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Aviva plc
Annual report
and accounts
2018
Foreword
The Strategic report on pages 1 to 38 contains information about
Aviva, how we create value and how we run our business. It includes
our strategy, business model, market outlook and key performance
indicators, as well as our approach to sustainability and risk.
The digital format of this report ensures we are ready for guidelines
relating to the Financial Reporting Council’s Digital Reporting and
ESMA European Single Electronic Format.
To supplement the regulatory disclosures in this report, you can
find more regular news and insights into Aviva throughout the year
on our website at www.aviva.com.
The Strategic report is only part of the Annual report and accounts
2018. The Strategic report was approved by the Board on 6 March
2019 and signed on its behalf by Sir Adrian Montague, Chairman.
Non-Financial Reporting Regulations
Under sections 414CA and 414CB of the Companies Act 2006, as
introduced by the Companies, Partnerships and Groups (Accounts
and Non-Financial Reporting) Regulations 2016, Aviva is required
to include, in its Strategic Report, a non-financial statement.
Information required by these Regulations is included in Key
performance indicators from page 5, Business model from page 8,
Our people from page 11, Risk and risk management from page 30
and Corporate responsibility from page 34.
Contents
Strategic Report
01
02
05
07
08
09
11
13
17
30
34
37
Chairman’s statement
Chairman’s review
Key performance indicators
The horizon
Business model
Our strategy
Our people
Chief Financial Officer’s review
Market review
Risk and risk management
Corporate responsibility
Our climate-related financial disclosure
Governance
40
42
44
68
Chairman’s Governance Letter
Our Board of Directors biographies
Directors’ and Corporate Governance report
Directors’ remuneration report
Independent auditors’ report
Accounting policies
IFRS financial statements
94
102
116 Consolidated financial statements
242 Financial statements of the Company
Other information
Alternative Performance Measures
254
259
Shareholder services
260 Cautionary statement
As a reminder
Reporting currency:
We use £ sterling.
Unless otherwise stated, all figures referenced in this report relate to Group.
A glossary explaining key terms used in this report is available on www.aviva.com/glossary.
The Company’s registered office is St Helen’s, 1 Undershaft, London, EC3P 3DQ
The Company’s telephone number is +44 (0)20 7283 2000
Strategic report
Governance
IFRS financial statements
Other information
Chairman’s statement
Chairman’s
statement
Aviva has a vital social purpose; we help people to handle life’s
uncertainties with confidence. Last year we paid £32.9 billion in
claims and benefits on behalf of our 33 million customers. This
purpose is becoming all the more important when one considers
the growing pace of global change. Whether it is economic, political,
technological or environmental challenge, our customers are facing
unprecedented change in the way our societies work.
Our people
Ultimately, I am confident we can and will unlock our full potential,
both through the focus of our new Chief Executive Officer and the
skills, commitment and values of our people.
It is our people who make Aviva and who are there to deliver on our
purpose, which is why a strong culture is so important. Overall our
employee engagement score is consistent with 2017 at 76%
globally. I’m pleased to note that in the last year, colleagues have
seen significant positive shifts in the culture at Aviva with a 12-point
increase in the headline culture measure which is an output of a
suite of metrics including customer focus, leadership and
operational simplicity. For 2019 we will work to further strengthen
the culture through simplifying the way we do things and further
promoting inclusive diversity, on which you can read more in the
people section on page 11.
Against this backdrop, Aviva has the experience and strength, the
values and the people to do the right thing for our customers and
our shareholders. By working harder to deliver outstanding service,
we also have the potential do to even better.
Our communities
We also remain determined to be a responsible, sustainable
business. It is important for us to contribute to the communities
where we work as well as the customers we are here to serve.
New leadership
I am delighted that on 4 March 2019 we announced the
appointment of Maurice Tulloch as Aviva’s new Chief Executive
Officer. Maurice joined Aviva in 1992 and was previously Aviva’s
Chief Executive Officer, International Insurance with responsibility
for our life insurance and general insurance operations in France,
Canada, Ireland, Italy, Poland, Turkey and India. Prior to that he was
Chief Executive Officer of Aviva UK and Ireland General Insurance,
one of the largest businesses in the Aviva group. Having spent 26
years with the Company, Maurice knows the Aviva business inside
out, knows our strengths, and where we need to improve. He is
exceptionally well qualified to re-energise Aviva and deliver long-
term growth.
Maurice’s appointment follows on from the announcement in
October that Mark Wilson would step down from the Board. Mark
was brought in to deliver the turnaround of Aviva. He succeeded
admirably, leaving us in a strong financial position and with an
enduring set of values. But the time is right for new leadership to
take us to the next phase of Aviva’s development.
Board changes
We announced in January that Michael Hawker will retire from the
Board as a Non-Executive Director, and as Chairman of the Risk
Committee and as a member of the Audit and Nominations
Committees, with effect from 31 March 2019. He has served as a
Non-Executive Director since January 2010. We would like to thank
Michael for his enormous contribution to Aviva over the past nine
years. He has brought to the Board a wealth of knowledge and
experience gained over a long career in the banking and insurance
industries in both executive and non-executive roles in Europe, Asia
and Australia, and has been a distinguished Chairman of the Risk
Committee. The appointment of the new Risk Committee Chair is
well advanced, and will be announced following the completion of
the relevant regulatory approval process.
We have campaigned successfully on behalf of consumers to tackle
fraud in Canada, Ireland and the UK. We have reduced our carbon
footprint by 60% since 2010 and have developed our relationship
with the British Red Cross to sign up volunteers to help their
neighbours when a crisis hits. The Aviva Community Fund is active
in ten markets around the world and our newly created Aviva
Foundation has ambitious plans, helping us support over 2.5 million
people through our community activities by 2020.
As a long-term business, we care not only about today’s
communities, but also tomorrow’s. To that end, I am particularly
proud that in October 2018 the United Nations Foundation
presented Aviva with its prestigious leadership award, recognising
our work to promote the UN’s Sustainable Development Goals.
Looking ahead
At the time of writing, Brexit is looming large as the biggest change
that many will have experienced for a generation. We still do not
know how events will play out, but our structure means that we
expect Britain’s departure from the EU to have no significant
operational impact on Aviva. We have put in place detailed plans
to make sure we will be there for our customers, come what may.
There will no doubt be more shifts in our operating environment in
the months and years to come, just as there has been in our more
than 300-year history. Amidst the change, our strategy will evolve,
but our commitment to our customers remains constant.
Sir Adrian Montague
Chairman
6 March 2019
Aviva plc Annual report and accounts 2018
01
Strategic report
Governance
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Other information
Chairman’s review
Chairman’s
review
Overview
Saving for the future, drawing a secure pension income, or
protecting against unforeseen events, all these are fundamental to
our customers’ well-being. Supporting customers in these areas,
and more, is Aviva’s lifeblood and, through this commitment to
serving customers, we will earn the returns our shareholders expect.
To provide customers with security and peace of mind, it is
imperative to have strong financial foundations. Our capital
position makes Aviva a partner that our customers can count on.
In 2018, our Solvency II capital surplus4 remained strong at £12.0
billion, equivalent to a Solvency II shareholder cover ratio2,4 of
204%. We increased our Solvency II shareholder cover ratio2,4 in
2018 despite weaker investment markets and deploying £1.5 billion
to repay debt and repurchase shares. And, in 2018, Group adjusted
operating profit1 rose 2% to £3.1 billion, while operating earnings
per share2,3 increased 7% to 58.4 pence. IFRS profit before tax
attributable to shareholders’ profits was £2,129 million
(2017: £2,003 million).
In view of Aviva’s continued financial strength and steady
performance, the Board of Directors has proposed a 9% increase in
the full year dividend to 30.0 pence per share. We are moving to a
progressive dividend policy. Moderating the rate of dividend per
share growth will enhance our flexibility to repay debt and invest in
business improvement. The future trajectory of the dividend will
reflect performance against our strategic objectives.
There were a number of operational highlights during the year
In 2018, Aviva’s businesses maintained a disciplined approach in
competitive markets.
In the UK, our business has consolidated its position and we are
seeing encouraging results across long-term savings, bulk purchase
annuity and general insurance product lines. In 2018, a strong
pipeline of workplace pension scheme wins helped to sustain long-
term savings flows and we wrote our largest ever bulk purchase
annuity contract, a £925 million transaction with Marks and
Spencer. We launched AvivaPlus, our new subscription style
insurance that offers greater flexibility and choice, giving our
customers even more control and rewarding their loyalty.
Our European businesses have been invigorated through intelligent
choices on product design and mix and a focus on expanding our
distribution footprint. In France, we have begun the process of
bringing our multi-channel distribution under the Aviva brand, and
there is more work to do on that in the coming year. In Italy, our
success in the financial adviser channel has paved the way for
sustained growth in sales volumes. In Ireland, we completed the
acquisition of Friends First, strengthening our position in life
insurance.
In our general insurance businesses, we have continued to prioritise
profitability over sales volumes. While our Canadian motor
insurance portfolio is in the early stages of its recovery and an
increase in weather related claims provided a headwind for profits
across all of our general insurance businesses, the Group combined
operating ratio2 of 96.6% remained acceptable.
In Asia, we have a mix of established and emerging businesses and
we have continued to invest in their development. In our largest
Asian business, Singapore, our advisory distribution network has
continued to expand, providing customers with wider product
choice and stimulating growth in sales and profits.
Digital remains an important element of Aviva’s strategy of
improving customer experience. In the UK, the number of active
customers registered on MyAviva rose 48% to 4.2 million with
700,000 customers logging into MyAviva each month to transact
online or to check policy information. We have launched new
propositions with AvivaPlus, MyAviva Workplace and Wealthify
creating a strong platform for the future. In Hong Kong, following
receipt of regulatory approval, we launched “Blue”, our digital
insurance venture with Tencent and Hillhouse, which offers
customers in Hong Kong a new way to buy insurance.
But we also faced a number of challenges
Externally, uncertainty in the political and economic backdrop
intensified during the year and this was reflected in a difficult year
for investment market performance across most asset classes. In
our home market, the UK, the prolonged and fraught process of
negotiating Britain’s exit from the European Union has weighed
down on growth in the economy. But Aviva is well placed to deal
with this; our locally incorporated and locally regulated businesses
in Europe have prepared to minimise the potential operational
impact.
The regulatory environment also continues to evolve, requiring our
businesses to adapt and, in some cases, provide remediation for
past practices. The shifting external environment, coupled with
competitive insurance and savings markets, has provided a
challenging macro-environment in which to operate. The resilience
built into Aviva’s capital position and operating model over recent
years has allowed us to overcome these challenges and continue to
serve customers across all our markets.
There were also challenges of our own making, including our
announcement in March 2018 that we were “evaluating
alternatives” for the Aviva plc and General Accident plc preference
shares. While we responded quickly to certain investor concerns by
withdrawing from further action and paid £10 million in goodwill
and administration costs to compensate those who incurred losses
from selling these securities during this period, it was a
disappointing episode and lessons have been learned.
We also responded to challenges in our UK business. We
encountered disruption during the migration of our independent
financial adviser platform to a new supplier, which adversely
affected our service standards. Our teams worked hard to resolve
these challenges and advisers are now starting to benefit from the
improved functionality and processing capability that the new
platform offers. We also increased the amount set aside for
customer redress in relation to historical advised sales by Friends
Provident to £250 million (2017: £75 million). Over 90% of cases
identified are pre-2002.
Financial performance was steady
2018 has been a year of steady performance overall for Aviva. Our
businesses have delivered broad-based growth, with six out of our
eight major markets increasing adjusted operating profit1 in 2018.
