and guarantees. Further information on the risk-free rates is given in note E15.

The PVFP includes the capitalised value of profits and losses arising from subsidiary companies providing administration, investment management and other services to the extent that they relate to covered business. This is referred to as the "look through" into service company expenses. In addition, expenses arising in holding companies that relate directly to acquiring or maintaining covered business have been allowed for. Where external companies provide services to the life and related businesses, their charges have been allowed for in the underlying projected cost base.

Page 10

E1 - Basis of preparation continued

Time value of financial options and guarantees (TVOG)

The PVFP calculation is based on a single (base) economic scenario; however, a single scenario cannot appropriately allow for the effect of certain product features. If an option or guarantee affects shareholder cash flows in the base scenario, the impact is included in the PVFP and is referred to as the intrinsic value of the option guarantee; however, future investment returns are uncertain and the actual impact on shareholder profits may be higher or lower. The value of in-force business needs to be adjusted for the impact of the range of potential future outcomes. Stochastic modelling techniques can be used to assess the impact of potential future outcomes, and the difference between the intrinsic value and the total stochastic value is referred to as the time value of the option or guarantee.

Stochastic modelling typically involves projecting the future cash flows of the business under thousands of economic scenarios that are representative of the possible future outcomes for market variables such as interest rates and equity returns. Under a market consistent approach, the economic scenarios generated reflect the market's tendency towards risk aversion. Allowance is made, where appropriate, for the effect of management and/or policyholder actions in different economic conditions on future assumptions such
as asset mix, bonus rates and surrender rates.

Stochastic models are calibrated to market yield curves and volatility levels at the valuation date. Tests are performed to confirm that the scenarios used produce results that replicate the market price of traded instruments.

Where evidence exists that persistency rates are linked to economic scenarios, dynamic lapse assumptions are set that vary depending on the individual scenarios. This cost is included in the TVOG. Dynamic lapses are modelled for parts of the UK, US and French businesses. Asymmetries in non-economic assumptions that are linked to economic scenarios, but that have insufficient evidence for credible dynamic assumptions, are allowed for within mean best estimate assumptions.

Frictional costs of required capital

The additional costs to a shareholder of holding the assets backing required capital within an insurance company rather than directly in the market are called frictional costs. They are explicitly deducted from the PVFP. The additional costs allowed for are the taxation costs and any additional investment expenses on the assets backing the required capital. The level of required capital has been set out above in the net worth section.

Frictional costs are calculated by projecting forwards the future levels of required capital in line with drivers of the capital requirement. Tax on investment return and investment expenses are payable on the assets backing required capital, up until the point that they are released to shareholders.

Cost of residual non-hedgeable risks (CNHR)

The cost of residual non-hedgeable risks (CNHR) covers risks not already allowed for in the time value of options and guarantees
or the PVFP. The allowance includes the impact of both non-hedgeable financial and non-financial risks. The most significant risk
not included in the PVFP or TVOG is operational risk.

Asymmetric risks allowed for in the TVOG or PVFP are described earlier in the basis of preparation. No allowance has been made within the cost of non-hedgeable risk for symmetrical risks as these are diversifiable by investors.

US capital solutions

Credit has been taken within the US embedded value, and value of new business, for the anticipated reduction in capital requirements based on management's intention to enact transactions which allow recognition of additional assets that can be held against certain reserves, reducing shareholder capital requirements. These 'AXXX/XXX' transactions are fixed-term and are assumed to renew at current market rates. Enacting such transactions is common practice within the US market, and at 30 June 2012, transactions have been enacted for all business written from 2006 to 2011.

New business tax

New business for the US and Italy has been valued on a basis with tax applied at the full corporation rate and consequential movements in the value of the Deferred Tax Asset included as a variance within existing business operating return.

Participating business

Future regular bonuses on participating business are projected in a manner consistent with current bonus rates and expected future market-consistent returns on assets deemed to back the policies.

For with-profit funds in the UK and Ireland, for the purpose of recognising the value of the estate, it is assumed that terminal bonuses are increased to exhaust all of the assets in the fund over the future lifetime of the in-force with-profit policies. However, under stochastic modelling there may be some extreme economic scenarios when the total assets in the Group's with-profit funds are not sufficient to pay all policyholder claims. The average additional shareholder cost arising from this shortfall has been included
in the TVOG.

For profit-sharing business in continental Europe, where policy benefits and shareholder value depend on the timing of realising gains, the apportionment of unrealised gains between policyholders and shareholders reflect contractual requirements as well as existing practice. Under certain economic scenarios where additional shareholder injections are required to meet policyholder payments, the average additional cost has been included in the TVOG.

Page 11

E1 - Basis of preparation continued

Participating business continued

The embedded value of the US spread-based products anticipates the application of management discretion allowed for contractually within the policies, subject to contractual guarantees. This includes the ability to change the crediting rates and indexed strategies available within the policy. Consideration is taken of the economic environment assumed in future projections and returns in excess of the reference rate are not assumed. Anticipated market and policyholder reaction to management action has been considered.

Consolidation adjustments

The effect of transactions between group life companies such as loans and reinsurance arrangements have been included in the results split by territory in a consistent manner. No elimination is required on consolidation.

As the MCEV methodology incorporates the impact of profits and losses arising from subsidiary companies providing administration, investment management and other services to the Group's life companies, the equivalent profits and losses have been removed from the relevant segment (other operations or fund management) and are instead included within the results of life and related businesses. In addition, the underlying basis of calculation for these profits has changed from the IFRS basis to the MCEV basis.

The capitalised value of the future profits and losses from such service companies are included in the embedded value and value of new business calculations for the relevant business, but the net assets (representing historical profits and other amounts) remain under other operations or fund management. In order to reconcile the profits arising in the financial period within each segment with the assets on the opening and closing statement of financial positions, a transfer of IFRS profits from life and related business to the appropriate segment is deemed to occur. An equivalent approach has been adopted for expenses within our holding companies.
The assessments of goodwill, intangibles and pension schemes relating to life insurance business utilise the IFRS measurement basis.

Exchange rates

The Group's principal overseas operations during the period were located within the Eurozone and the United States.

The results and cash flows of these operations have been translated at the average rates for that period and the assets and liabilities have been translated at the period end rates. Please refer to note A2 of the IFRS financial statements.

Restatement

The 2010 and half year 2011 closing embedded values have been restated for the US, primarily reflecting modelling corrections to the valuation of certain life contracts and an overstatement of asset income identified in the second half of 2011. The resulting impact of the restatement was that the closing 2010 embedded value reduced by £257 million and the closing half year 2011 embedded value reduced by £257 million. Restated operating profit for period ending 30 June 2011 increased £52 million gross tax and minority interest as a result of increased expected return.

Impact of Delta Lloyd disposal

On 6 May 2011, the Group sold 25 million shares in Delta Lloyd N.V. ("Delta Lloyd") (the Group's Dutch long-term insurance, general insurance and fund management subsidiary), reducing our holding to approximately 43% of Delta Lloyd's ordinary share capital.

In line with IFRS, up to the date of partial disposal, Delta Lloyd has been presented as a discontinued operation. Following the partial disposal, when Delta Lloyd became an associate of Aviva, Delta Lloyd has been removed from covered business as it is not managed by either Aviva or Delta Lloyd on an MCEV basis. The impact on MCEV as at 6 May 2011 was a reduction of £1,519 million.

Page 12

E2 - Geographical analysis of life MCEV operating earnings

						6 months 2012
Gross of tax and non-controlling interest	United Kingdom & Ireland £m	France £m	United States £m	Italy, Spain and Other £m	Developed markets £m	Higher Growth markets £m	Continuing operations £m
Value of new business	176	62	(138)	35	135	70	205
Earnings from existing business:
- expected returns at the reference rate	109	49	33	22	213	59	272
- expected returns in excess of the reference rate	207	99	253	246	805	8	813
- expected returns	316	148	286	268	1,018	67	1,085
- experience variances	(37)	(13)	(96)	34	(112)	(2)	(114)
- operating assumption changes	(20)	-	-	(9)	(29)	8	(21)
Expected return on shareholders' net worth	63	28	31	43	165	16	181
Other operating variances	(27)	(25)	(2)	(48)	(102)	(6)	(108)
Operating earnings before tax	471	200	81	323	1,075	153	1,228

								Restated 6 months 2011
Gross of tax and non-controlling interest	United Kingdom & Ireland £m	France £m	United States £m	Italy, Spain and Other £m	Developed markets £m	Higher Growth markets £m	Continuing operations £m	Discontinued operations £m	Total £m
Value of new business	192	97	(86)	102	305	64	369	1	370
Earnings from existing business:
- expected returns at the reference rate	87	57	33	31	208	53	261	19	280
- expected returns in excess of the reference rate	202	71	250	72	595	19	614	109	723
- expected returns	289	128	283	103	803	72	875	128	1,003
- experience variances	(29)	29	(55)	6	(49)	10	(39)	3	(36)
- operating assumption changes	(25)	-	(14)	(8)	(47)	22	(25)	99	74
Expected return on shareholders' net worth	94	40	40	40	214	15	229	41	270
Other operating variances	(12)	1	20	5	14	(21)	(7)	(2)	(9)
Operating earnings before tax	509	295	188	248	1,240	162	1,402	270	1,672

								Full year 2011
Gross of tax and non-controlling interest	United Kingdom & Ireland £m	France £m	United States £m	Italy, Spain and Other £m	Developed markets £m	Higher Growth markets £m	Continuing operations £m	Discontinued operations £m	Total £m
Value of new business	376	142	(131)	166	553	136	689	1	690
Earnings from existing business:
- expected returns at the reference rate	228	113	62	64	467	99	566	19	585
- expected returns in excess of the reference rate	366	140	515	145	1,166	33	1,199	109	1,308
- expected returns	594	253	577	209	1,633	132	1,765	128	1,893
- experience variances	93	26	(98)	11	32	14	46	3	49
- operating assumption changes	(133)	244	(115)	(176)	(180)	221	41	99	140
Expected return on shareholders' net worth	177	60	64	81	382	29	411	41	452
Other operating variances	(5)	352	(56)	(94)	197	(20)	177	(2)	175
Operating earnings before tax	1,102	1,077	241	197	2,617	512	3,129	270	3,399

United Kingdom & Ireland

MCEV operating earnings were 7% lower at £471 million (HY11: £509 million) mainly due to lower value of new business and adverse experience variances.

