UK financial services - Looking ahead

Against a backdrop of volatile investment markets, increased cost of debt, lower expected returns from commercial property and new uncertainties in the tax regime affecting bond products, we expect slower market growth in 2008. As a result, maintaining margins will continue to be challenging for the industry. With our management strategies, first class customer service and innovative products we expect to remain competitive and continue to grow the business.

We continue to focus on high growth markets where we have competitive advantage and which generate more profitable returns.

We will continue to engage with HM Treasury and the FSA on fiscal and regulatory developments to mitigate any adverse impact on our business or our customers.

We believe that the variable annuity market will develop over time and will be an attractive market for the Group and we will continue to develop our proposition.

With respect to our banking business, cost of funding and uncertainty in the housing market are expected to reduce consumer demand in the UK mortgage market. As a result, 2008 is expected to see continued margin pressure across the industry. We will continue to focus on tight cost management including more online transaction activity.

In July 2007, our healthcare business launched a new modular product for the SME segment made possible by the development and introduction of a new policy administration system, onto which we will migrate all of our existing customers during 2008. With this system now in place, we also plan to introduce in 2008 improved product propositions for individual and large customers, thereby growing new business and improving customer retention.

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