1 Group adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section and to the
‘Other Information’ section within the Annual report and accounts for further information.
2 This is an Alternative Performance Measure (APM) which provides useful information to supplement an understanding of our financial performance. Further information on APMs, including a reconciliation to the financial
statements (where possible), can be found in the ‘Other Information’ section of the Annual report and accounts.
3 This measure is derived from the Group adjusted operating profit APM. Further details of this measure are included in the ‘Other Information’ section of the Annual report and accounts.
4 The estimated Solvency II position represents the shareholder view. Please refer to note 57 and the ‘Other information’ section of the Annual report and accounts for more information.
Aviva plc Annual report and accounts 2018
02
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Governance
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IFRS financial statements
IFRS financial statements
IFRS financial statements
Other information
Other information
Other information
Chairman’s review
Continued
We have maintained profit momentum in our UK and European
insurance businesses and Canada has responded well to the
challenges in the auto insurance portfolio that emerged in 2017.
Aviva Investors was set back by a difficult investment market
backdrop, though we have chosen to continue investing to facilitate
the long-term expansion of our third-party franchise.
In the UK, our results have continued to benefit from releases of
provisions arising from changes in UK longevity trends. However, as
in 2017, we continued to use this additional profitability to increase
spending to advance our digital innovation agenda and accelerate
the transformation programme in IT and Finance that will provide
benefits to Aviva in the years to come.
Outlook
The coming year is shaping up as an important period for Aviva. The
arrival of our new Chief Executive will have a galvanising effect on
our organisation, providing renewed clarity of purpose. Aviva has
abundant strengths: committed and energetic staff, depth in
technical expertise, supportive partners and most importantly, 33
million customers. Our challenge is to capitalise on these strengths
to become a better, simpler, more efficient company known for
excellence in serving customers. This will require significant
improvements by Aviva. It will also entail choices with respect to
resource allocation. However, our strong existing foundations give
us all we need to ensure the new phase Aviva is embarking on will
be a success.
Sir Adrian Montague
Chairman
6 March 2019
Leadership and priorities
In October 2018, we announced that Mark Wilson would step down
from his role as Chief Executive Officer. In almost six years under
Mark’s leadership, Aviva transformed its capital strength, refined its
focus towards those markets with the strongest returns and growth
prospects and invested in digital capabilities and propositions that
will differentiate Aviva in the insurance and savings market place in
the coming years.
From these strong foundations, Aviva is entering a new phase of its
development. We recently announced the appointment of Maurice
Tulloch as Chief Executive Officer. Maurice will work with the Board
to establish and refine the strategy that will take Aviva forward in
the coming years.
Maurice will be an outstanding Chief Executive of Aviva. He knows
the business inside out. He has led our businesses in the UK and
internationally and built strong teams across life insurance and
general insurance. Maurice knows our strengths, knows where we
need to improve and has a deep understanding of insurance and
customers’ needs. He is exceptionally well qualified to re-energise
Aviva and deliver long-term growth.
Having made Aviva stronger, the focus of the next phase is to make
Aviva a better company. This means re-emphasising the
fundamentals: customer service, distribution, product mix and
pricing, and managing expenses. There is much more we can and
will achieve.
Aviva plc Annual report and accounts 2018
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Other information
Other information
Other information
Chairman’s review
Continued
Delivering on a clear plan of action
What we
achieved
Financial & Strategic
Customers
Culture and Society
For our key metrics, we have:
• Increased Group adjusted operating
profit1 by 2% to £3,116 million (2017:
£3,068 million)
• Increased operating earnings per
share (EPS)2,3 by 7% to 58.4p (2017:
54.8p)
• Increased profit before tax
attributable to shareholders’ profit by
6% to £2,129 million (2017: £2,003
million) and increased basic EPS by
9% to 38.2p (2017: 35.0p)
• Increased cash remittances2 to
Group by 31% to £3,137 million
(2017: £2,398 million)
• Increased total dividend per share
by 9% to 30.00p (2017: 27.40p)
• Delivered a robust Solvency II capital
position with an estimated Solvency II
shareholder cover ratio2,5 that has
increased by 6pp to 204% (2017:
198%), despite £1.5 billion of capital
deployment. This includes operating
capital generation2 in the year of £3.2
billion
• Reported total assets under
management2 of £470 billion – a
decrease of £17 billion on 2017
• Grown MyAviva active customer
registrations to 5.3 million (2017:
3.6 million4)
Acquisitions and disposals:
• We completed our acquisition of
Friends First in Ireland
• We completed the sale of our Spanish
joint ventures: Caja Murcia Vida, Caja
Granada Vida and Pelayo Vida; our
Taiwanese joint venture First Aviva
Life; and completed the sale of our
joint venture in Italy, Avipop
Assicurazioni S.p.A., and its wholly
owned subsidiary Avipop Vita S.p.A.
• We sold a Real Estate Multi-Manager
business which was strategically non-
core to our Aviva Investors business
For our customers, we have:
• Paid out £32.9 billion in claims and
For our people, we have:
• Improved employee engagement to
benefits
• Supported our customers through
difficult times including notable UK
storm “the Beast from the East”, as
well as poor weather in Canada
• Launched AvivaPlus in the UK in
December 2018, our new subscription
style insurance that offers greater
flexibility and choice, giving our
customers even more control and
rewarding their loyalty
• Announced a majority shareholding
in Neos, the smart technology
insurance provider which helps
customers to monitor and protect
their homes through connected
devices
• Successfully piloted “Mid-life MOT”
which offers guidance and help to
over 45s on the topics of wealth, work
and wellbeing
• Our successful Road to Reform
campaign helped bring significant
changes to the personal injury
compensation system in the UK,
culminating in the civil liability bill
passing into law
• Launched Blue, our new digital
insurance joint venture in Hong Kong,
offering zero commission insurance
• Introduced a smartphone dashcam
through our UK Aviva Drive app
• Won a number of awards including
Insurance Times General Insurer of
the year and Insurance Post customer
care award
76% (2017: 75%) and we have achieved
a 12-point increase in our
Organisational Health questionnaire
(our headline culture metric)
• Extended our flagship leadership
programme to all leaders with 1,500
people leaders starting it in 2018
• Launched our employee inclusion
communities across all markets
• Continued to build a culture and
environment which attracts and
retains people with the right
capabilities for the future
For society, we have:
• Supported over 3,000 community
projects, helping over 1.5 million
people on a range of issues from social
inclusion and diversity to supporting
SMEs and water sanitation
• Won the UN Foundation’s leadership
award in recognition of Aviva’s work to
support the UN’s Sustainable
Development Goals (SDGs)
• Launched the World Benchmarking
Alliance to establish public,
transparent and authoritative league
tables of companies’ contribution to
the SDGs
• Since 2010 we have reduced carbon
emissions (CO2e) from our day-to-day
operations by 60% beating our 2020
target early. We are a carbon neutral
company, offsetting the remaining
emissions through projects that have
benefitted the lives of over one million
people
• Invested £1.8 billion in the transition to
a low carbon economy
• Over 7,000 of our employees
contributed more than 57,500 hours of
volunteering time, giving and
fundraising to the total of £2.1 million
What we
plan to do
• Further simplify processes and
operating model, investing in
modernisation to improve agility and
efficiency
• Improve customer experience
• Allow our people to manage the
through simplification of customer
journeys, digitisation and automation
fundamentals to ensure we can deliver
continued growth for Aviva
• Roll out AvivaPlus for our UK
• Develop great leaders with a focus on
• Aim to repay £1.5 billion of maturing
customers
agility and execution
debt between 2019-2022
• Continue to reallocate capital to
• Continue to focus on developing an
• Move to a progressive dividend policy
• Target an estimated Solvency II
focus on what we do best and drive
higher returns
inclusive workforce which is fit for the
future
shareholder cover ratio2,5 working
range of 160%-180%
1 Group adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section and to the
‘Other Information’ section within the Annual report and accounts for further information.
2 This is an Alternative Performance Measure (APM) which provides useful information to supplement an understanding of our financial performance. Further information on APMs, including a reconciliation to the financial
statements (where possible), can be found in the ‘Other Information’ section of the Annual report and accounts.
3 This measure is derived from the Group adjusted operating profit APM. Further details of this measure are included in the ‘Other Information’ section of the Annual report and accounts.
4 The 2017 MyAviva active registrations number (7.5 million as previously reported) has been restated to now only include customers who hold at least one policy with us and have been active on MyAviva in the last 365 days. On
the restated basis, 2017 active customer registrations were 3.6 million.
5 The estimated Solvency II position represents the shareholder view. Please refer to note 57 and the ‘Other information’ section of the Annual report and accounts for more information.
Aviva plc Annual report and accounts 2018
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Governance
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Other information
Key performance indicators
Key performance
indicators
We use a range of financial and non-financial metrics to measure our performance, financial strength, customer advocacy, employee
engagement and impact on society. These include Alternative Performance Measures (APMs) which are non-GAAP measures that are not
bound by the requirements of IFRS. These metrics are reviewed annually and updated as appropriate to ensure they remain an effective
measure of delivery against our objectives.
Further guidance in respect of the APMs used by the Group to measure our performance and financial strength is included within the
‘Other Information’ section of the Annual report and accounts. This guidance includes definitions and, where possible, reconciliations to
relevant line items or sub-totals in the financial statements. The financial commentary included in this Strategic report should be read in
conjunction with this guidance.
Customer Net Promoter Score® (NPS®)
R
NPS® is our measure of customer advocacy and we use it in nine of our markets1 to measure
the likelihood of a customer recommending Aviva. Our relationship NPS® survey shows three
years of sustained high levels of customer advocacy, with modest improvement in the last
12 months. We are working hard to boost customers’ loyalty by making things simple for
customers and putting them in control, for example with the launch of AvivaPlus.
Engagement
R
We give our people the freedom to act in line with our values to create an environment
in which they can thrive through collaboration and recognition. We measure this through
our annual global ‘Voice of Aviva’ survey. Engagement is up one percentage point to 76%.
In the last year, colleagues have seen significant positive shifts in the culture at Aviva with
a 12-point increase in the headline culture measure reflecting this although we recognise
there is still plenty of opportunity to reduce complexity across the business.
Carbon emissions reduction
Since 2010 we have reduced carbon emissions (CO2e) from our day-to- day operations by
60% beating our 2020 target of a 50% reduction earlier than planned. We are a carbon-
neutral company, offsetting the remaining emissions through projects that have benefitted
the lives of over one million people since 2012. In 2018 we have continued to reduce
our operational carbon emissions through energy efficient technology, buildings and
development of onsite renewable electricity generation. We have also added £1.8 billion in
low carbon infrastructure investments over the year. CO2e data includes emissions from our
buildings, business travel, water and waste to landfill.
MyAviva active customer registrations2
R
We continue to make progress with our digital transformation and MyAviva remains at its
heart. Active customer registrations is the number of global users of MyAviva and other
digital platforms, who have at least one product and have logged-in at least once during
the previous 365 days. Active customer registrations have increased by 47% to 5.3 million
(2017: 3.6 million2) driven mainly by growth in the UK.
R
Symbol denotes key performance indicators used as a base to determine or modify remuneration.
Number of markets in 2018:
at or above market average: 8
2017: 7
2016: 9
below market average: 1
2017: 2
2016: 0
2018:
76%
2017: 75%
2016: 74%
2018:
60%
Reduction since 2010
2017: 53%
2016: 46%
2018:
5.3 million
2017: 3.6 million2
2016: 2.7 million2
1 All comparators have been restated as we have reduced the number of markets covered in the survey from ten to nine markets as India was not surveyed in 2018.