Value of new business reduced by 8% to £176 million (HY11: £192 million), reflecting reduced volumes in Ireland due to the closing of Ark Life to new business and a reduction in bulk purchase annuities sales in the UK as the business continues to manage new business mix and pricing discipline.

Total expected return was broadly similar at £379 million (HY11: £383 million).

Operating experience variances, other operating variances and assumption changes decreased to £84 million adverse
(HY11: £66 million adverse) including higher expenditures from increased level of regulatory change and revisions to asset management profit margins.

Page 13

E2 - Geographical analysis of life MCEV operating earnings continued

France

MCEV operating earningsdecreased 32% to £200 million (HY11: £295 million) driven by a reduction in the value of new business and lower experience variances than the prior period.

Value of new business decreased 36% to £62 million (HY11: £97 million) following lower sales volumes of primarily unit-linked business and reduced margins on with-profits business as a result of the adverse economic climate in Europe in the first half of the year.

Total expected return increased 5% to £176 million (HY11: £168 million) resulting from a higher opening implied discount rate, albeit on a lower embedded value.

Experience variances were lower at £13 million adverse (HY11: £29 million) reflecting the assumption revisions in 2011 and an increase in lapse due to economic circumstances.

Other operating variances were lower at £25 million adverse (HY11: £1 million) relate to modelling refinements during the first half of the year.

United States

MCEV operating earnings decreased to £81 million (HY11: £188 million) driven by a reduction in the value of new business and unfavourable experience variances.

Value of new business of negative £138 million (HY11: £86 million negative) reflecting the adverse economic movements from lower risk-free rates.

Total expected return of £317 million (HY11: £323 million) is broadly in line with prior period.

Operating experience variances, other operating variances and assumption changes of £98 million adverse (HY11:£49 million adverse) primarily reflecting the marginal impact of new business on the value of deferred tax losses and non-recurrence of benefits from modelling refinements in the prior period.

Italy, Spain and Other Developed Markets

MCEV operating earnings increased by 30% to £323 million (HY11: £248 million) reflecting increases in expected return, partly offset by a reduction in the value of new business.

Value of new business decreased to £35 million (HY11: £102 million) driven by a reduction in volumes and margins in Italy and Spain reflecting the adverse economic climate in Europe in the first half of the year.

Total expected return increased to £311 million (HY11: £143 million) reflecting in Italy the expected release of the allowance for guarantees in the opening embedded value.

Experience variances increased to £34 million (HY11: £6 million) largely in Italy reflecting the benefit of the marginal impact of new business on the value of deferred tax losses and benefit of increased lapse due the negative value of in force business.

Assumption changes of £9 million adverse (HY11: £8 million adverse) relating to additional lapse provisions on unit linked business in Italy due to the adverse economic climate.

Other operating variances of £48 million adverse (HY11: £5 million) primarily from modelling improvements in Italy.

Higher Growth Markets

MCEV operating earnings decreased by 6% to £153 million (HY11: £162 million) as higher value of new business was more than offset by a decrease in experience variances and assumption change from the prior period.

Value of new business increased by 9% to £70 million (HY11: £64 million) due to an improvement in the margin reflecting
product mix.

Total expected return of £83 million (HY11: £87 million) broadly in line with prior period.

Operating experience variances, other operating variances and assumption changes of nil (HY11: £11 million) primarily reflecting the non-recurrence of positive assumption changes in the prior period.

Page 14

E2 - Geographical analysis of life MCEV operating earnings continued

Gross of tax and non-controlling interests 30 June 2012	UK £m	Ireland £m	UK & Ireland £m	France £m	United States £m	Spain £m	Italy £m	Other £m	Developed markets £m	Poland £m	Asia £m	Other £m	Higher Growth markets £m	Continuing operations £m
Value of new business	182	(6)	176	62	(138)	21	14	-	135	18	37	15	70	205
Earnings from existing business
- expected existing business contribution (reference rate)	101	8	109	49	33	14	4	4	213	41	11	7	59	272
- expected existing business contribution (in excess of reference rate)	196	11	207	99	253	50	196	-	805	5	3	-	8	813
Experience variances
- maintenance expense	7	1	8	(7)	6	(3)	(2)	5	7	1	(1)	1	1	8
- project and other related expenses¹	(33)	(1)	(34)	(4)	(10)	-	-	-	(48)	-	(4)	-	(4)	(52)
- mortality/morbidity	(2)	(7)	(9)	9	(9)	(1)	-	2	(8)	4	6	-	10	2
- lapses²	(3)	(11)	(14)	(15)	3	1	14	(4)	(15)	-	(8)	-	(8)	(23)
- other³	12	-	12	4	(86)	-	24	(2)	(48)	2	(3)	-	(1)	(49)
	(19)	(18)	(37)	(13)	(96)	(3)	36	1	(112)	7	(10)	1	(2)	(114)
Operating assumption changes:
- maintenance expense	10	(6)	4	-	-	-	-	-	4	-	1	-	1	5
- project and other related expenses	-	-	-	-	-	-	-	-	-	-	-	-	-	-
- mortality/morbidity	(4)	-	(4)	-	-	-	-	-	(4)	-	4	-	4	-
- lapses⁴	7	-	7	-	-	-	(15)	-	(8)	-	3	-	3	(5)
- other⁵	(22)	(5)	(27)	-	-	-	-	6	(21)	-	-	-	-	(21)
	(9)	(11)	(20)	-	-	-	(15)	6	(29)	-	8	-	8	(21)
Expected return on shareholders' net worth	56	7	63	28	31	13	30	-	165	5	9	2	16	181
Other operating variances⁶	(30)	3	(27)	(25)	(2)	(8)	(34)	(6)	(102)	-	(2)	(4)	(6)	(108)
Earnings before tax and non-controlling interests	477	(6)	471	200	81	87	231	5	1,075	76	56	21	153	1,228

1. Project and other related expenses includes higher expenditures related to increased level of regulatory change in the UK.

2. Persistency experience remains volatile across most of our businesses, in part reflecting the wider economic circumstances. Asia reflects an accumulation of small adverse experience across businesses.

3. Other experience includes the marginal impact of new business on value of deferred tax losses in the US and Italy as well as other tax variances in the US.

4. Persistency assumptions include an additional short term provision in Italy reflecting economic circumstances.

5. Other assumption changes include a revision to profit margins on asset management in the UK.

6. Other operating variances include the impacts of modelling refinements in France and Italy and the cost of capital management initiatives in the UK.

Page 15

E2 - Geographical analysis of life MCEV operating earnings continued

Restated Gross of tax and non-controlling interests 30 June 2011	UK £m	Ireland £m	UK & Ireland £m	France £m	United States £m	Spain £m	Italy £m	Other £m	Developed markets £m	Poland £m	Asia £m	Other £m	Higher Growth markets £m	Continuing operations £m
Value of new business	190	2	192	97	(86)	49	50	3	305	20	34	10	64	369
Earnings from existing business
- expected existing business contribution (reference rate)	79	8	87	57	33	16	12	3	208	36	11	6	53	261
- expected existing business contribution (in excess of reference rate)	190	12	202	71	250	37	35	-	595	12	4	3	19	614
Experience variances
- maintenance expense	11	(4)	7	(3)	1	-	(1)	1	5	3	-	3	6	11
- project and other related expenses	(10)	-	(10)	(4)	(5)	-	-	-	(19)	-	(1)	(2)	(3)	(22)
- mortality/morbidity¹	4	(3)	1	19	(18)	(7)	5	2	2	5	6	1	12	14
- lapses²	(14)	(5)	(19)	3	(5)	-	(3)	(1)	(25)	-	(10)	1	(9)	(34)
- other³	(4)	(4)	(8)	14	(28)	-	5	5	(12)	6	(2)	-	4	(8)
	(13)	(16)	(29)	29	(55)	(7)	6	7	(49)	14	(7)	3	10	(39)
Operating assumption changes:
- maintenance expense⁴	-	(26)	(26)	-	-	-	-	1	(25)	11	5	1	17	(8)
- project and other related expenses	-	-	-	-	-	-	-	-	-	-	-	-	-	-
- mortality/morbidity	-	-	-	-	-	-	-	-	-	-	1	-	1	1
- lapses⁵	-	-	-	-	(14)	-	-	(9)	(23)	-	(1)	5	4	(19)
- other	1	-	1	-	-	-	-	-	1	-	-	-	-	1
	1	(26)	(25)	-	(14)	-	-	(8)	(47)	11	5	6	22	(25)
Expected return on shareholders' net worth	80	14	94	40	40	16	23	1	214	6	7	2	15	229
Other operating variances⁶	(9)	(3)	(12)	1	20	-	4	1	14	(1)	(6)	(14)	(21)	(7)
Earnings before tax and non-controlling interests	518	(9)	509	295	188	111	130	7	1,240	98	48	16	162	1,402

1. Mortality experience continues to be better than the assumption set across a number of our businesses, most notably in France. Adverse experience reflects normal volatility in mortality and increased retention limits in the US.

