Chief Executive's Report
Insurance & Investment
Underlying profit before tax increased by 11% to £644m (2006 £581m).
Underlying profit before tax for the General Insurance business decreased by 24% to £232m (2006 £304m) reflecting the £135m cost of the unprecedented floods in June and July 2007. This was the primary factor behind the increase in the combined operating ratio to 90% (2006 82%).
Sales, as measured by Gross Written Premiums (‘GWP’) fell 1% to £1,761m (2006 £1,786m, excluding GWP from a business, Paymentshield, which we sold during 2006). Sales were held back by slower volumes of Repayment Insurance which were down 9%, reflecting the general subdued demand for unsecured credit in the UK. However, sales of Household Insurance were up 5%. The benign claims experience in the household insurance market of the past few years saw competition continue to intensify during 2007, putting downward pressure on premium rates, especially in direct channels, although following the summer floods, premiums have started to increase across the market. Sales of Motor Insurance were also strong (up 12%).
Underlying profit before tax in the Investment Business increased by 49% to £412m (2006 £277m). Sales, as measured on the Present Value of New Business Premiums, increased by 14% to £16,300m (2006 £14,356m) reflecting good growth in both Bancassurance (up 17%) and Wealth Management (up 26%) channels. Sales in Intermediary fell 2% as we refocused the business around individual pensions and investment business. Assets under management increased by 7% to £83.9bn (2006 £78.1bn) reflecting the strong new business sales, offset by an increase in lapses driven by higher lapses on with-profit bonds.
Outlook
We continue to see good growth potential in the Insurance & Investment contribution to Group profit as the size of our investment in-force business increases to mitigate the strain from new business. We also continue to see good prospects for sales growth in both insurance and investment business lines.