2 The 2017 and 2016 MyAviva active registrations numbers (7.5 million and 5.2 million respectively as previously reported) have been restated to now only include customers who hold at least one policy with us and have been
active on MyAviva in the last 365 days. On the restated basis, 2017 active customer registrations were 3.6 million (2016: 2.7 million). Active registrations previously included guests as well as customers.
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Key performance indicators
Continued
Group adjusted operating profit1
R
Group adjusted operating profit1 increased by 2% to £3,116 million. Major markets’ Group
adjusted operating profit1 increased by 7% to £3,669 million, with all major markets except
Aviva Investors and Canada experiencing earnings growth.
Operating earnings per share2,4
R
Operating earnings per share2,4 increased by 7% to 58.4p. This reflects the growth in Group
adjusted operating profit1 and the impact of our share buy-back and debt reduction
programme. We have met our target to deliver higher than 5% growth in operating earnings
per share2,4 in 2018.
Profit before tax attributable to shareholders’ profit (PBT)
Profit before tax attributable to shareholders’ profit increased by 6% to £2,129 million due
to an increase in Group adjusted operating profit1 and other items, partly offset by adverse
investment variances.
Cash remittances2
R
Sustainable cash remittances2 from our businesses are a key financial priority. Remittances
from markets increased 31% to £3,137 million. This was primarily driven by the UK3
businesses which contributed £2,549 million including £1.25 billion special remittances,
comprising a £500 million special remittance following the Friends Life integration and an
additional £750 million special remittance. Including disposal proceeds from Spain and
Avipop, we achieved £7.9 billion in cash remittances for 2016-2018 falling slightly short of
our £8.0 billion target. This primarily reflects the delay in the completion of the disposal of
Friends Provident International Limited and our decision to retain proceeds from the sale of
Avipop in our Italian subsidiary given the high market volatility environment.
Estimated Solvency II shareholder cover ratio2,5
We continue to maintain our strong financial position. During the year the estimated
Solvency II shareholder coverage ratio2,5 has strengthened from 198% to 204% primarily due
to the positive impact of Operating Capital Generation (OCG)2, a key remuneration metric
for the Group, partly offset by the payment of dividends, the £600 million share buy-back
programme and the repayment of hybrid debt.
Value of new business on an adjusted Solvency II basis2
Value of new business on an adjusted Solvency II basis (VNB)2 measures growth and is the
source of future cash flows in our life businesses. VNB2 decreased by 3% to £1,202 million,
however excluding disposals VNB2 increased by 2%. Growth was mainly driven by the hybrid
savings product in Italy and bulk purchase annuities in the UK.
Combined operating ratio2
The combined operating ratio (COR)2 is a measure of general insurance profitability. The
lower the COR2 is below 100%, the more profitable we are. Reported COR2 is broadly in line
with 2017 for all markets.
2018:
£3,116 million
2017: £3,068 million
2016: £3,010 million
2018:
58.4p
2017: 54.8p
2016: 51.1p
2018:
£2,129 million
2017: £2,003 million
2016: £1,193 million
2018:
£3,137 million
2017: £2,398 million
2016: £1,805 million
2018:
204%
2017: 198%
2016: 189%
2018:
£1,202 million
2017: £1,243 million
2016: £992 million
2018:
96.6%
2017: 96.6%
2016: 94.2%
R
Symbol denotes key performance indicators used as a base to determine or modify remuneration.
1 Group adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section and to the
‘Other Information’ section within the Annual report and accounts for further information.
2 This is an Alternative Performance Measure (APM) which provides useful information to supplement an understanding of our financial performance. Further information on APMs, including a reconciliation to the financial
statements (where possible), can be found in the ‘Other Information’ section of the Annual report and accounts.
3 Cash remitted to Group is managed at a legal entity level. As Ireland constitutes a branch of the United Kingdom business, cash remittances from Ireland were not aligned to the management structure within Europe, but they
were reported within the United Kingdom.
4 This measure is derived from the Group adjusted operating profit APM. Further details of this measure are included in the ‘Other Information’ section of the Annual report and accounts.
5 The estimated Solvency II position represents the shareholder view. Please refer to note 57 and the ‘Other information’ section of the Annual report and accounts for more information.
Read about our performance at www.aviva.com/about-us
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The horizon: where the world is going
The horizon:
where the world is going
Our strategy has been defined to anticipate these long-term trends which will impact our industry in the future. We acknowledge the risks
they present and aim to turn these trends into opportunities for future growth.
The power of communities
Government influence is reducing as the role of ‘communities’ of
mutual interests and connected networks, both virtual and local,
increases.
Daily active Facebook users on average
1.5 billion
Source: facebook.com, stats, September 2018
Ever-changing planet
Changing climate and extreme weather events will have a
significant impact on both society and business.
Shifting wealth
Developing markets will have a much larger share of the world’s
savings and assets pool.
Economic loss in US dollars caused by global natural disasters in
2018
$160 billion
Source: Munich Re, catastrophe losses, January 2019
Estimated Global Insurance premium share of growth from
emerging economies by 2025
47%
Source: Munich Re, April 2017
Older and healthier
People will live longer and be healthier. Markets will be driven
increasingly by attitudes and needs as family structures evolve and
pressures on social care increase.
Increase in UK’s average life expectancy at birth between 2016 and
2066
6.6 years
Source: Office for National Statistics, December 2017
Health across an evolving world
The way people access healthcare is evolving, with many markets
shifting towards a more self-reliant model and private healthcare.
No place like home
Home ownership, and its place as a wealth accumulation vehicle,
begins to evolve as mindsets towards ownership shift and
affordability affects accessibility.
New threats in a connected world
The proliferation of connected devices and the dominant role of
social networks in modern life is raising the threat from cyber
attacks and infringements to privacy.
Average increase in UK and French doctors recommending
smartphone apps to patients (for their own use/evaluation)
between 2015 and 2017
30%
Source: Ipsos Mori, May 2017
Proportion of UK households that will be rented privately by 2021
25%
Source: Knight Frank, August 2017
Average cost of a data breach
US$3.62 million
Source: EY Global Information Security Survey 2018-2019
Mobility
Disruption to radically change the transport ecosystem, with
consumers accessing, owning and using transport in different ways.
Number of fewer cars required in the US and Europe by 2030
138 million
Source: PWC, January 2018
Blurring of sector boundaries
The clear boundaries between sectors no longer exist, from
technology companies offering financial services to telecom
providers creating media content.
Increase in Apple Pay transactions in 2018 vs 2017
3x
Source: Apple, November 2018
Read about where the world is going at www.aviva.com/about-us
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Business model
Business model
Aviva exists to help our 33 million customers have the confidence and control to be ready for life’s opportunities and challenges.
We are the only large-scale multi-line insurer in the UK, our home market. We also have a strong presence in Europe, North America
and South-East Asia.
We have a distinctive approach. It defines and differentiates us. It helps us meet our customers’ needs …
Values
Our values are at the heart of
how we do business. They are
how we must operate:
• Care More
• Kill Complexity
• Never Rest
• Create Legacy
Strengths
We have unique strengths as a
business that gives us a significant
competitive advantage:
• Distinctive brand
• Financial strength
• Customer understanding
• Multi-distribution
• Multi-product
Skills
We have a wide range and blend
of skills:
• Customer experience
• Underwriting
• Risk management
• Claims management
• Digital innovation
• Data science
• Asset & liability management
• Capital allocation
Strategy
Our strategy focuses on the
things that really matter and
puts the customer at the heart of
what we do:
• True Customer Composite
• Digital First
• Not Everywhere
… through our products, services and markets …
Life insurance
Retirement income, savings
and pensions
General insurance
Home, motor, travel and
commercial
Health and protection
Private medical, life, critical
illness and income protection
Asset management
Investing for external clients and
investing for Aviva
… where premiums and cash are reinvested …
Customers pay insurance
premiums which we use to pay
claims. Our scale enables us to
pool the risks. We maintain
capital strength so we can be
there for our customers in the
future.
Customers invest their savings
with us. We manage these
investments to provide them
with an income for a more secure
future.
We also invest the insurance
premiums we receive to
generate income to meet our
obligations to customers and to
generate value for shareholders.
Enabling customers to stay with
us for the long term is important
to the future success of our
business.
… creating sustainable value for …
Customers benefit from a range
of products to meet their needs,
with easy access when and how
they want it.
We create value for shareholders
by using our profit to reinvest and
grow the business and pay out
dividends.
Our aim is for our people to
achieve their potential within
a diverse, collaborative and
customer-focused organisation.
We play a significant role in our
communities, including as a
major employer and a long-term
responsible investor.
£32.9 billion
Paid out in benefits and claims
to our customers in 2018
30.0 pence
Total dividend up 9%
76%
Increased our employee
engagement score by one
percentage point
Over 3,000
Community projects supported
in 2018, helping over 1.5 million
people
Read about our business at www.aviva.com/about-us/our-markets
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Our strategy
Our strategy
Since 2014, we have defined our strategy in three key areas:
• True Customer Composite
• Digital First
• Not Everywhere
Following the appointment of our new Group CEO, Maurice
Tulloch, on 4 March 2019, he will undertake a review of the
Group’s strategic priorities. We will update the market on our
future strategic priorities later in 2019. The following section
takes a look at developments in 2018 across the key areas of our
existing strategy.
True Customer Composite
We are a True Customer Composite: multi-channel and multi-
product. Our customers are at the core of what we do, and drive
all our thinking. We believe in delivering what our customers
truly need in a dynamic and ever-changing world.
We help protect what matters the most to our customers
through life, general and health insurance products while
helping people save for their future through our savings and
asset management offerings.
Why it’s important
Customers often find themselves dealing with multiple insurers.
This makes things complicated, adding to the time they have to
spend arranging for their needs rather than enjoying the things
that matter most in life.
True Customer Composite means that we can support the well-
being of our customers in many ways. We bring simplicity. We
add value. We can both protect our customers and help them
save for their futures. We can also reward our customers for their
loyalty, offering multi-product discounts.
True Customer Composite gives us a real competitive advantage
in a digital world. Our digital solutions, such as MyAviva, are
simple and intuitive, allowing customers to access multiple
products and discounts and supporting our partners and
intermediaries in an evolving distribution landscape.
How we’ve progressed
We continue to expand our range of customer propositions to be
a True Customer Composite across our markets, making it easy
and more rewarding for customers to manage multiple products
through Aviva.
Systems thinking
True Customer Composite is also about creating the right
customer experiences across our business. Systems thinking is
a global method for us to re-think and re-design customer
journeys. Systems thinking brings together colleagues
throughout the organisation to help solve problems and make it
easier for customers to interact with us.
UK Workplace
We continue to improve our offerings in the UK where we offer
corporate clients pensions, protection, bulk purchase annuities,
as well as health and general insurance.
With financial and health wellbeing of employees an increasingly
important area for employers, we have continued to increase
our capability to help our customers through the workplace. For
example, we have further developed our Aviva Wellbeing
proposition, including the launch in 2018 of the Digital GP app.
This offers a range of services such as digital consultations and
repeat prescriptions. By offering this support we are becoming
increasingly engaged with employers and their employees.
Ireland
In Ireland, we completed the acquisition of Friends First where
the integration is progressing ahead of schedule. This
acquisition strengthens our life insurance capability and extends
our range of investment products, enhancing our position as a
True Customer Composite in Ireland.