3. Other experience includes positive tax variances in France and adverse spread variance in the US.

4. Maintenance expense assumptions reflect the adverse impact of reallocating expenses from acquisition to maintenance in Ireland and provision release in Poland.

5. Persistency assumptions have been updated in a number of businesses, including refinement of 2010 assumptions in the US.

6. Other operating variances for the US relate to modelling enhancements offset by the marginal impact of new business on the value of deferred tax losses, and in Other Higher Growth markets, management action to improve persistency.

Page 16

E2 - Geographical analysis of life MCEV operating earnings continued

Gross of tax and non-controlling interests Full year 2011	UK £m	Ireland £m	UK & Ireland £m	France £m	United States £m	Spain £m	Italy £m	Other £m	Developed markets £m	Poland £m	Asia £m	Other £m	Higher Growth markets £m	Continuing operations £m
Value of new business	380	(4)	376	142	(131)	86	75	5	553	45	71	20	136	689
Earnings from existing business
- expected existing business contribution (reference rate)	214	14	228	113	62	34	23	7	467	72	16	11	99	566
- expected existing business contribution (in excess of reference rate)	340	26	366	140	515	72	72	1	1,166	20	10	3	33	1,199
Experience variances
- maintenance expense¹	2	(8)	(6)	(14)	(46)	2	(7)	5	(66)	6	-	(3)	3	(63)
- project and other related expenses¹	(30)	(1)	(31)	(15)	(16)	(1)	-	-	(63)	-	(4)	(1)	(5)	(68)
- mortality/morbidity²	2	2	4	33	(28)	(5)	11	2	17	12	7	-	19	36
- lapses³	(11)	(12)	(23)	9	5	-	2	(5)	(12)	4	(14)	-	(10)	(22)
- other⁴	153	(4)	149	13	(13)	-	7	-	156	9	(2)	-	7	163
	116	(23)	93	26	(98)	(4)	13	2	32	31	(13)	(4)	14	46
Operating assumption changes:
- maintenance expense⁵	63	(65)	(2)	11	(54)	(4)	(28)	(2)	(79)	51	19	-	70	(9)
- project and other related expenses⁵	(65)	-	(65)	(4)	-	-	-	-	(69)	-	-	-	-	(69)
- mortality/morbidity⁶	(18)	-	(18)	163	-	(16)	-	6	135	22	(6)	-	16	151
- lapses⁷	(1)	(57)	(58)	107	(136)	(65)	(5)	(33)	(190)	37	(24)	3	16	(174)
- other⁸	10	-	10	(33)	75	-	(28)	(1)	23	117	-	2	119	142
	(11)	(122)	(133)	244	(115)	(85)	(61)	(30)	(180)	227	(11)	5	221	41
Expected return on shareholders' net worth	147	30	177	60	64	32	47	2	382	10	16	3	29	411
Other operating variances⁹	7	(12)	(5)	352	(56)	2	(95)	(1)	197	5	(11)	(14)	(20)	177
Earnings before tax and non-controlling interests	1,193	(91)	1,102	1,077	241	137	74	(14)	2,617	410	78	24	512	3,129

1 Adverse expense experience occurred across a number of businesses.

2 Mortality experience continues to be better than the assumption set across a number of our businesses, most notably in France. Adverse experience reflects normal volatility in mortality and increased retention limits in the US.

3 Persistency experience continues to be somewhat volatile across our businesses. Asia reflects an accumulation of small adverse experience across businesses.

4 Other experience includes tax benefits from the transfer of former RBS joint venture business into the long-term fund in the UK.

5 Maintenance and project expense assumptions have been revised in many regions with a broadly neutral impact on continuing business.

6 Mortality assumptions have been updated in France reflecting experience.

7 Persistency assumptions have been updated in a number of businesses reflecting lower expected lapses in France (AFER), increases due to the economic environment in Ireland and Spain, and, in the US, revisions to dynamic policyholder lapse behaviour.

8 Other operating assumption changes in Poland relate to a change to assumed management actions in relation to product charges, and, in the US, revisions to policyholder utilisation of rider benefits offset by revisions to annuity spread assumptions.

9 Other operating variances relate to modelling changes and the release of a modelling provision in France, and modelling refinements in Italy, and, in the US, the marginal impact of new business on the value of deferred tax losses, with cost of capital transactions and model refinements broadly offsetting.

Page 17

E2 - Geographical analysis of life MCEV operating earnings continued

Net of tax and non-controlling interests 30 June 2012	UK £m	Ireland £m	UK & Ireland £m	France £m	United States £m	Spain £m	Italy £m	Other £m	Developed markets £m	Poland £m	Asia £m	Other £m	Higher Growth markets £m	Continuing operations £m
Value of new business	138	(3)	135	35	(90)	4	4	(1)	87	13	29	12	54	141
Earnings from existing business
- expected existing business contribution (reference rate)	77	5	82	31	21	6	1	3	144	30	8	5	43	187
- expected existing business contribution (in excess of reference rate)	149	7	156	61	165	17	56	-	455	3	2	-	5	460
Experience variances
- maintenance expense	5	1	6	(5)	4	(2)	(1)	4	6	-	-	1	1	7
- project and other related expenses¹	(25)	-	(25)	(3)	(7)	-	-	-	(35)	-	(3)	-	(3)	(38)
- mortality/morbidity	(1)	(5)	(6)	6	(6)	(1)	-	1	(6)	3	5	-	8	2
- lapses²	(3)	(7)	(10)	(9)	2	1	3	(2)	(15)	-	(5)	-	(5)	(20)
- other³	9	-	9	4	(55)	-	7	(2)	(37)	2	(2)	-	-	(37)
	(15)	(11)	(26)	(7)	(62)	(2)	9	1	(87)	5	(5)	1	1	(86)
Operating assumption changes:
- maintenance expense	7	(4)	3	-	-	-	-	-	3	-	-	-	-	3
- project and other related expenses	-	-	-	-	-	-	-	-	-	-	-	-	-	-
- mortality/morbidity	(3)	-	(3)	-	-	-	-	-	(3)	-	3	-	3	-
- lapses⁴	6	-	6	-	-	-	(5)	-	1	-	1	-	1	2
- other⁵	(17)	(2)	(19)	-	-	-	-	4	(15)	-	-	-	-	(15)
	(7)	(6)	(13)	-	-	-	(5)	4	(14)	-	4	-	4	(10)
Expected return on shareholders' net worth	43	4	47	17	20	5	9	-	98	4	7	2	13	111
Other operating variances⁶	(22)	2	(20)	(13)	(1)	(4)	(10)	(5)	(53)	-	(3)	(3)	(6)	(59)
Earnings after tax and non-controlling interests	363	(2)	361	124	53	26	64	2	630	55	42	17	114	744

1. Project and other related expenses includes higher expenditures related to increased level of regulatory change in the UK

3. Other experience includes the marginal impact of new business on value of deferred tax losses in the US and Italy as well as other tax variances in the US.

4. Persistency assumptions include an additional short term provision in Italy reflecting economic circumstances.

5. Other assumption changes include a revision to profit margins on asset management in the UK

6. Other operating variances include the impacts of modelling refinements in France and Italy and the cost of capital management initiatives in the UK.

Page 18

E2 - Geographical analysis of life MCEV operating earnings continued

Restated Net of tax and non-controlling interests 30 June 2011	UK £m	Ireland £m	UK & Ireland £m	France £m	United States £m	Spain £m	Italy £m	Other £m	Developed markets £m	Poland £m	Asia £m	Other £m	Higher Growth markets £m	Continuing operations £m
Value of new business	140	1	141	53	(55)	17	15	2	173	14	27	9	50	223
Earnings from existing business
- expected existing business contribution (reference rate)	58	5	63	36	21	6	4	4	134	26	8	4	38	172
- expected existing business contribution (in excess of reference rate)	141	9	150	43	162	13	11	-	379	8	3	3	14	393
Experience variances
- maintenance expense	8	(3)	5	(2)	1	-	(1)	2	5	3	-	1	4	9
- project and other related expenses	(7)	-	(7)	(2)	(3)	-	-	-	(12)	-	(1)	(2)	(3)	(15)
- mortality/morbidity¹	3	(2)	1	11	(12)	(3)	2	1	-	4	5	2	11	11
- lapses²	(10)	(3)	(13)	3	(4)	(2)	(1)	(1)	(18)	-	(8)	1	(7)	(25)
- other³	(3)	(3)	(6)	8	(18)	-	2	3	(11)	4	(1)	-	3	(8)
	(9)	(11)	(20)	18	(36)	(5)	2	5	(36)	11	(5)	2	8	(28)
Operating assumption changes:
- maintenance expense⁴	-	(17)	(17)	-	-	-	-	-	(17)	8	3	1	12	(5)
- project and other related expenses	-	-	-	-	-	-	-	-	-	-	-	-	-	-
- mortality/morbidity	-	-	-	-	-	-	-	-	-	-	-	-	-	-
- lapses⁵	-	-	-	-	(9)	-	-	(8)	(17)	-	2	4	6	(11)
- other	1	-	1	-	-	-	-	-	1	-	-	-	-	1
	1	(17)	(16)	-	(9)	-	-	(8)	(33)	8	5	5	18	(15)
Expected return on shareholders' net worth	60	9	69	24	26	7	8	1	135	4	5	1	10	145
Other operating variances⁶	(6)	(2)	(8)	4	13	-	1	1	11	(1)	(5)	(11)	(17)	(6)
Earnings after tax and non-controlling interests	385	(6)	379	178	122	38	41	5	763	70	38	13	121	884

3. Other experience includes positive tax variances in France and adverse spread variance in the US.

4. Maintenance expense assumptions reflect the adverse impact of reallocating expenses from acquisition to maintenance in Ireland and provision release in Poland.