AvivaPlus
In December 2018, we announced we were launching AvivaPlus,
an industry-first, subscription-style insurance for our UK
customers. AvivaPlus is the way insurance should be.
We are breaking free of insurance industry norms, rewarding our
customers for their loyalty. We are putting the customer in
control with monthly payments which can be cancelled anytime,
allowing customers to get the cover they need when they need
it. AvivaPlus customers pay the same or less at renewal than if
they were new to AvivaPlus.
Offered initially on certain general insurance products, we aim to
build this into our broader True Customer Composite offering.
AvivaPlus is a significant shift for insurance, creating value, and
driving engagement.
AvivaPlus creates one of our simplest customer journeys yet. We
believe that simple propositions, designed with customer ease
at their heart, will increase customers’ loyalty and advocacy.
Digital First
In an increasingly digital, data-driven world, our customers’
needs are changing. From individual customers, to intermediary
partners and large corporate clients, our customers want
innovative products and services, which are easy-to-use and
provide a positive customer experience. Digital First is our
strategic approach to creating a group which can respond to
those demands.
Why it’s important
Digital First is about making sure Aviva is an, efficient insurance
company which delivers attractive products and services for our
customers. The launch of AvivaPlus at the end of the year is an
example of our commitment to lead the way to meet this
challenge.
We are in an age of rapid increases in data production and
availability. The ability to assess and use this data appropriately
and responsibly is a key competitive advantage today, allowing
us to design, create and underwrite the best possible products
for our customers. Investing in our data science capabilities at
Aviva Quantum ensures that we can stay ahead of the game.
How we’ve progressed
In 2018, our focus on being Digital First moved from a period of
significant innovation and development into launch and
increasing scale, providing our customers with the right set of
products through an enhanced multi-channel experience.
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Our strategy
Continued
MyAviva
Our focus on scaling digital growth in the year was best
demonstrated by MyAviva in the UK, which achieved growth in
active registrations to 4.2 million, representing more than a
quarter of all our UK customers. MyAviva lets customers deal
with us in a direct, efficient way across a wide range of product
needs from general insurance, health insurance, life insurance,
pensions to long-term savings and helped drive strong growth in
digital interactions.
Quantum
Digital First is not only about engaging with customers online
but about harnessing the benefits of data. Aviva Quantum is our
internal data science team. They work to improve our
understanding of risks, allow more accurate pricing, increase
fraud prevention and personalise MyAviva quotes. Quantum is at
the heart of developing Ask-it-Never, our ambition to make
insurance simpler and easier for customers by asking fewer
questions when they buy a policy.
Blue
2018 was an intense period for launch activity of disruptive, new
services. Our new joint venture in Hong Kong, with our partners
Hillhouse and Tencent, launched in September with a simple
proposition, designed to disrupt traditionally expensive
distribution through intermediaries. Blue is the first digital life
insurer in Hong Kong and offers three simple, flexible and fully
online life protection products.
Not Everywhere
Not Everywhere means that we focus our capital where we can
achieve the greatest return. We do not aspire to offer everything,
to everyone. We are focused in the places where we will win.
Having largely reshaped the Group in recent years, we are now
focused on our major markets and strategic investments.
Why it’s important
We aspire to be the best at what we do in all our markets. This
means being focused and committed to the right markets and
the right products.
How we’ve progressed
In 2018, we completed the latest restructuring phase of our
businesses.
As well as the completion of the acquisition of Friends First in
Ireland and the launch of our Blue joint venture (see above), we
completed the exit of our three remaining businesses in Spain,
Caja Murcia Vida, Caja Granada Vida and Pelayo Vida, ending our
involvement here. In Italy, we completed the sale of our joint
venture, Avipop Assicurazioni S.p.A., and its wholly owned
subsidiary Avipop Vita S.p.A. We completed our exit from
Taiwan, following the sale of our joint venture First Aviva Life.
Lastly, Aviva Investors sold a Real Estate Multi-Manager business
which was strategically non-core.
Major markets and strategic investments
Our major markets and strategic investments categorisation
shows how Aviva’s markets and business lines contribute to our
overall portfolio, both now and in the future.
Major markets: solid growth, sustainable cash
We are focused on eight attractive, growing markets where we
are, or have the potential to be the best in class. Our major
markets are:
• UK – number one composite insurer providing a core growth
engine and high levels of sustainable cash flow
• France – a cash generator underpinned by strong distribution
• Canada – leading general insurance franchise with attractive
returns over the long term
• Poland – high return on equity (ROE) business with strong
distribution and digital credentials
• Italy – composite player in large European insurance market
• Ireland – a leading brand with an improved composite model
• Singapore – composite player with distribution through
growing financial advisory channel
• Aviva Investors – global asset manager with expertise and
solutions in real assets, multi-assets, equity and fixed income
Strategic investments: future, fast growth
We have made a number of strategic investments that will
accelerate growth and provide increased value over the long
term. These investments are:
• Digital – developing intellectual property (IP) to be rolled out
across our markets
• China – delivering growth in sales and adjusted operating
profit1 in one of the world’s largest insurance markets
• Hong Kong – Blue, our joint venture with Tencent and
Hillhouse focused on digital disruption
• Turkey – leading position in the life and pensions market and
exposure to a large, young and growing population
• Indonesia – bancassurance joint venture in an under-
penetrated, high growth emerging market
• India – continuing to assess our options
• Vietnam – leading business in one of the fastest growing Asian
economies
• Global Corporate Solutions (GCS) – selective expansion
provides a natural extension to our existing strength in retail
and commercial lines
Read about our businesses at www.aviva.com/investors/our-
strategy
1 Adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section and to the ‘Other
Information’ section within the Annual report and accounts for further information.
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Our people
Our people
We have a clear purpose to give our customers the confidence and
control to be ready for life’s opportunities and challenges. This
commitment to customers, high levels of people engagement and
skills, and Aviva’s values helps contribute to our strong financial
performance.
The focus for 2018 has been on our culture and ensuring we are an
inclusive workforce who put the customer first.
We employ 31,703 people globally and continue to support the
regional economies in our home market the UK, where we employ
more than 15,000 people.
Our strategy
Our global people strategy sets out how we will accelerate our
performance. We will:
• Focus on our customers by connecting the day-to-day activities of
our people with our purpose
• Give our people the freedom to act in line with our values
• Make leadership a way of life so all our people contribute to
delivering our strategy and think independently. We want leaders
who are ambitious and achieve results in everything they do
• Create an inclusive and diverse environment so that everyone can
be themselves
• Actively invest in the skills, mind-sets and future capabilities we
need to win in a digital age
Our values
Our values guide everything we do and the decisions we take:
Care More
We start with the customer and prioritise delivering a great outcome
for them. We do the right thing, making sure we and those around
us are acting with positive intent. We don’t shrink from the tough
conversations. We’re in it together.
Kill Complexity
We can list our priorities on one hand, picking a few things to do
brilliantly. We make the call with the right information. We join
forces and build it once.
Never Rest
We fail fast and learn fast, testing and learning at pace. We embrace
digital. We are dissatisfied with the way things are done now. We get
it done at pace.
Create Legacy
We invest with courage, taking smart risks and making good
decisions to ensure we allocate our resources where they can do
most. We think like an owner, taking responsibility. We go for more
than quick wins. We take the long view.
Developing our people
Developing our people remains core to the work we do. In 2018, we
continued to implement our three-year talent programme by:
• Our flagship leadership programme has been extended to all
leaders in Aviva. 1,500 leaders have started Leading For Growth (of
which 900 have completed the programme so far) with a further
500 scheduled to commence in Q1 2019. The programme is
expected to roll out to the remaining 2,000 leaders during 2019.
We believe this investment has contributed to our strong
engagement scores and our improvement in the healthiness of
our culture. We continue to invest in talent throughout the
business and this year launched a programme to spot and
develop our new generation of leaders much earlier in their
career.
• ‘Grow’, our global digital learning portal, has 100% adoption in all
our key markets. We continue to improve our digital based
learning with a plan in place to deliver innovative bite-sized
content, mobile learning and curated external thought leadership.
Our online Leadership hub has received over 245,000 views. We
are co-creating an online coaching tool with our Digital Garage
partners at Founders Factory. Quantum University, our global
data science learning practice, is now established and is building
capability with c.700 practitioners globally.
• Over 120 women in Aviva have completed our ‘women in
leadership’ programme. Since the programme launched we have
seen more women take on broader roles and being promoted.
This is one of the initiatives that will help us close the gender pay
gap.
• We continue to have a successful year with our Global Graduate
scheme with 36 people starting in September 2018, including 17
females.
• In 2018, we adapted our approach to Performance Management,
especially in our customer-facing roles. A bigger emphasis was
placed on coaching and in-the-moment recognition, either by
immediate management or the Group Executive, removing the
need for unnecessary calibration of our people.
Engaging our people
In 2018 our global Voice of Aviva survey focused on key areas of
insight to drive growth: engagement, culture and leadership.
Employee engagement in Aviva remains strong and steady with
continued notable improvements in our UK and France markets, as
well as across our finance function globally, although slightly down
in Canada and Ireland following integration and restructuring.
Overall, however, employee engagement is consistent with 2017 at
76% globally.
In the last year, colleagues have seen significant positive shifts in
the culture at Aviva with a 12-point increase in the headline culture
measure reflecting this. Colleagues are much more likely to say that
people around them are moving quickly to put good ideas into
action, have the freedom to make decisions in their jobs and are
comfortable taking appropriate risks/trying new ideas. The focus in
2019 will be to continue to embed a culture of greater customer
focus, innovation and simplicity.
Feedback on people leaders living up to Aviva’s ‘Leadership
Expectations’ is mostly very positive. These are the behaviours we
expect all leaders to demonstrate, with over 1,000 leaders receiving
a rating of over 80% from their teams on related metrics. Leaders
rate most positively on metrics related to taking action to remove
barriers to their teams doing their job and encouraging them to
think and make decisions from the customer’s point of view. The
data also gives us clear areas to focus on. Developing great
leadership and improving engagement with our strategy continue
to be priorities for 2019. We are also working on fostering more of a
listening culture characterised by open and honest conversations
with front line teams.
At Aviva we have a positive and constructive relationship with the
trade union Unite as well as a fully elected all-employee
representative body (Your Forum). Within Aviva we take our
responsibility to consult very seriously. The existence of Your Forum
within Aviva is a key way of recognising that we all have a part to
play in contributing to the debate on issues and opportunities
impacting on our people and our organisation.
The representative bodies meet regularly with the Members of the
Group Executive Committee (GEC) throughout the year as well as
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Our people
Continued
the Chair of the Remuneration Committee. We believe that by doing
so we encourage a culture of trust, and open and honest
communication that will help us ensure that our organisation is a
better place to be. In 2018, we cemented our relationship with Unite
the Union by signing a Learning Agreement. This is a collaborative
approach to the ongoing development of our people and jointly
encourages employees of all ages and genders to seek out
opportunities through our Apprenticeship Levy contribution. In
addition, we also launched a new Conflict Resolution and Mediation
approach as part of our cultural transformation to move away from
an adversarial approach to fostering greater dialogue amongst our
people.
We continue to provide an employee share scheme and all
employees have the opportunity to engage with senior leaders
through weekly #Uncut (a 30 minute no holds barred interview with
senior leaders) and our live results presentations. This ensures
everyone at Aviva is aware of significant changes in the business as
well as financial and economic factors affecting the business.
Inclusive diversity
Inclusive diversity is key to Aviva being a sustainable, successful
business. An inclusive culture ensures employees are happier, act as
themselves and work towards achieving their and the organisation’s
goals. Aviva’s employees need to reflect our customer base and we
continue to make sure all our customers are represented inside the
organisation.
At the end of 2018, we exceeded our target of achieving 30% female
leaders (leaders are the top 1,300 employees) by 2020; we reached
31% across all markets by the end of 2018. This is being achieved
through targeted female development programmes, diverse
shortlists and a leadership team committed to change. We are also
committed to improving ethnic diversity within our leadership
population.
In November, we celebrated the first anniversary of our equal
parental leave policy. This policy has seen us as a first-mover in the
majority of our markets, with the result that our people can see our
commitment to them outside, as well as inside the workplace.
Our drive to have an inclusive culture comes through our employee
communities which were launched across all markets in 2018. There
are six communities covering: race and religion, gender, sexuality,
caring responsibilities, age, and mental and physical health. In the
first year over 5,000 employees have joined these communities.
They act as a lobby group and conscience to the organisation and
are actively sponsored by members of the Group Executive. Some of
the notable contributions from the communities have been the
Workplace Adjustment Passport (an individual record of any
adjustments an employee requires to their working arrangements,
for example accessibility or caring commitments), Black History
month events and a part-time transition to retirement scheme in
Canada.
Health and wellbeing
We remain focused on our employee health and wellbeing as a key
driver to our success and growth. 2018 has been a year of
embedding for our Wellbeing@Aviva strategy, and continues to
deliver under our four areas – mental, physical and financial
wellbeing and community connectivity. All the activities we
launched in 2017 continued in 2018, but some specific highlights
include:
Mental wellbeing
• 70% of our people leaders have now received mental health
training. As a result, over 90% of leaders feel that they are
comfortable having conversations about mental health with their
team/peers and managers, know about and are comfortable
signposting colleagues to the resources available to them
• 4,000 colleagues have taken advantage of the free access to
Headspace (a global meditation app) offered, collectively
completing over 66,000 sessions since launch
Physical wellbeing
• 8% of colleagues have taken advantage of our discounted fitness
proposition which launched in 2018, and they’ve certainly been
active, clocking up over 31,000 gym visits, and the equivalent of
970 days worth of exercise!
• 21% of colleagues use our digital health checks each time they
visit the office, with support then offered on an individual basis for
issues identified by the health checks
Financial wellbeing
• After successful pilot seminars for employees (Mid-Life MOT and
My Retirement, My Way) we will be rolling these out more widely
in 2019
• We have provided access to Aviva Financial Advice for colleagues
during working hours for an initial, or more detailed discussion, to
help with their personal financial planning
Our plans for 2019
In 2019, the People function’s focus will be around managing the
fundamentals of our business and enabling growth to ensure Aviva
and its people are best set to deliver the future strategy.
We are still on a journey to make Aviva a company that puts the
customers at the heart of everything we do and our focus will be on
ensuring our people can deliver in an innovative and simple way.
In 2019 we will continue to focus on developing an inclusive
workforce which is fit for the future.
At 31 December 2018, we had the following gender split:
Board membership
Male
8
Female
3
Senior management
Male
938
Female
423
Aviva Group employees
Male
15,575
Female
16,128
The average number of employees during 2018 was 31,232.
Read more about our approach to responsible and sustainable
business in the ‘Corporate Responsibility’ section of this report and
our people strategy at www.aviva.com/about-us/our-people
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Chief Financial Officer’s review
Chief Financial
Officer’s review
Key financial metrics
A summary of the financial metrics used to measure our
performance, including key performance indicators and alternative
performance measures (APMs) where appropriate, is shown below.
Further guidance in respect of the APMs used by the Group is
included in the ‘Other information’ section of the Annual report and
accounts.
Group adjusted operating profit1
Operating earnings per share2,3
Profit before tax attributable to
shareholders’ profit
Cash remittances2
Estimated Solvency II shareholder cover
2018
£m
2017
£m
Sterling
Change
Sterling%
change
3,116 3,068
58.4p 54.8p
48
3.6p
2,129 2,003
3,137 2,398
126
739
2%
7%
6%
31%
ratio2,4
204% 198%
—
6.0pp
Value of new business on an adjusted
Solvency II basis2
Combined operating ratio2
1,202 1,243
96.6% 96.6%
(41)
—
(3)%
—
Overview
In 2018, Aviva delivered growth while investing to improve the
fundamentals of the business and maintaining a prudent approach
to pricing and risk management.
Group adjusted operating profit1 increased 2% to £3,116 million
(2017: £3,068 million) while operating earnings per share2,3 rose 7%
to 58.4 pence (2017: 54.8 pence). IFRS profit after tax was £1,687
million (2017: £1,646 million), leading to basic earnings per share of
38.2 pence (2017: 35.0 pence). Our operating results continue to
benefit from broad based growth from our major markets together
with releases of longevity provisions in our UK annuity portfolio.
However, as in previous years, we have used the additional
profitability provided by longevity releases to accelerate investment
in digital, IT and finance change initiatives and to strengthen
provisions in areas related to past practices.
In late 2018, the Civil Liability Bill, which determines how personal
injury compensation awards are set in the UK, received Royal
Assent. While confirmation of the new “Ogden” rate will be provided
in 2019, following passage of the legislation we have revised the
discount rate used in determining our personal injury claims
reserves in the UK to 0%, from -0.75% previously, giving rise to non-
operating profit of £190 million. Offsetting this are adverse
investment variances due to widening sovereign and corporate
credit spreads and a mark-to-market impact from our hedging
programme, which protects Solvency II capital4. Despite heightened
investment market volatility in late 2018, investment variances were
broadly flat in the second half of the year despite an increase in the
Brexit related property allowance to c.£400 million (2017: c.£300
million) in addition to other customary reserves.
During 2018, we repaid £0.9 billion of subordinated debt and
completed a £0.6 billion share repurchase programme, leading to
the cancellation of approximately 3% of our shares in issue. Despite
this £1.5 billion of capital deployment, our solvency capital surplus4
remained robust at £12.0 billion (2017: £12.2 billion) and Solvency II
shareholder cover ratio2,4 increased to 204% (2017: 198%).
As we embark on the next phase under a new Chief Executive, we do
so from strong foundations, with businesses that are well
established in their respective markets, a capital position that
provides security for today and flexibility for the future and a well
funded, sustainable dividend. However, there are opportunities to
reignite the self-help agenda, focusing on cost efficiency, business
complexity and prioritising further reduction in debt leverage.
United Kingdom
Aviva is the UK’s largest insurer and is unique in operating at scale
across life insurance, savings, general insurance, health insurance
and retirement markets. In 2018, adjusted operating profit1 from our
UK Insurance businesses increased 7% to £2,324 million (2017:
£2,164 million). The UK Insurance result continued to benefit from
elevated levels of reserve releases relating to the slowing rate of
improvement in life expectancy in our annuity portfolio and this is
reflected in a higher contribution from “other”. Excluding the
contribution from “other”, our five main operating segments in the
UK delivered aggregate adjusted operating profit1 of £1,974 million
(2017: £1,904 million), an increase of 4%.
Annuity and equity release provides significant long-term growth
opportunities as companies look to transfer their defined benefit
pension obligations to the insurance sector and individuals seek
to secure income and unlock equity in their retirement. In 2018,
annuity and equity release sales rose 12% to £4.8 billion (2017:
£4.3 billion) due to higher volumes in bulk purchase annuities.
The increase in sales helped to deliver a 7% increase in adjusted
operating profit1 to £779 million (2017: £725 million). The result
benefitted from favourable experience variances relating to
longevity trends though this was offset by lower income from asset
mix optimisation. While we have increased our annuity and equity
release sales volumes in 2018, we have been selective in expanding
our appetite and reflected the uncertain political and economic
backdrop in our investment portfolio. We will maintain a prudent
approach in 2019.
In long-term savings, adjusted operating profit1 rose 7% to £198
million (2017: £185 million). Net fund inflows2 were £5.0 billion (2017:
£5.6 billion) equating to 4.2% of opening assets under
administration2. Having integrated digital features into our
workplace pension propositions, we increased new scheme wins
with large corporates and delivered higher net fund flows2. This was
offset by lower net fund flows2 into the adviser platform, as
migration to a new IT service provider caused disruption for both
IFAs and customers. Weak investment markets towards the end of
2018 constrained growth in assets under administration2, which
ended the year at £116 billion (2017: £118 billion). As fee income is
linked to assets under administration2, this may weigh on adjusted
operating profit1 growth in 2019. Nonetheless, we see compelling
long-term growth opportunities from rising participation and higher
contribution rates in workplace savings.
1 Group adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section, note 5
‘Segmental Information’ and ‘Other Information’ within the Annual report and accounts for further information.
2 This is an Alternative Performance Measure (APM) which provides useful information to supplement an understanding of our financial performance. Further information on APMs, including a reconciliation to the financial
statements (where possible), can be found in the ‘Other Information’ section of the Annual report and accounts.
3 This measure is derived from the Group adjusted operating profit APM. Further details of this measure are included in the “Other information” section of the Annual report and accounts.
4 The estimated Solvency II position represents the shareholder view. Please refer to note 57 and the ‘Other information’ section of the Annual report and accounts for more information.
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Continued
In protection, we adapted to changing market conditions, resulting
in adjusted operating profit1 remaining stable at £226 million (2017:
£227 million). Results from group protection improved in 2018
following actions taken to address adverse claims experience in
2017. This offset weaker results in individual protection, where new
business volumes fell 8% in response to heightened competition
while margins were compressed by higher reinsurance costs. We
will continue to manage our protection business with a focus on
maximising profit over the cycle rather than volume.
Aviva’s UK general insurance business maintained its track record of
delivering consistent, attractive underwriting results in 2018. The
combined operating ratio2 was 93.8% (2017: 93.9%) as higher levels
of prior year reserve releases offset an increase in weather related
claims. Net written premiums rose 3% to £4,193 million (2017:
£4,078 million) due to progress in Global Corporate and Specialty
(GCS) and Small and Medium Sized Enterprise (SME) markets. The
underwriting result rose 3% to £253 million (2017: £246 million),
which in turn helped to underpin a 4% increase in adjusted
operating profit1 to £415 million (2017: £400 million).
Our legacy portfolio performed in line with expectations in 2018,
with adjusted operating profit1 declining 4% to £318 million (2017:
£331 million). The UK with-profits portfolio, which makes a
significant contribution to the legacy performance, saw total assets
decline to £48.9 billion (2017: £58.2 billion) reflecting the weak
investment market environment.
Each year, our UK results include the impact of assumption
changes, adjustments to provisions and management actions to
increase or accelerate value emergence from our capital-intensive
businesses. We ordinarily expect this to provide between £150
million and £200 million per annum benefit to our results. In 2018,
the contribution remained above this range at £350 million (2017:
£260 million). The largest driver of this result was the release of
longevity provisions totalling £728 million (2017: £710 million) due
to changes in life expectancy trends. This was partially offset by
increased provisions and remediation costs, including those
pertaining to historical advised sales by Friends Provident, with
over 90% of cases identified being pre-2002, where we increased
the amount set aside for customer redress to £250 million
(2017: £75 million).
International
Aviva’s International markets comprise Europe, where we have
focused multi-line franchises, and Canada, where we are the second
largest general insurer by premiums written. Excluding the impact
of businesses divested in 2017 and 2018, adjusted operating profit1
from our International businesses increased 9% to £1,080 million
(2017: £990 million).