5. Persistency assumptions have been updated in a number of businesses, including refinement of 2010 assumptions in the US.

Page 19

E2 - Geographical analysis of life MCEV operating earnings continued

Net of tax and non-controlling interests Full year 2011	UK £m	Ireland £m	UK & Ireland £m	France £m	United States £m	Spain £m	Italy £m	Other £m	Developed markets £m	Poland £m	Asia £m	Other £m	Higher Growth markets £m	Continuing operations £m
Value of new business	281	(3)	278	79	(85)	28	23	4	327	34	55	16	105	432
Earnings from existing business
- expected existing business contribution (reference rate)	158	9	167	71	40	13	7	7	305	51	12	9	72	377
- expected existing business contribution (in excess of reference rate)	252	17	269	84	334	26	22	1	736	15	7	3	25	761
Experience variances
- maintenance expense¹	2	(6)	(4)	(9)	(30)	1	(4)	4	(42)	4	-	(2)	2	(40)
- project and other related expenses¹	(22)	-	(22)	(10)	(11)	(1)	-	-	(44)	-	(3)	(1)	(4)	(48)
- mortality/morbidity²	1	1	2	21	(18)	(2)	4	1	8	8	6	-	14	22
- lapses³	(7)	(8)	(15)	8	3	(3)	-	(5)	(12)	3	(11)	1	(7)	(19)
- other⁴	113	(2)	111	6	(9)	-	2	1	111	7	(2)	(1)	4	115
	87	(15)	72	16	(65)	(5)	2	1	21	22	(10)	(3)	9	30
Operating assumption changes:
- maintenance expense⁵	47	(45)	2	7	(35)	(2)	(10)	(1)	(39)	36	14	(1)	49	10
- project and other related expenses⁵	(49)	-	(49)	(2)	-	-	-	-	(51)	-	-	-	-	(51)
- mortality/morbidity⁶	(14)	-	(14)	101	-	(5)	-	4	86	16	(6)	1	11	97
- lapses⁷	-	(38)	(38)	73	(88)	(23)	(1)	(29)	(106)	26	(18)	4	12	(94)
- other⁸	7	-	7	(21)	49	-	(8)	(2)	25	84	-	3	87	112
	(9)	(83)	(92)	158	(74)	(30)	(19)	(28)	(85)	162	(10)	7	159	74
Expected return on shareholders' net worth	109	20	129	36	42	13	16	1	237	7	12	2	21	258
Other operating variances⁹	6	(9)	(3)	237	(36)	1	(29)	2	172	4	(7)	(14)	(17)	155
Earnings after tax and non-controlling interests	884	(64)	820	681	156	46	22	(12)	1,713	295	59	20	374	2,087

1 Adverse expense experience occurred across a number of businesses.

3 Persistency experience continues to be somewhat volatile across our businesses. Asia reflects an accumulation of small adverse experience across businesses.

4 Other experience includes tax benefits from the transfer of former RBS joint venture business into the long-term fund in the UK.

5 Maintenance and project expense assumptions have been revised in many regions with a broadly neutral impact on continuing business.

6 Mortality assumptions have been updated in France reflecting experience.

9 Other operating variances relate to modelling changes and the release of a modelling provision in France, and modelling refinements in Italy, and, in the US, the marginal impact of new business on the value of deferred tax losses, with cost
of capital transactions and model refinements broadly offsetting.

Page 20

E3 - Geographical analysis of fund management operating earnings

The summarised consolidated income statement - MCEV basis, includes earnings from the Group's fund management operations
as analysed below. This excludes the proportion of the results of Aviva Investors fund management businesses and other fund management operations within the Group that arise from the provision of fund management services to our Life businesses.
These results are included within the Life MCEV operating earnings.

	6 months 2012 £m	6 months 2011 £m	Full year 2011 £m
Aviva Investors	3	6	21
United Kingdom	4	3	11
Higher Growth markets	-	-	-
Total - continuing operations	7	9	32
Total - discontinued operations	-	9	9
Total	7	18	41

E4 - Other operations

Where subsidiaries provide services to our life business, that proportion has been excluded. These results are included within the Life MCEV operating return.

	6 months 2012 £m	6 months 2011 £m	Full year 2011 £m
Developed markets	(19)	(13)	(41)
Higher Growth markets	(8)	(17)	(30)
Other operations	(69)	(50)	(133)
Total - continuing operations	(96)	(80)	(204)
Total - discontinued operations	-	7	7
Total	(96)	(73)	(197)

E5 - Exceptional items and Integration and restructuring costs

There were no exceptional items in the first half of 2012 (HY11: nil).

Integration and restructuring costs are £188 million (HY11: £60 million). This includes costs associated with preparing the businesses for Solvency II implementation of £74 million, a £44 million charge relating to the merging of the UK and Ireland businesses and a £17 million expense associated with the transformation of Aviva Investors. Expenditure relating to other restructuring exercises across the Group are £53 million.

Page 21

E6 - Segmentation of condensed consolidated statement of financial position

	30 June 2012			Restated 30 June 2011			Full year 2011
	Life and related businesses £m	General business and other £m	Group £m	Life and related businesses £m	General business and other £m	Group £m	Life and related businesses £m	General business and other £m	Group £m
Total assets before acquired value of in-force long-term business	282,274	29,717	311,991	291,631	29,880	321,511	281,471	30,090	311,561
Acquired additional value of in-force long-term business	618	-	618	1,095	-	1,095	815	-	815
Total assets included in the IFRS statement of financial position	282,892	29,717	312,609	292,726	29,880	322,606	282,286	30,090	312,376
Liabilities of the long-term business	(267,996)	-	(267,996)	(277,171)	-	(277,171)	(266,622)	-	(266,622)
Liabilities of the general insurance and other businesses	-	(30,008)	(30,008)	-	(30,230)	(30,230)	-	(30,391)	(30,391)
Net assets on a statutory IFRS basis	14,896	(291)	14,605	15,555	(350)	15,205	15,664	(301)	15,363
Additional value of in-force long-term business¹	1,064	-	1,064	4,169	-	4,169	132	-	132
Net assets on an MCEV basis²	15,960	(291)	15,669	19,724	(350)	19,374	15,796	(301)	15,495
Equity capital, capital reserves, shares held by employee trusts and other reserves			6,222			6,773			6,389
IFRS basis retained earnings			4,854			5,303			5,954
Additional MCEV basis retained earnings			1,203			3,528			486
Equity attributable to ordinary shareholders of Aviva plc on an MCEV basis			12,279			15,604			12,829
Preference share capital, direct capital instruments and fixed rate tier 1 notes			1,582			1,190			1,190
Non-controlling interests			1,808			2,580			1,476
MCEV basis total equity			15,669			19,374			15,495

1. The analysis between the Group's and non-controlling interests' share of the additional value of in-force long-term business is as follows:

	30 June 2012 £m	Full year 2011 £m	Movement in period £m
Group's share included in shareholders' funds	1,203	486	717
Non-controlling interests' share	309	(54)	363
Movements in AFS securities	(448)	(300)	(148)
Additional value of in-force long-term business	1,064	132	932

2. Analysis of net assets on an MCEV basis is made up as follows:

	30 June 2012 £m	Restated 30 June 2011 £m	Full year 2011 £m
Embedded value	12,902	15,300	12,274
Non-controlling interests	1,152	1,850	820
	14,054	17,150	13,094
Goodwill and intangible assets allocated to long-term business³	1,234	2,378	2,117
Notional allocation of IAS19 pension fund surplus/(deficit) to long-term business⁴	672	196	585
Long-term business net assets on an MCEV basis	15,960	19,724	15,796

3. Goodwill and intangible assets includes amounts related to associated undertakings and joint ventures.

4. The value of the Aviva Staff Pension Scheme surplus has been notionally allocated between segments, based on current funding and, within the long-term business net assets on an MCEV basis, the Life proportion has been included. The pension fund surplus notionally allocated to long-term business is net of the agreed funding borne by the UK with-profit funds.

Page 22

E7 - Analysis of life and pension earnings

The following table provides an analysis of the movement in embedded value for covered business. The analysis is shown separately for free surplus, required capital and the value of in-force covered business, and includes amounts transferred between these categories. All figures are shown net of tax and non-controlling interests.