In France, we maintained our operating momentum in 2018,
delivering higher sales, improved product mix and better
efficiency. Adjusted operating profit1 in France was £546 million
(2017: £507 million), up 7% in local currency terms. In our life
insurance business, increased demand for savings products helped
to deliver 6% growth in new business volumes to £4.3 billion
(2017: £4.0 billion). With higher average asset balances supporting
fee revenues and operating expense2 growth of just 1%, our French
life insurance business grew adjusted operating profit1 7% to £436
million (2017: £403 million). In general insurance, adjusted operating
profit1 rose 5% to £110 million (2017: £104 million). Net written
premiums were £1,118 million (2017: £1,053 million) with growth
mainly derived from commercial lines. The combined operating
ratio2 was maintained at 94.5% (2017: 94.5%) despite higher claims
from weather and natural catastrophe events. Our French
leadership team have begun to align our distribution channels
under the Aviva brand and we expect to increase investment in
brand, distribution and digitisation in 2019.
In Poland, Aviva responded to subdued trends in the life insurance
market by implementing a targeted product strategy with our
distribution partners, delivering record levels of customer retention
and managing expenses tightly. As a result, despite lower industry
sales, our life insurance business increased new business volumes
by 3% and adjusted operating profit1 rose 8% to £170 million. The
higher life insurance result helped propel our total adjusted
operating profit1 in Poland to £190 million (2017: £177 million), an
increase of 6% in local currency terms. In general insurance,
adjusted operating profit1 was £20 million (2017: £21 million) due to
lower profitability in motor insurance. Our general insurance
business lacks scale, though we are targeting growth through multi-
cover policies, encouraging digital engagement, utilising our
existing distribution scale in life insurance and developing the price
comparison website market.
In Canada, the focus of our team in 2018 was on setting the
business on the path to recovery following the challenges
experienced in 2017, where results were adversely affected by
heightened claims inflation in motor insurance. We have taken a
range of actions including increases in premium rates, cancellation
of some broker relationships and adjustments to underwriting
appetite. While these actions have begun to yield results, adjusted
operating profit1 in Canada was flat at £46 million (2017: £46 million).
Elevated weather and large loss experience, persistent challenges in
motor insurance and costs relating to the completion of the RBC
Insurance integration kept the combined operating ratio2 elevated
at 102.4% (2017: 102.2%), despite an improvement in prior year
development.
Aviva recently received regulatory approval for further increases
in premium rates in Ontario motor insurance which will move us
toward rate adequacy. The regulatory approved premium rate
increase of 8.6% in the Aviva portfolio and 16.8% in the RBC
portfolio will be implemented from the first quarter of 2019 and
should begin to benefit results in the latter part of this year and in
2020. In addition, we will continue to work with provincial
governments and regulators to drive much needed reform in the
Canadian insurance market. In summary, we expect our actions
to deliver progress in our financial results in 2019 and we remain
confident that we can achieve our sub-96% combined operating
ratio2 goal in 2020.
Aviva made further strategic and financial progress in Italy in 2018.
Our focus on diversifying distribution and providing customers with
innovative products has delivered higher sales, positive net fund
flows2 and growth in adjusted operating profit1. On a like-for-like
basis (excluding the divested Avipop business), adjusted operating
profit1 increased 16% to £188 million (2017: £162 million). In life
insurance, sales rose 37% in local currency terms to £6.3 billion
(2017: £4.5 billion). Hybrid products, which provide customers a
combination of with-profit, unit linked and protection coverage,
achieved growth of 161% and contributed 44% of our total life sales
(2017: 23%). We also expanded our distribution capability; in 2018,
non-bank channels accounted for greater than 40% of life insurance
sales.
1 Group adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section, note 5
‘Segmental Information’ and ‘Other Information’ within the Annual report and accounts for further information.
2 This is an Alternative Performance Measure (APM) which provides useful information to supplement an understanding of our financial performance. Further information on APMs, including a reconciliation to the financial
statements (where possible), can be found in the ‘Other Information’ section of the Annual report and accounts.
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Continued
The sustained strength in sales has taken our new business share of the
Italian life insurance market to approximately 6% and generated
significant positive net fund flows2. As a result, life insurance adjusted
operating profit1 rose 14% to £156 million (2017: £136 million). In general
insurance, Aviva has a niche position in the Italian market. Net written
premiums in this business fell 7% to £317 million (2017: £337 million) as
we took underwriting actions on the motor insurance portfolio. These
actions contributed to improved underwriting margins, which helped
lift adjusted operating profit1 to £32 million (2017: £26 million).
In Ireland, adjusted operating profit1 was £100 million (2017: £86
million) and we extended our sponsorship of the Aviva Stadium, a
key element of our Group brand strategy. The main driver of growth
in adjusted operating profit1 was the Friends First business, which
was acquired by Aviva on 1 June 2018. Benefits from the integration
of Friends First supported higher adjusted operating profit1 in life
insurance, compensating for lower sales in annuities. In general
insurance, Aviva has continued to focus on protecting profitability
as the pricing cycle has begun to soften. Net written premium fell
2% to £430 million (2017: £436 million) though underwriting margins
remained attractive, with a combined operating ratio2 of 91.5%
(2017: 91.4%). As a result, general insurance adjusted operating
profit1 rose slightly to £56 million (2017: £53 million). During 2018, we
also completed important structural changes in our Irish business,
with the establishment of a locally incorporated legal entity. This
was an important component of our Brexit preparations.
Aviva Investors
In a challenging year for the fund management industry, Aviva
Investors top-line growth slowed, with revenue up 4% to £597 million
(2017: £577 million). However, we chose to continue to invest in
building a more valuable diversified long-term business, particularly
in our Equities and Real Assets capabilities. This continued
investment, together with the absorption of MiFID II costs, which we
did not pass onto clients, resulted in adjusted operating profit1 of
£150 million (2017: £168 million). We also realised a non-operating
profit of £27 million on the sale of a part of our real estate business.
Over the year, assets under management2 declined due to the
aforementioned business disposal, adverse market movements
and expected net outflows on Aviva’s legacy life insurance books.
The AIMS range of funds saw assets reduce to £10.3 billion
(2017: £12.6 billion) as difficult market conditions weighed on
performance.
Singapore
In Singapore, we continue to grow our distribution network, including
Aviva Financial Advisors with 816 advisers (2017: 673) and Professional
Investment Advisory Services Pte Ltd, with 724 advisers (2017: 593). As
a result, we have maintained positive momentum in life insurance.
New business volumes increased 11% to £1,279 million
(2017: £1,164 million) and adjusted operating profit1 from our life
insurance operations grew 21% in local currency terms to £141
million (2017: £118 million). We believe the financial advisory model
provides enhanced flexibility and choice for both advisers and
customers and we will continue to invest in its development in 2019.
In general insurance and health, adjusted operating loss1 widened to
£16 million (2017: £8 million) due to adverse claims experience in our
health insurance portfolio. We are taking steps to improve the health
insurance portfolio and this will continue in 2019.
Strategic investments
Aviva’s strategic investments include our Digital operations together
with our joint venture businesses in China, Hong Kong, India,
Turkey, Vietnam and Indonesia. In 2018, the aggregate adjusted
operating loss1 from these businesses widened to £142 million
(2017: £85 million). The primary driver of this was our digital business
in the UK, where we invested further in digital innovation, and
customer proposition development and engagement. This has
given rise to a sharp uplift in customer activity levels; UK MyAviva
active customer registrations have risen 48% and we are seeing
higher volumes of online customer traffic. However, this did not
translate through to higher levels of profitability reflecting the soft
market conditions in 2018. Excluding Digital, results from our
Strategic Investment markets improved. In China and Turkey, we
delivered growth in adjusted operating profit1 in local currency
terms while losses narrowed in our less mature businesses in South
East Asia.
Capital and cash
At the end of 2018, our Solvency II shareholder cover ratio2,3 was
204% (2017: 198%). The increase in the ratio was achieved despite
significant capital management actions undertaken during the year,
with the £0.9 billion repayment of subordinated debt and £0.6
billion share repurchase equating to a 13 percentage point drag on
the opening solvency position.
Operating capital generation2 totalled £3.2 billion (2017: £2.6 billion).
Underlying operating capital generation2 was £1.5 billion
(2017: £1.7 billion), the decline resulting from business disposals,
higher capital strain from new business growth and increased
business investment spend. Other operating capital generation2
of £1.7 billion (2017: £0.9 billion) comprised UK longevity releases
together with capital benefits from the inclusion of dynamic
volatility adjustment in our Group Solvency II position and model
changes in France, Poland and the UK.
Net cash remittances2 increased to £3.1 billion (2017: £2.4 billion) on
the back of a significant uplift in dividends from the UK Insurance
business. Special remittances from UK Insurance were £1.25 billion
(2017: £500 million) and comprised £500 million related to Friends Life
integration synergies and an additional £750 million that was made
possible by the strength of our local entity solvency position.
At our Capital Markets Day in November 2017, we upgraded our
target for cumulative cash remittances2 over the three year period
ending in December 2018 to £8 billion (from £7 billion previously).
We fell slightly short of the upgraded target, achieving £7.9 billion
of cumulative cash flows to Group centre from remittances and
divestiture proceeds. This reflects the delay in completing the sale
of Friends Provident International and our decision to retain the
£0.2 billion of proceeds from the sale of Avipop in our Italian
subsidiary to support capital given growth in the business and
recent trends in Italian Government bond spreads.
In conjunction with the higher remittances, excess centre cash flow2 in
2018 was £2,437 million (2017: £1,656 million). Even after adjusting for
special remittances, recurring excess centre cash flow2 was sufficient
to fund Aviva’s ordinary dividend. At the end of February 2019, Group
centre liquidity was £1.6 billion (2017: £2.0 billion). Our intention is to
maintain the Group centre liquidity balance in a range of £1 billion to
£2 billion over time. Additional cash may also be set aside at Group
centre for the purpose of defeasing subordinated debt maturities in
2020 and beyond. In 2018, we raised €750 million of senior debt with
maturity in 2027 and a coupon of 1.875%. This was used to redeem
€350 million of maturing senior debt and reduce commercial paper
balances and was therefore neutral to our net debt position, while
extending our liability profile.
1 Group adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section, note 5
‘Segmental Information’ and ‘Other Information’ within the Annual report and accounts for further information.
2 This is an Alternative Performance Measure (APM) which provides useful information to supplement an understanding of our financial performance. Further information on APMs, including a reconciliation to the financial
statements (where possible), can be found in the ‘Other Information’ section of the Annual report and accounts.
3 The estimated Solvency II position represents the shareholder view. Please refer to note 57 and the ‘Other information’ section of the Annual report and accounts for more information.
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Continued
In November 2017, we outlined an ambition to deploy £3 billion of
cash by the end of 2019. In 2018, our deployment initiatives totalled
£1.7 billion, comprising £0.9 billion of subordinated debt retirement,
£0.6 billion of capital returned to shareholders via a share
repurchase programme and £0.2 billion on M&A initiatives, the
largest of which was the acquisition of Friends First in Ireland. Of the
remaining £1.3 billion of cash we had anticipated deploying, we are
extending the time-line beyond 2019 and will prioritise
reinvestment in our existing operations and debt deleveraging.
Based on our current outlook, there is less appetite for bolt-on
acquisitions in 2019.
Between 2019 and 2022, Aviva has c£3.0 billion of maturing debt, of
which we currently expect to repay without refinancing £1.5 billion.