	Continuing operations
Net of tax and non-controlling interests 30 June 2012	Free surplus £m	Required capital¹ £m	VIF £m	Total MCEV £m
Opening Group MCEV	1,344	7,965	2,965	12,274
New business value	(449)	249	341	141
Expected existing business contribution (reference rate)	-	-	187	187
Expected existing business contribution (in excess of reference rate)	-	-	460	460
Transfers from VIF and required capital to the free surplus	922	(345)	(577)	-
Experience variances	(77)	8	(17)	(86)
Assumption changes	(28)	22	(4)	(10)
Expected return on shareholders' net worth	27	84	-	111
Other operating variances	135	3	(197)	(59)
Operating MCEV earnings	530	21	193	744
Economic variances	(248)	196	546	494
Other non-operating variances²	(13)	-	2	(11)
Total MCEV earnings	269	217	741	1,227
Capital and dividend flows³	(508)	-	-	(508)
Foreign exchange variances	3	(116)	5	(108)
Acquired/divested business⁴	5	(4)	16	17
Closing MCEV	1,113	8,062	3,727	12,902

1. Required capital is shown net of implicit items permitted by local regulators to cover minimum solvency margins.

2. Other non-operating variances relate to costs for Solvency II implementation and other restructuring exercises.

3. Included within capital and dividend flows is the transfer to Life and related businesses from other segments consisting of service company profits and losses during the reported period that have emerged from the value of in-force. Since the "look through" into service companies includes only future profits and losses, these amounts must be eliminated from the closing embedded value.

4. Acquired/divested business includes the acquisition of Pelayo Vida on 17 January 2012.

	Continuing operations				Discontinued operations				Total
Restated Net of tax and non-controlling interests 30 June 2011	Free surplus £m	Required capital¹ £m	VIF £m	Total MCEV £m	Free surplus £m	Required capital¹ £m	VIF £m	Total MCEV £m	Total MCEV £m
Opening Group MCEV	1,247	7,398	5,733	14,378	356	944	196	1,496	15,874
New business value	(488)	319	392	223	(29)	14	15	-	223
Expected existing business contribution (reference rate)	-	-	172	172	-	-	7	7	179
Expected existing business contribution (in excess of reference rate)	-	-	393	393	-	-	41	41	434
Transfers from VIF and required capital to the free surplus	897	(309)	(588)	-	85	(25)	(60)	-	-
Experience variances	25	50	(103)	(28)	2	-	-	2	(26)
Assumption changes	68	(126)	43	(15)	-	-	42	42	27
Expected return on shareholders' net worth	48	97	-	145	5	12	-	17	162
Other operating variances	(134)	23	105	(6)	(2)	3	(4)	(3)	(9)
Operating MCEV earnings	416	54	414	884	61	4	41	106	990
Economic variances	119	23	31	173	212	(83)	(255)	(126)	47
Other non-operating variances²	7	(19)	15	3	-	-	-	-	3
Total MCEV earnings	542	58	460	1,060	273	(79)	(214)	(20)	1,040
Capital and dividend flows³	(414)	-	-	(414)	(3)	-	-	(3)	(417)
Foreign exchange variances	18	110	148	276	16	28	2	46	322
Acquired/divested business⁴	-	-	-	-	(642)	(893)	16	(1,519)	(1,519)
Closing MCEV	1,393	7,566	6,341	15,300	-	-	-	-	15,300

1. Required capital is shown net of implicit items permitted by local regulators to cover minimum solvency margins.

2. Other non-operating variances primarily relat to costs for Solvency II implementation and other restructuring exercises.

4. Divested business is the removal of Delta Lloyd from covered business subsequent to the reduction of our holding to 42% on 6 May 2011.

Page 23

E7 - Analysis of life and pension earnings continued

	Continuing operations				Discontinued operations				Total
Net of tax and non-controlling interests Full year 2011	Free surplus £m	Required capital¹ £m	VIF £m	Total MCEV £m	Free surplus £m	Required capital¹ £m	VIF £m	Total MCEV £m	Total MCEV £m
Opening Group MCEV	1,247	7,398	5,733	14,378	356	944	196	1,496	15,874
New business value	(905)	559	778	432	(29)	14	15	-	432
Expected existing business contribution (reference rate)	-	-	377	377	-	-	7	7	384
Expected existing business contribution (in excess of reference rate)	-	-	761	761	-	-	41	41	802
Transfers from VIF and required capital to the free surplus	1,822	(583)	(1,239)	-	85	(25)	(60)	-	-
Experience variances	45	161	(176)	30	2	-	-	2	32
Assumption changes	96	(92)	70	74	-	-	42	42	116
Expected return on shareholders' net worth	91	167	-	258	5	12	-	17	275
Other operating variances	118	15	22	155	(2)	3	(4)	(3)	152
Operating MCEV earnings	1,267	227	593	2,087	61	4	41	106	2,193
Economic variances	(704)	452	(3,132)	(3,384)	212	(83)	(255)	(126)	(3,510)
Other non-operating variances²	(51)	(18)	49	(20)	-	-	-	-	(20)
Total MCEV earnings	512	661	(2,490)	(1,317)	273	(79)	(214)	(20)	(1,337)
Capital and dividend flows^3,4	(398)	-	(92)	(490)	(3)	-	-	(3)	(493)
Foreign exchange variances	(17)	(94)	(186)	(297)	16	28	2	46	(251)
Acquired/divested business⁵	-	-	-	-	(642)	(893)	16	(1,519)	(1,519)
Closing MCEV	1,344	7,965	2,965	12,274	-	-	-	-	12,274

1 Required capital is shown net of implicit items permitted by local regulators to cover minimum solvency margins.

2 Other non-operating variances are described under Exceptional items in note E5.

3 Included within capital and dividend flows is the transfer to Life and related businesses from other segments consisting of service company profits and losses during the reported period that have emerged from the value of in-force. Since the 'look through' into service companies includes only future profits and losses, these amounts must be eliminated from the closing embedded value.

4 As a result of the January 2012 announced disposal of the Czech, Hungarian, and Romanian businesses, the VIF movement reflects the write-down of this business to the IFRS carrying value.

5. Divested business is the removal of Delta Lloyd from covered business subsequent to the reduction of our holding to 42% on 6 May 2011.

Page 24

E8 - Life MCEV operating earnings

The table below presents the life and pensions MCEV earnings broken down into constituent parts. The life and pensions MCEV operating earnings comprise: the value of new business written during the year; the earnings from existing business including other operating variances; and the expected investment return on the shareholders' net worth.

These components are calculated using economic assumptions as at the start of the year (in-force business) or start of the quarter (new business) and operating (demographic and expenses) assumptions as at the end of the year.

Gross of tax and non-controlling interests	6 months 2012 £m	Restated 6 months 2011 £m	Full year 2011 £m
Value of new business	205	369	689
Earnings from existing business
- expected returns at the reference rate	272	261	566
- expected returns in excess of the reference rate	813	614	1,199
- expected returns	1,085	875	1,765
- experience variances	(114)	(39)	46
- operating assumption changes	(21)	(25)	41
Other operating variance	(108)	(7)	177
Expected return on shareholders' net worth	181	229	411
Life and Pensions operating earnings before tax	1,228	1,402	3,129
Economic Variances	1,173	81	(6,541)
Other non-operating variances	(14)	6	(32)
Life and Pensions earnings before tax	2,387	1,489	(3,444)
Tax on operating earnings	(348)	(408)	(908)
Tax on other activities	(398)	(26)	2,098
Life and Pensions earnings after tax - continuing operations	1,641	1,055	(2,254)
Life and Pensions earnings after tax - discontinued operations	-	(33)	(33)
Total Life and Pensions earnings after tax	1,641	1,022	(2,287)

There were no separate development costs reported in these years.

Other non-operating variances are described under Exceptional items in note E5.

The table above presents a summarised breakdown of the life and pensions MCEV earnings on a gross of non-controlling interests basis and gross of tax with tax shown separately. The Group favours the gross presentation for consistency with the IFRS results. The table below compares the key items on the different bases as the subsequent analysis is provided predominantly on a net of tax and non-controlling interests basis as preferred by the CFO Forum Principles.

Key indicators

	6 months 2012		Restated 6 months 2011		Full year 2011
	Net of non-controlling interests and tax £m	Gross of non-controlling interests and tax £m	Net of non-controlling interests and tax £m	Gross of non-controlling interests and tax £m	Net of non-controlling interests and tax £m	Gross of non-controlling interests and tax £m
Value of new business - continuing operations	141	205	223	369	432	689
Value of new business - discontinued operations	-	-	-	1	-	1
Total value of new business	141	205	223	370	432	690

Life and pensions operating return - continuing operations	744	1,228	884	1,402	2,087	3,129
Life and pensions operating return - discontinued operations	-	-	106	270	106	270
Life and pensions operating return	744	1,228	990	1,672	2,193	3,399

Life and pensions earnings - continuing operations	1,227	2,387	1,060	1,489	(1,317)	(3,444)
Life and pensions earnings - discontinued operations	-	-	(20)	(46)	(20)	(46)
Life and pensions earnings	1,227	2,387	1,040	1,443	(1,337)	(3,490)

Page 25

E9 - Free surplus emergence

	Existing business					New business			Total business
Net of tax and non-controlling interests 30 June 2012	Transfer from VIF to net worth £m	Return on net worth £m	Impact of experience variances and assumption changes on net worth £m	Release of required capital to free surplus £m	Total existing business surplus generation £m	Impact on net worth £m	Reduction in free surplus from required capital £m	Total new business surplus generation £m	Total free surplus generation £m
United Kingdom & Ireland	183	47	196	(13)	413	(70)	19	(51)	362
Developed markets excluding United Kingdom & Ireland	293	51	(137)	223	430	(89)	(241)	(330)	100
Developed markets	476	98	59	210	843	(159)	(222)	(381)	462
Higher Growth markets	101	13	4	18	136	(41)	(27)	(68)	68
Total	577	111	63	228	979	(200)	(249)	(449)	530