On a pro forma basis, this would reduce our outstanding debt
balances by approximately 20%, reduce our ratio of debt to
Solvency II own funds by 4 percentage points to 29%, and reduce
our Solvency II shareholder cover ratio2,4 by 10 percentage points to
194%. We estimate this would give rise to cash interest expense
savings of approximately £90 million per annum, improving Group
adjusted operating profit1, operating capital generation2 and excess
centre cash flow2. We continue to manage the company consistent
with double-A financial metrics.
We expect to fund the reduction of debt balances from internal
sources, including regular cash remittances from our business units,
special remittances associated with our capital structure
optimisation initiatives and proceeds from divestiture activity.
Dividend
In light of our results and the strength of our financial position, we
have increased our total dividend per share by 9% to 30.0 pence
(2017: 27.4 pence). This is the fifth consecutive year of significant
annual growth in the dividend, with the 2018 level representing
double the level paid for 2013 (15.0 pence).
Having achieved our 50% dividend payout ratio target relative to
operating EPS2,3 in 2017, this year we have increased the dividend
payout ratio to 51.4%. Looking forward, the Board of Directors has
decided to move from a policy targeting a pay-out ratio tied to
operating EPS2,3 to a progressive dividend policy. This change will
afford the new CEO greater flexibility to implement his strategic
agenda while protecting the current dividend per share for our
existing shareholders.
At Aviva, a “progressive” dividend policy means that, under ordinary
circumstances, the Board of Directors would at least maintain the
then-current annual ordinary dividend per share, while seeking to
grow the dividend per share over time based on the Board of
Directors’ periodic assessment of the Group’s financial performance
and future outlook. In practice, this might result in a higher or lower
dividend pay-out ratio relative to earnings, which could fluctuate,
while the dividend per share remains steady or grows under
ordinary circumstances. Aviva’s annual ordinary dividend per share
has doubled from 2013 to 2018, and the Company expects that
future percentage growth rates of the dividend per share will be
more modest than those in the recent past.
Outlook
Given current uncertainties, including the unknown future impacts
of Brexit on the economies of the United Kingdom and Europe, our
near-term outlook entering 2019 is more muted than our outlook a
year ago. While we achieved 7% operating EPS2,3 growth in each of
the past two years, it will be difficult to sustain this momentum in
2019.
In terms of currently identifiable result drivers, we cite potential
headwinds from weak investment markets in late 2018 on fee
income in our asset gathering businesses including UK long-term
savings, European life and Aviva Investors, and a possible increase
in the blended tax rate due to changes in the business mix of Group
adjusted operating profit1. On the other side of the ledger, we
expect results to benefit from improved profitability in Canada in
addition to lower interest expense and a reduction in weighted
average shares in issue following capital management initiatives
undertaken in 2018. Our results will also depend on the degree of
offset between benefits from changing longevity trends in the UK
and costs associated with investment and change spend.
In conjunction with the appointment of a new Chief Executive, we
are reallocating resources and making changes to our priorities.
This process has begun, though it will receive further impetus now
that the new Chief Executive has been appointed. Areas of focus
include potential changes to our business model to drive further
efficiency, opportunities to optimise our product and market
portfolio and the prioritisation of debt deleveraging announced in
today’s results. The new Chief Executive will expand on our plans
and outline refreshed targets in the near future.
In conclusion, we approach 2019 with strong fundamentals; our
balance sheet is robust and resilient, our businesses are well
positioned in their respective markets and overall performance has
been steady. This provides a strong platform on which the incoming
Chief Executive can build, with renewed focus on efficiency,
complexity and customer to drive future performance.
Thomas D. Stoddard
Chief Financial Officer
6 March 2019
1 Group adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section, note 5
‘Segmental Information’ and ‘Other Information’ within the Annual report and accounts for further information.
2 This is an Alternative Performance Measure (APM) which provides useful information to supplement an understanding of our financial performance. Further information on APMs, including a reconciliation to the financial
statements (where possible), can be found in the ‘Other Information’ section of the Annual report and accounts.
3 This measure is derived from the Group adjusted operating profit APM. Further details of this measure are included in the “Other information” section of the Annual report and accounts.
4 The estimated Solvency II position represents the shareholder view. Please refer to note 57 and the ‘Other information’ section of the Annual report and accounts for more information.
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Market review
UK
Overview
Aviva is the UK’s largest insurer with a 17%1 share of the UK Life and
savings market and a 10%2 share of the UK General insurance and
health market, with 15 million customers in the UK. As a ‘multi-line’
insurer we have a clear strategic advantage, providing individual
and corporate customers with a wide range of insurance and
savings products, from car, home and health insurance to pensions,
investments and asset management. We have a strong core
capability in managing existing books of business and have one of
the largest customer bases in the UK life and pensions market.
We are here to help our customers, protect what’s important to
them and to help save for their long-term goals. Helping our
customers provide for a more comfortable retirement and with a
better understanding of the financial choices they face is a priority
for us. We provide a secure income to 1.2 million customers in the
form of an annuity, paying out over £2.6 billion each year. We are
also a leading supplier1 of equity release (lifetime mortgages),
lending over £700 million in 2018, helping people to raise money
to fund whatever matters most in life.
We focus on the customer, with market leading service at the heart of
our business. We insure 2.5 million motor customers and 3.2 million
home customers. Through the launch of AvivaPlus, an innovative
general insurance proposition, customers can pick and choose the
cover they need, with no interest or administration fees. The renewal
price guarantee means we review each customer’s price at renewal to
make sure they pay no more than if they were new to AvivaPlus.
Over 5 million people rely on us to protect them and their families
during some of the most difficult times in their lives, such as
bereavement and serious illness. We are proud not only of the scale
of the financial and wider support that our protection products
provide, but the care with which claims are managed. We continue
to win several awards recognising our achievements, including Best
Protection Provider for the second consecutive year from Money
Marketing and Best Individual Critical Illness Provider at both the
Cover Excellence and Health Insurance awards.
In 2018 we published our first UK claims report, encouraging the
industry to join us in publishing comprehensive information about
how insurers manage customer claims, why some claims are
declined and how consumers can do more themselves to
understand whether the cover they have is what they need. In the
UK, we paid out 96% of all claims received in 2017 and as high as
99% in motor and life insurance. That equated to £3.6 billion to help
our customers across motor, home, travel, protection, health and
commercial business insurance.
We are the largest UK corporate pensions provider1, servicing over
3.8 million customers, including 22%1 of the workplace pensions
market. We are proud to receive external recognition3 for excellent
service in the pensions marketplace. We offer pensions, protection,
and bulk purchase annuity propositions to both large and small
companies, as well as health and general insurance.
We also provide general insurance to a wide range of businesses,
with over 650,000 policies in force. In addition to our well
established Small and Medium Enterprise (SME) client base, our
Global Corporate & Specialty (GCS) business is focused on building
the right solutions for large corporate clients and their brokers,
working together to provide a tailor-made package that meets their
requirements in the UK and across the globe. In 2018 retention of
our existing customer base was over 90% and we were successful in
winning the multi-national business of large UK corporates. We
continue to support clients in improving their risk management
through our prevention agenda and our highly valued claims
service.
Financial and health wellbeing is top of employer agendas and
we continue to support them and their employees with further
development of Aviva Wellbeing, a set of services aimed at helping
employers build healthier, happier and more productive
workforces. In 2018 we launched Aviva Digital GP, an innovative
proposition offering around the clock access to GP video
consultations and chat features, pharmacy services and repeat
NHS prescriptions.
We have 4.2 million customers in the UK actively registered on
MyAviva, allowing them to manage their policies online, an increase
of 48% on 2017. We are accessible to new and existing personal and
corporate customers however they want to engage with us. We have
an unparalleled distribution network, with a growing digital direct
offering for sales and service, strong relationships with independent
financial advisers, brokers, employee benefit consultants, banks
and other partners such as estate agencies.
We continue to win many awards, including ‘General Insurer of the Year’
from Insurance Times for the fifth year running and Insurance Post for
the second year, and ‘Health Insurer of the Year’ at the Health Insurance
Awards for the ninth year running. We also won Moneywise’s ‘Best
Pensions Education Initiative’, an award to highlight the efforts being
made by financial providers to educate their customers, and the public,
about pensions and retirement planning.
Financial performance
Adjusted operating profit4,6
Life
General Insurance
Health
Cash remitted to Group5,7,8
Life
General Insurance and Health
Expenses
Operating expenses5
Integration and restructuring costs
New business
Present value of new business premiums (PVNBP)5
Value of new business on an adjusted Solvency II basis
(VNB)5
General Insurance
Combined operating ratio (COR)5
Net written premiums (NWP)
2018
£m
2017
£m
1,871
415
38
2,324
2,170
379
2,549
1,613
—
1,613
1,728
411
36
2,175
1,366
434
1,800
1,493
76
1,569
23,946
23,764
481
527
93.8%
4,193
93.9%
4,078
1 Association of British Insurers (ABI) 12 months to end Q318.
2 GlobalData plc online database.
3 Aviva Corporate Operations were awarded the Thomson Online Benefits 5-star service rating in May 2018.
4 Adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section, note 5
‘Segmental Information’ and ‘Other Information’ within the Annual report and accounts for further information.
5 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APMs, including a reconciliation to the financial statements
(where possible), can be found in the ‘Other Information’ section of the Annual report and accounts.
6 The amounts shown above in respect of adjusted operating profit do not reconcile to the corresponding amounts in note 5 ‘Segmental information’ within the Annual report and accounts due to the inclusion of our Health
business within UK General insurance.
7 2018 general insurance cash remittances include amounts of £331 million received from UK General Insurance in February 2019 in respect of 2018 activity.
8 Cash remitted to Group is managed at legal entity level. As Ireland constitutes a branch of the United Kingdom business, cash remittances from Ireland were not aligned to our management structure within Europe, but they
were reported within United Kingdom.
Aviva plc Annual report and accounts 2018
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Continued
Profit
UK Life adjusted operating profit1,7 increased by 8% to £1,871
million (2017: £1,728 million) due to further benefits from changes in
longevity assumptions and the continued growth of long-term
savings and bulk purchase annuities (BPA).
The UK’s adjusted operating profit1,7 across new and existing
business can be analysed by segment as shown below:
Adjusted operating profit1,7
Long-term savings2
Annuities and equity release
Protection
Legacy3
Other4
Life
Underwriting result
Long-term investment return
Other5
General Insurance
Health
Total adjusted operating
profit1,7
New
business
Existing
business
2018
£m
Total
£m
New
business
Existing
business
2017
£m
Total
£m
(96)
363
91
—
—
294
198
416
779
135
226
318
318
350
350
358 1,513 1,871
253
161
1
415
38
(74)
335
130
—
—
259
185
390
725
97
227
331
331
260
260
391 1,337 1,728
246
163
2
411
36
2,324
2,175
The increase in adjusted operating profit1,7 is offset by an adverse
movement in investment variances and economic assumption
changes leading to a reduction in profit before tax attributable to
shareholders’ profits7 of our life business of £1,399 million (2017:
£1,619 million).
UK General Insurance adjusted operating profit1,7 was up 1% at £415
million (2017: £411 million), including a 3% increase in underwriting
profit as the business has grown while maintaining a stable COR6.
UK Health adjusted operating profit1,7 increased by 6% to £38
million (2017: £36 million) due to improved underlying margins.