	Existing business					New business			Total business
Net of tax and non-controlling interests 30 June 2011	Transfer from VIF to net worth £m	Return on net worth £m	Impact of experience variances and assumption changes on net worth £m	Release of required capital to free surplus £m	Total existing business surplus generation £m	Impact on net worth £m	Reduction in free surplus from required capital £m	Total new business surplus generation £m	Total free surplus generation £m
United Kingdom & Ireland	179	69	(86)	97	259	(34)	(47)	(81)	178
Developed markets excluding United Kingdom & Ireland	313	66	(23)	164	520	(90)	(243)	(333)	187
Developed markets	492	135	(109)	261	779	(124)	(290)	(414)	365
Higher Growth markets	96	10	15	4	125	(45)	(29)	(74)	51
Total - continuing operations	588	145	(94)	265	904	(169)	(319)	(488)	416
Total - discontinued operations	60	17	3	10	90	(15)	(14)	(29)	61
Total	648	162	(91)	275	994	(184)	(333)	(517)	477

	Existing business					New business			Total business
Net of tax and non-controlling interests Full year 2011	Transfer from VIF to net worth £m	Return on net worth £m	Impact of experience variances and assumption changes on net worth £m	Release of required capital to free surplus £m	Total existing business surplus generation £m	Impact on net worth £m	Reduction in free surplus from required capital £m	Total new business surplus generation £m	Total free surplus generation £m
United Kingdom & Ireland	420	129	204	(72)	681	(121)	(6)	(127)	554
Developed markets excluding United Kingdom & Ireland	627	108	102	397	1,234	(139)	(502)	(641)	593
Developed markets	1,047	237	306	325	1,915	(260)	(508)	(768)	1,147
Higher Growth markets	192	21	37	7	257	(86)	(51)	(137)	120
Total - continuing operations	1,239	258	343	332	2,172	(346)	(559)	(905)	1,267
Total - discontinued operations	60	17	3	10	90	(15)	(14)	(29)	61
Total	1,299	275	346	342	2,262	(361)	(573)	(934)	1,328

Page 26

E10 - Maturity profile of business

(a) Total in-force business

To show the profile of the VIF emergence, the value of VIF in the statements of financial position has been split into five year tranches depending on the date when the profit is expected to emerge.

Net of non-controlling interest 30 June 2012 £m	0-5	6-10	11-15	16-20	20+	Total
United Kingdom & Ireland	319	780	709	355	768	2,931
Developed markets excluding United Kingdom & Ireland	255	(306)	(213)	(66)	(234)	(564)
Developed markets	574	474	496	289	534	2,367
Higher Growth markets	624	338	179	111	108	1,360
Total	1,198	812	675	400	642	3,727

Net of non-controlling interest Full year 2011 £m	0-5	6-10	11-15	16-20	20+	Total
United Kingdom & Ireland	177	866	704	312	663	2,722
Developed markets excluding United Kingdom & Ireland	(34)	(499)	(205)	(68)	(272)	(1,078)
Developed markets	143	367	499	244	391	1,644
Higher Growth markets	600	332	177	106	106	1,321
Total	743	699	676	350	497	2,965

(b) New business

To show the profile of the VIF emergence, the value of new business has been split into five year tranches depending on the date when the profit is expected to emerge.

Net of non-controlling interest 30 June 2012 £m	0-5	6-10	11-15	16-20	20+	Total
United Kingdom & Ireland	50	45	31	22	57	205
Developed markets excluding United Kingdom & Ireland	45	4	10	0	(18)	41
Developed markets	95	49	41	22	39	246
Higher Growth markets	48	20	10	8	9	95
Total	143	69	51	30	48	341

Net of non-controlling interest Full year 2011 £m	0-5	6-10	11-15	16-20	20+	Total
United Kingdom & Ireland	104	61	36	26	172	399
Developed markets excluding United Kingdom & Ireland	143	(39)	59	23	2	188
Developed markets	247	22	95	49	174	587
Higher Growth markets	101	46	22	13	9	191
Total - continuing operations	348	68	117	62	183	778
Total - discontinued operations¹	(8)	11	10	(1)	3	15
Total	340	79	127	61	186	793

1 Current period discontinued operations represent the results of Delta Lloyd up to 6 May 2011 only.

Page 27

E11 - Segmental analysis of life and related business embedded value

Net of non-controlling interests 30 June 2012	Free surplus £m	Required capital¹ £m	VIF £m	Total MCEV £m
United Kingdom	1,093	2,797	2,496	6,386
Ireland	21	310	435	766
United Kingdom & Ireland	1,114	3,107	2,931	7,152
France²	(199)	1,971	992	2,764
United States³	3	1,634	(1,311)	326
Spain	109	219	32	360
Italy⁴	(216)	727	(314)	197
Other	38	22	37	97
Developed markets	849	7,680	2,367	10,896
Poland	91	104	951	1,146
Asia	146	256	297	699
Other	27	22	112	161
Higher Growth markets	264	382	1,360	2,006
Total	1,113	8,062	3,727	12,902

1. Required capital is shown net of implicit items permitted by local regulators to cover minimum solvency margins.

2. France has a positive surplus on a statutory basis.

3. Aviva USA's holding company debt amounting to £738 million at 30 June 2012 has been included within non-covered business.

4. Required capital in Italy reflects the current economic environment and is in excess of regulatory requirements. The increase from full year 2011 results from a true-up of prior estimates.

Restated Net of non-controlling interests 30 June 2011	Free surplus £m	Required capital¹ £m	VIF £m	Total MCEV £m
United Kingdom	1,099	2,919	2,621	6,639
Ireland	10	353	454	817
United Kingdom & Ireland	1,109	3,272	3,075	7,456
France²	(110)	1,854	1,537	3,281
United States^2,3	(188)	1,433	(76)	1,169
Spain	119	265	250	634
Italy	176	340	32	548
Other	64	23	143	230
Developed markets	1,170	7,187	4961	13,318
Poland	95	120	920	1,135
Asia	117	226	364	707
Other	11	33	96	140
Higher Growth markets	223	379	1,380	1,982
Total	1,393	7,566	6,341	15,300

1. Required capital is shown net of implicit items permitted by local regulators to cover minimum solvency margins.

2. France and Aviva USA have a positive surplus on a statutory basis.

3. Aviva USA's holding company debt amounting to £709 million at 30 June 2011 has been included within non-covered business.

Net of non-controlling interests Full year 2011	Free surplus £m	Required capital¹ £m	VIF £m	Total MCEV £m
United Kingdom	1,036	2,859	2,320	6,215
Ireland	40	343	400	783
United Kingdom & Ireland	1,076	3,202	2,720	6,998
France²	(145)	2,048	800	2,703
United States^2,3	(11)	1,575	(1,362)	202
Spain	118	227	105	450
Italy⁴	8	499	(658)	(151)
Other	39	21	38	98
Developed markets	1,085	7,572	1,643	10,300
Poland	131	102	929	1,162
Asia	98	270	300	668
Other	30	21	93	144
Higher Growth markets	259	393	1,322	1,974
Total	1,344	7,965	2,965	12,274

1 Required capital is shown net of implicit items permitted by local regulators to cover minimum solvency margins.

2 France and Aviva USA have a positive surplus on a statutory basis.

3 Aviva USA's holding company debt amounting to £736 million at 31 December 2011 has been included within non-covered business.

4 Negative MCEV in Italy results from widening of spreads on sovereign debt over the year

The required capital across our life businesses varies between 100% and 325% of EU minimum or equivalent. The weighted average level of required capital for our life business expressed as a percentage of the EU minimum (or equivalent) solvency margin has increased to 138% (FY2011: 135%). These levels of required capital are used in the calculation of the Group's embedded value to evaluate the cost of locked in capital. At 30 June 2012 the aggregate regulatory requirements based on the EU minimum test amounted to £5.8 billion (FY2011: £5.9 billion). At this date, the actual net worth held in our long-term business was £9.1 billion (FY2011: £9.3 billion) which represents 157% (FY2011: 158%) of these minimum requirements.

Page 28

E12 - Risk allowance within present value of in-force (VIF)

Within the VIF in the tables, there are additional allowances for risks not included within the basic present value of future
profits calculation.

Net of non-controlling interests 30 June 2012	PVFP £m	Frictional costs £m	Non-hedgeable risks £m	Time value of financial options and guarantees £m	VIF £m
United Kingdom	3,176	(238)	(386)	(56)	2,496
Ireland	473	(10)	(27)	(1)	435
United Kingdom & Ireland	3,649	(248)	(413)	(57)	2,931
France	1,838	(115)	(190)	(541)	992
United States	(567)	(145)	(70)	(529)	(1,311)
Spain	97	(9)	(43)	(13)	32
Italy	(246)	(1)	(17)	(50)	(314)
Other	46	(1)	(6)	(2)	37
Developed markets	4,817	(519)	(739)	(1,192)	2,367
Poland	1,114	(11)	(149)	(3)	951
Asia	448	(27)	(72)	(52)	297
Other	115	(1)	(2)	-	112
Higher Growth markets	1,677	(39)	(223)	(55)	1,360
Total	6,494	(558)	(962)	(1,247)	3,727

The Time Value of Options and Guarantees has become more negative by £379 million to £(1,247) million, reflecting adverse impacts from economic movements; in particular, increases in swaption volatility and decreases in risk-free rates.

Restated Net of non-controlling interests 30 June 2011	PVFP £m	Frictional costs £m	Non-hedgeable risks £m	Time value of financial options and guarantees £m	VIF £m
United Kingdom	3,287	(297)	(332)	(37)	2,621
Ireland	499	(16)	(26)	(3)	454
United Kingdom & Ireland	3,786	(313)	(358)	(40)	3,075
France	2,287	(172)	(187)	(391)	1,537
United States	441	(135)	(53)	(329)	(76)
Spain	324	(18)	(43)	(13)	250
Italy	133	(21)	(12)	(68)	32
Other	155	(1)	(9)	(2)	143
Developed markets	7,126	(660)	(662)	(843)	4,961
Poland	1,062	(15)	(122)	(5)	920
Asia	469	(25)	(60)	(20)	364
Other	100	(2)	(2)	-	96
Higher Growth markets	1,631	(42)	(184)	(25)	1,380
Total	8,757	(702)	(846)	(868)	6,341

Net of non-controlling interests Full year 2011	PVFP £m	Frictional costs £m	Non-hedgeable risks £m	Time value of financial options and guarantees £m	VIF £m
United Kingdom	2,977	(241)	(389)	(27)	2,320
Ireland	439	(14)	(22)	(3)	400
United Kingdom & Ireland	3,416	(255)	(411)	(30)	2,720
France	1,721	(147)	(182)	(592)	800
United States	(513)	(160)	(67)	(622)	(1,362)
Spain	176	(12)	(45)	(14)	105
Italy	(550)	(3)	(20)	(85)	(658)
Other	47	(1)	(6)	(2)	38
Developed markets	4,297	(578)	(731)	(1,345)	1,643
Poland	1,088	(11)	(145)	(3)	929
Asia	455	(26)	(67)	(62)	300
Other	96	(1)	(2)	-	93
Higher Growth markets	1,639	(38)	(214)	(65)	1,322
Total	5,936	(616)	(945)	(1,410)	2,965

Page 29

E13 - Implied discount rates (IDR)

In the valuation of a block of business, the implied discount rate is the rate of discount such that a traditional embedded value calculation for the covered business equates to the MCEV.

The cash flows projected are the expected future cash flows including expected investment cash flows from equities, bonds and properties earning a risk premium in excess of risk free, statutory reserves and required capital. The risk premiums used are consistent with those used in the expected existing business contribution within operating earnings. As the risk premiums are positive, a discount rate higher than risk-free is required to give a value equal to the market-consistent embedded value.

Average derived risk discount rates are shown below for the embedded value.

	30 June 2012 %	Full year 2011 %
United Kingdom	8.5%	9.3%
Ireland	2.6%	4.1%
United Kingdom & Ireland	7.6%	8.5%
France	6.8%	7.9%
United States¹	n/a	n/a
Spain	16.5%	15.0%
Italy¹	32.0%	n/a
Other	3.8%	4.3%
Developed markets	n/a	n/a
Poland	6.4%	6.5%
Asia	4.5%	5.2%
Other	8.8%	9.1%
Higher Growth markets	6.0%	6.3%
Total	n/a	n/a

1. Where there is significant difference in projected real world and risk neutral profits and the value of the in force business plus required capital is negative or close to zero, the IDR is not well defined and consequently IDR is not meaningful.

Page 30

E14 - Summary of non-controlling interest in life and related businesses' MCEV results

30 June 2012	Ireland £m	France £m	Spain £m	Italy £m	Developed markets £m	Higher Growth markets £m	Total £m	Share-holders' interest £m	Group £m
Value of new business after tax	(1)	6	10	6	21	2	23	141	164
Life MCEV operating earnings after tax	(1)	7	34	88	128	9	137	744	881
Life MCEV earnings/(loss) after tax	1	18	(20)	405	404	10	414	1,227	1,641
Closing covered businesses' embedded value	256	209	346	165	976	176	1,152	12,902	14,054

Restated 30 June 2011	Ireland £m	France £m	Spain £m	Italy £m	Developed markets £m	Higher Growth markets £m	Delta Lloyd £m	Total £m	Share-holders' interest £m	Group £m
Value of new business after tax	-	11	18	19	48	2	-	50	223	273
Life MCEV operating earnings after tax	(2)	15	40	47	100	9	94	203	990	1,193
Life MCEV (loss)/earnings after tax	(12)	11	55	(70)	(16)	11	(13)	(18)	1,040	1,022
Closing covered businesses' embedded value	266	260	541	608	1,675	175	-	1,850	15,300	17,150

Full year 2011	Ireland £m	France £m	Spain £m	Italy £m	Developed markets £m	Higher Growth markets £m	Delta Lloyd £m	Total £m	Share-holders' interest £m	Group £m
Value of new business after tax	(1)	15	32	27	73	5	-	78	432	510
Life MCEV operating (loss)/earnings after tax	(10)	25	49	28	92	40	94	226	2,193	2,419
Life MCEV (loss)/earnings after tax	(29)	(16)	(8)	(928)	(981)	44	(13)	(950)	(1,337)	(2,287)
Closing covered businesses' embedded value	266	214	405	(244)	641	179	-	820	12,274	13,094

There are no non-controlling interests in the United Kingdom or the United States.

E15 - Principal assumptions

(a) Economic assumptions - Deterministic calculations

Economic assumptions are derived actively, based on market yields on risk-free fixed interest assets at the end of each reporting period.

In setting the risk-free rate we have, wherever possible, used the mid-price swap yield curve for an AA-rated bank. The curve is extrapolated beyond the last available market data point to an ultimate forward rate using the Nelson-Siegel functional form if necessary. For markets in which there is no reliable swap yield curve, the relevant government bond yields are used. For certain business, swap rates are adjusted for a 'liquidity premium' in deriving the risk free rates, and these adjustments are shown below the reference rate table.

Required capital is shown as a multiple of the EU statutory minimum solvency margin or equivalent.

The principal economic assumptions used are as follows:

Reference rate (spot, swap rates) and expense inflation

	United Kingdom
	30 June 2012 %	30 June 2011 %	Full year 2011 %	Full year 2010 %
Reference rate
1 year	0.9%	1.1%	1.2%	1.0%
5 years	1.3%	2.5%	1.6%	2.7%
10 years	2.2%	3.6%	2.3%	3.7%
15 years	2.7%	4.1%	2.8%	4.1%
20 years	3.0%	4.3%	3.0%	4.2%
Expense inflation	2.6%	3.4%	2.8%	3.3%

Page 31

E15 - Principal assumptions continued

(a) Economic assumptions - Deterministic calculations continued

	Eurozone
	30 June 2012 %	30 June 2011 %	Full year 2011 %	Full year 2010 %
Reference rate
1 year	0.8%	2.0%	1.4%	1.3%
5 years	1.3%	2.9%	1.7%	2.5%
10 years	2.0%	3.5%	2.4%	3.4%
15 years	2.3%	3.9%	2.8%	3.8%
20 years	2.4%	4.0%	2.8%	3.8%
Expense inflation	1.9%	2.1%	1.9%	2.1%

	Poland
	30 June 2012 %	30 June 2011 %	Full year 2011 %	Full year 2010 %
Reference rate
1 year	5.0%	5.0%	4.9%	4.4%
5 years	4.6%	5.3%	4.8%	5.5%
10 years	4.7%	5.4%	5.0%	5.7%
15 years	4.4%	5.2%	4.7%	5.4%
20 years	4.1%	5.1%	4.3%	5.1%
Expense inflation	3.3%	3.1%	2.9%	3.0%

	United States
	30 June 2012 %	30 June 2011 %	Full year 2011 %	Full year 2010 %
Reference rate
1 year	0.5%	0.4%	0.7%	0.4%
5 years	1.0%	2.1%	1.2%	2.2%
10 years	1.8%	3.4%	2.1%	3.5%
15 years	2.3%	4.0%	2.5%	4.0%
20 years	2.5%	4.2%	2.6%	4.2%
Expense inflation	2.0%	3.0%	2.0%	3.0%

For service companies, expense inflation relates to the underlying expenses rather than the fees charged to the life company.

The following adjustments are made to the swap rate for immediate annuity type contracts and for all contracts for Aviva USA.
The risk-free rate is taken as the swap yield curve for the currency of the liability, adjusted by adding the following to each swap rate:

	New business						Embedded value
	1Q 2012	2Q 2012	1Q 2011	2Q2011	3Q 2011	4Q 2011	30 June 2012	30 June 2011	Full year 2011
UK Immediate annuities	1.34%	1.46%	1.14%	1.00%	1.20%	1.27%	1.43%	1.06%	1.30%
UK bulk purchase annuities	1.34%	1.46%	0.72%	0.65%	1.38%	1.36%	1.43%	1.06%	1.30%
France	n/a	n/a	n/a	n/a	n/a	n/a	0.87%	0.33%	1.18%
Spain	0.32%	0.69%	0.36%	0.31%	0.33%	0.96%	0.64%	0.33%	0.88%
US immediate annuities	1.26%	1.00%	0.66%	0.57%	0.59%	1.28%	1.17%	0.59%	1.33%
US deferred annuities and all other contracts	1.07%	0.84%	0.56%	0.49%	0.51%	1.09%	0.99%	0.51%	1.13%

The approach to estimating the market level of liquidity premium in corporate bond assets is consistent with the formula structure proposed by CFO/CRO Forum working party.

The formula is:

UK/Europe: 50% of (iBoxx Corporate bond spread - 40bp)

USA: 60% of (iBoxx Corporate bond spread - 40bp)

For assets valued on a marked to model basis (e.g., commercial mortgages), the liquidity premium is consistent with the underlying model valuation.

Adjustments are made where liabilities are not fully backed by assets earning a liquidity premium and for contracts that are exposed to some lapse risk. There has been no change to the types of contracts to which a liquidity premium is applied.

Page 32

E15 - Principal assumptions continued

(a) Economic assumptions - Deterministic calculations continued

Risk premium - used for operating profit, Implied Discount Rates (IDR), Internal Rates of Return (IRR) and payback period

For life and pensions operating earnings, Aviva uses normalised investment returns. The normalised investment returns are expressed as a swap rate based on the typical duration of the assets held plus an asset risk premium. More detail is given in note E1 - Basis of Preparation.

The use of asset risk premia only impacts operating earnings as expected returns reflect management's long-term expectations of asset returns in excess of the reference rate from investing in different asset classes. This assumption does not impact the embedded value or value of new business as asset risk premia are not recognised until earned. The asset risk premia set out in the table below are added to the ten year swap rate to calculate expected returns.

	All territories
	30 June 2012	30 June 2011	Full year 2011	Full year 2010
Equity risk premium	3.5%	3.5%	3.5%	3.5%
Property risk premium	2.0%	2.0%	2.0%	2.0%

Future returns on fixed interest investments are calculated from prospective yields less an adjustment for credit risk.

Required capital and tax

	Tax rates⁵				Required capital (% EU minimum or equivalent)
	30 June 2012	30 June 2011	Full year 2011	Full year 2010	30 June 2012	30 June 2011		Full year 2011
United Kingdom¹	23.0%	26.0%	25.0%	27.0%	100%/200%		100%/200%	100%/200%
Ireland²	12.5%	12.5%	12.5%	12.5%	174%/180%		174%/180%	174%/180%
France	34.4%	34.4%	34.4%	34.4%	107.5%		107.5%	107.5%
United States	35.0%	35.0%	35.0%	35.0%	325%		325%	325%
Spain³	30.0%	30.0%	30.0%	30.0%	122%-130%/156%		130%-134%/175%	122%-130%/156%
Italy⁴	34.3%	32.4%	34.3%	32.4%	305%		115%/165%	195%
Poland	19.0%	19.0%	19.0%	19.0%	125.5%		125.5%	125.5%

1 The required capital in the United Kingdom under MCEV is 100% for unit-linked and other non-participating business and annuity business with 200% for BPA business. In addition, the reattribution of the inherited estate has led to additional capital being locked in to support the with-profit business, and this has been included within required capital.

2 Required capital in Ireland under MCEV is 174% for bancassurance and 180% for retail business.

3 Required capital in Spain is 156% of the EU minimum for Aviva Vida y Pensiones and 122% - 130% for bancassurance companies.

4 This is the aggregate required capital level for in force business in Italy and reflects the current economic environment. It has increased from 2011 due to a true up of prior estimates. New business metrics continue to use management target levels of required capital (115%-165% of EU minimum), which better reflects the capital requirements of the new business.

5 Current tax legislation and rates have been assumed to continue unaltered except in UK where changes in future tax rates have been considered on a best estimate basis as a known future change.

The UK Finance Act 2012 included a reduction in the UK corporation tax rate from 24% to 23% with effect from 1 April 2013. This is considered a known future change for MCEV purposes and has been reflected in the Group's MCEV net assets as at 30 June 2012.
As announced in the 2012 Budget, the rate is expected to reduce further to 22% from 1 April 2014. The benefit to the Group's MCEV net assets from the further 1% reduction in the rate from 23% to 22% is estimated at approximately £60 million and is not reflected in the Group's MCEV net assets as at 30 June 2012.

The UK Finance Act 2012 also included initial legislation introducing considerable changes to the regime for taxing UK life insurance companies applicable from 1 January 2013. These changes are considered to be a known future change for MCEV purposes and have resulted in a reduction in deferred tax liabilities, increasing the Group's MCEV net assets at 30 June 2012 by £15 million.

Other economic assumptions

Required capital relating to with-profit business is generally assumed to be covered by the surplus within the with-profit funds and
no effect has been attributed to shareholders. Where the fund is insufficient and additional shareholder support is required, this is included within required capital, including the RIEESA in the UK. Bonus rates on participating business have been set at levels consistent with the economic assumptions. The distribution of profit between policyholders and shareholders within the with-profit funds assumes that the shareholder interest in conventional with-profit business in the UK and Ireland continues at the current rate
of one-ninth of the cost of bonus.

(b) Economic Assumptions - Stochastic calculations

The calculation of time value of options and guarantees allows for expected management and policyholder actions in response to varying future investment conditions. The management actions modelled include changes to asset mix, bonus rates and rates of interest and other guarantees granted to policyholders. Modelled policyholder actions are described under 'Other assumptions'.

Page 33

E15 - Principal assumptions continued

Model - United States and United Kingdom

Swap rates are generated by a model, the LIBOR Market Model Plus (LMM+), which projects a full swap curve at monthly intervals.
At half year 2011, the LMM model was used in the UK to generate scenarios. Forward rates are assumed to have a distribution that lies between the log-normal and normal distributions. Although this no longer guarantees non-negative interest rates, it maintains interest rates within a more plausible range than the standard Libor Market Model, and gives a better fit to certain swaption volatility surfaces. The model is calibrated to volatilities for swaptions for ten year swaps for a range of option terms and strike rates. Swaption volatilities are taken from SuperDerivatives. Tests have been performed to ensure that sufficient scenarios have been used that the result converges to the stochastic value of the business being valued.

The total annual return on equities is calculated as the return on one-year swaps plus an excess return. For the US, this excess return is modelled using a log-normal model where volatility varies by time horizon. This allows the model to capture the term structure of implied volatilities. The model is calibrated to at-the-money options of a variety of terms. For the UK, a stochastic volatility jump defusion model is used, which allows for varying levels of volatility over time and across strike prices. Option volatilities are taken from Markit.

Assumptions for correlations between asset classes have been set based on historic data.

Model - Other Developed and Higher Growth markets

Swap rates are generated by a model, the LIBOR Market Model (LMM) that projects a full swap curve at monthly intervals. Forward rates are assumed to have a log-normal distribution which guarantees non-negative interest rates. The model is calibrated to at-the-money swaptions of a variety of terms and tenors. Swaption volatilities are taken from SuperDerivatives. Tests have been performed
to ensure that sufficient scenarios have been used that the result converges to the stochastic value of the business being valued.

The total annual return on equities is calculated as the return on one-year swaps plus an excess return. This excess return is generally modelled using a log-normal model where volatility varies by time horizon. This allows the model to capture the term structure of implied volatilities. The model is calibrated to at-the-money options of a variety of terms. Option volatilities are taken
from Markit.

The model also generates property total returns and real yield curves, although these are not significant asset classes for Aviva outside the UK. In the absence of liquid market data, the volatilities of these asset classes are based on historic data.

Assumptions for correlations between asset classes have been set based on historic data.

Asset classes

The significant asset classes for UK participating business are equities, property and long-term fixed rate bonds. The most significant assumptions are the distribution of future long-term interest rates (nominal and real) and swaption implied volatilities.

For many businesses, including US and France, the most important assets are fixed rate bonds of various durations.

Summary statistics

Swaption implied volatilities

The implied volatility is that determined by Black-Scholes' formula to reproduce the market price of the option. The following table
sets out the swaption implied volatilities.

	30 June 2012 Swap length				30 June 2011 Swap length				Full year 2011 Swap length
Option length	10 years	15 years	20 years	25 years	10 years	15 years	20 years	25 years	10 years	15 years	20 years	25 years
UK sterling
10 years	17.7%	16.9%	16.2%	15.7%	13.3%	12.8%	12.5%	n/a	18.0%	16.8%	16.1%	15.6%
15 years	16.0%	15.4%	14.5%	14.0%	13.3%	12.7%	12.3%	n/a	16.2%	15.4%	14.8%	14.1%
20 years	15.5%	14.5%	13.6%	13.2%	13.0%	12.3%	11.8%	n/a	15.3%	14.5%	13.8%	13.1%
25 years	15.2%	14.3%	13.5%	13.1%	13.4%	12.5%	11.6%	n/a	15.4%	14.3%	13.5%	12.8%
Euro
10 years	29.7%	28.8%	28.4%	27.9%	16.9%	16.4%	15.9%	15.5%	27.3%	28.1%	28.7%	28.4%
15 years	32.7%	30.0%	28.0%	26.8%	15.6%	15.0%	14.5%	14.0%	31.6%	30.9%	29.3%	28.1%
20 years	31.7%	27.9%	25.4%	24.3%	14.7%	14.0%	13.4%	12.9%	38.2%	32.6%	29.2%	27.7%
25 years	29.2%	24.9%	22.9%	21.8%	13.6%	13.0%	12.4%	11.8%	35.0%	29.1%	26.3%	25.2%
US dollar
10 years	27.2%	25.9%	25.4%	25.6%	18.9%	19.0%	18.9%	18.6%	30.4%	29.3%	28.4%	28.3%
15 years	26.1%	24.4%	24.0%	24.3%	17.8%	17.6%	17.3%	16.8%	30.1%	28.1%	27.4%	27.7%
20 years	24.0%	22.5%

Your Basket

Login

Register

Customise this table

Thursday 09 August, 2012