Long-term savings
Long-term savings adjusted operating profit1,7 increased by 7% to
£198 million (2017: £185 million) with positive net fund inflows6 of
£5.0 billion (2017: £5.6 billion) while maintaining a stable in-force
profit margin. Average assets under management (AUM6) across the
year grew to £118 billion (2017: £111 billion). However, weak
investment markets towards the end of 2018 constrained growth in
AUM6, which ended the year at £116 billion (2017: £118 billion). Along
with growth in workplace pension net fund flows6, driven by new
scheme wins with large corporates, we delivered continued positive
platform net fund flows6 of £3.9 billion (2017: £6.2 billion) despite a
difficult market environment and functionality problems impacting
advisers and customers during the migration of the adviser platform
to a new service provider. Platform assets under management6 grew
by 12% in the year to £22.6 billion (2017: £20.2 billion). The increase
in new business strain reflects our workplace pensions growth and
the continued investment in the Aviva Financial Advisers network.
Annuities and Equity Release
Annuities and equity release adjusted operating profit1 increased by
7% to £779 million (2017: £725 million). BPA trading drove a 12%
increase in volumes to £4,784 million (2017: £4,287 million),
including Aviva’s largest BPA deal to date of £925 million with Marks
and Spencer, leading to an 8% increase in new business profits to
£363 million (2017: £335 million). Existing business adjusted
operating profit1,7 increased by £26 million to £416 million (2017:
£390 million) due to favourable longevity experience partly offset by
a reduction to £24 million (2017: £86 million) in the benefit from the
optimisation of the asset mix by increasing the proportion of illiquid
assets backing the in-force portfolio.
Protection
Protection adjusted operating profit1,7 remained stable at
£226 million (2017: £227 million). The benefit of improved claims
experience in Group Protection following actions taken to mitigate
2017 adverse experience was offset by an 8% reduction in new
business volumes to £1,799 million PVNBP6 (2017: £1,964 million)
and fall in new business profits in a competitive individual
protection market including the impact of hardening reinsurance
rates.
Legacy
Legacy contributed adjusted operating profit1,7 of £318 million
(2017: £331 million). The expected reduction in AUM6 as policies
mature was partly offset by favourable market movements in 2017
that drove higher opening 2018 AUM6. We continue to expect
adjusted operating profit1 from the legacy business to decline by
approximately 10% per annum over the medium term.
Other
In 2018, the contribution from Other was £350 million. The largest
driver of this result was the release of longevity provisions totalling
£728 million due to changes in life expectancy trends8. This was
partly offset by the recognition of an additional £175 million
provision relating to potential redress for advised sales by Friends
Provident (of which over 90% of cases relate to pre-2002, with the
total provision recognised being £250 million) and a £119 million
adverse impact in respect of the settlement of certain legacy
reinsurance arrangements.
In 2017, Other of £260 million mainly related to the release of
longevity assumptions totaling £710 million8. This was partly offset
by the impact of recognition of a £75 million provision relating to
potential redress for advised sales by Friends Provident,
strengthening of maintenance expense reserves of £89 million,
recognition of future costs reserves of £125 million and modelling
impacts totalling £131 million.
General insurance
UK General Insurance adjusted operating profit1,7 was up 1% at
£415 million (2017: £411 million).
The underwriting result increased 3% to £253 million (2017:
£246 million), reflecting an improved underlying performance,
as we maintained a disciplined approach to underwriting and
distribution. The impact of less favourable weather compared to
2017, (although weather remained favourable to the long-term
average), was offset by higher prior year reserve releases.
Long-term investment return (LTIR) declined by £2 million to
£161 million (2017: £163 million), with the reduction in the internal
loan return (net neutral to Group) broadly offset by the impact of an
updated investment mix.
Adjusted operating profit1,7 is a key driver for the improvement in profit
before tax attributable to shareholders’ profits of £450 million (2017:
£336 million), partially offset by increased adverse market movements.
1 Adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section, note 5
‘Segmental Information’ and ‘Other Information’ within the Annual report and accounts for further information.
Includes pensions and the savings Platforms.
2
3 Legacy represents products no longer actively marketed, including With-Profits and Bonds.
4 Other Life represents changes in assumptions and modelling, non-recurring items, and non-product specific items.
5 Other General Insurance includes unwind of discount and pension scheme net finance costs.
6 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APMs, including a reconciliation to the financial statements
(where possible), can be found in the ‘Other Information’ section of the Annual report and accounts.
7 The amounts shown above in respect of adjusted operating profit and profit before tax attributable to shareholders’ profits do not reconcile to the corresponding amounts in note 5 ‘Segmental information’ within the Annual
report and accounts due to reclassification of health business to general insurance.
8 Please refer to note 47 ‘Effect of changes in assumptions and estimates during the year’ within the Annual report and accounts.
Aviva plc Annual report and accounts 2018
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Market review
Continued
In December 2018, the Civil Liability Bill became an Act of
Parliament, which includes a change in the way the discount rate
used to calculate lump sum compensation in personal injury cases
(the ‘Ogden rate’) is set. Although the rate remains uncertain, it is
anticipated that the Government will set a discount rate which is
higher than the current -0.75% rate. At this stage, following a review
of a range of outcomes, Aviva has adopted a rate of 0.0% within the
full year 2018 reserves. The positive impact of this reserve change
(£190 million) has been excluded from the 2018 adjusted operating
profit1, a consistent treatment with the previous rate change
in 2016.
Cash
Cash remitted to Group2 was £2,549 million (2017: £1,800 million).
2018 includes an additional £500 million (2017: £500 million) of
Friends Life integration remittance taking the total Friends Life
integration remittances to £1.25 billion, exceeding the target of
£1 billion, along with further special remittances of £750 million,
reflecting the strong capital position of UK Life following recent
positive longevity developments and management actions.
Expenses
Total expenses increased 3% year on year to £1,613 million (2017:
£1,569 million) as we continue to focus on operational efficiency and
invest in growth and simplification initiatives including building our
BPA capability, updating our IT infrastructure, improvements to
customer experience while also implementing mandatory
requirements such as IFRS 17 and GDPR. Excluding these initiatives,
expenses were broadly flat.
New business
Gross of tax and non-controlling
interests
PVNBP2
2017
£m
2018
£m
Long-term savings
16,829 16,813
Annuities and equity release 4,784 4,287
1,799 1,964
Protection
700
Health and Other
534
Total
23,946 23,764
VNB2 New Business Margin
2017
£m
2018
%
153 0.7%
157 4.1%
183 7.8%
34 6.4%
2017
%
0.9%
3.7%
9.3%
4.9%
527 2.0%
2.2%
2018
£m
111
196
140
34
481
PVNBP2 increased 1% to £23,946 million (2017: £23,764 million) as
the growth in BPA and workplace pensions was offset by lower Platform,
Protection and Health volumes. However, VNB2 decreased by 9% to £481
million (2017: £527 million). The increase in PVNBP2 is primarily due to BPA
growth, including Aviva’s largest BPA deal to date of £925 million with
Marks and Spencer, while the overall reduction in VNB2 reflects falls in
protection and long-term savings.
Long-term savings VNB2 reduction is mainly driven by lower Savings
Platform volumes during and after service provider transition. It also
reflects a reduction in workplace pension VNB2, as an increase in
volumes has been offset by a change in mix towards lower margin,
larger pension schemes.
Annuities and equity release VNB2 increased 25% to £196 million
(2017: £157 million) driven by growth in BPA volumes with improved
margins as we continued to participate in the market on a selective
basis. Annuity VNB2 includes an £85 million (2017: £96 million)
impact of new business on the calculation of UK Life’s transitional
measures.
Protection VNB2 reduced by 23% to £140 million (2017: £183 million)
driven by an 8% reduction in sales to £1,799 million (2017: £1,964
million) in a competitive individual protection market and the
impact of hardening reinsurance rates.
Health and Other VNB2 was stable at £34 million (2017: £34 million)
with a fall in volumes, as we exited the International PMI market,
offset by increased margins.
Net written premiums (NWP) and combined operating ratio (COR)2
United Kingdom General insurance
Personal motor
Personal non-motor
UK Personal lines
Commercial motor
Commercial non-motor
UK Commercial lines
Total
Net written premiums Combined operating ratio
2018
£m
1,125
1,369
2,494
532
1,167
1,699
2017
£m
2018
%
2017
%
1,142
1,359
2,501 92.4%
514
1,063
1,577 96.1%
92.0%
96.7%
4,193
4,078 93.8%
93.9%
NWP
NWP increased 3% to £4,193 million (2017: £4,078 million), the fourth
consecutive year of growth, as we continue to focus on our
preferred products and channels.
UK Personal lines was broadly in line with the prior year with a 1%
fall in motor reflecting lower average premiums in the softer market,
while non-motor increased 1% driven by growth in home.
UK Commercial lines increased 8%, driven by a 10% increase in
Commercial non-motor, with solid growth in SME and Global
Corporate Specialty (GCS) while commercial motor increased 4%.
COR2
UK General Insurance COR2 of 93.8% is a 0.1pp improvement on
prior year against the backdrop of the Beast from the East and the
softer motor market. Improved underlying performance and higher
prior year reserve releases, primarily from favourable experience
in attritional and large injury claims, was partly offset by less
favourable weather experience compared to prior year, although
this was still favourable to the long term average.
UK Personal lines COR2 of 92.4% was 0.4pp higher year on year,
reflecting higher weather costs partly offset by higher prior year
reserve releases and improved business mix.
UK Commercial lines COR2 of 96.1% improved 0.6pp year on year,
as our underlying performance improved from the continued
disciplined underwriting and growth combined with higher prior
year reserve releases, partly offset by higher weather costs.
Operational highlights
• Following the phased launch in 2018, we continue to deliver our
new AvivaPlus proposition to more customers. The innovative
general insurance proposition is simple to use, flexible and
rewards loyalty. Our revolutionary new approach to insurance
ensures existing home and motor customers get the same or
better price than new customers, instant claims, no fees for
paying monthly, fast quotes with fewer questions and
customisable cover to ensure they stay in control.
• Through Quantum, our data science practice, we continue to
simplify how customers buy from us. This capability is being used
across life and general insurance, for individual, SME and partners
such as HSBC and Barclays. We ask fewer questions and make it
as simple as possible for our customers to find the best solution
to suit their needs.
1 Adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section, note 5
‘Segmental Information’ and ‘Other Information’ within the Annual report and accounts for further information
2 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APM’s, including a reconciliation to the financial statements
(where possible), can be found in the ‘Other Information’ section of the Annual report and accounts.
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Market review
Continued
• Our GCS business has continued to build capability that allows us
to better service UK corporates with overseas exposure, delivering
a multi-national proposition, which is important in future-
proofing our business. Additionally, our client council is a market
first, and helping to drive strong loyalty. Prevention is at the heart
of our client proposition, with risk management improvements
and innovative technological advancements that we have
provided to our clients in 2018 having delivered over £60 million
in known loss avoidance. Advancements include the use of
drones, thermographic cameras and leak detection sensors.
• In January 2019 we launched our new SME Midmarket proposition,
offering personalised advice, business insights based on data
analytics and access to innovative technology to support mid-market
brokers and customers access the right risk management expertise
and insight to manage growth, as well as existing and emerging risks.
• We continue to invest in digital technology to help customers
protect what’s important to them; with our award winning Aviva
Drive app with DashCam functionality, customers can get a
discount on their car insurance and have an independent witness
on-board to help in the event of an accident. With our Alexa skill
we make it easier for our pensions customers to get their latest
pension value from the comfort of their sofa and we can help
customers protect their home while away with smart devices that
alert you to leaks, smoke and intruders via our new Connected
Home app.
• We are using robotics and automation to simplify our processes.
Our protection customers are now able to provide consent to
obtain medical information digitally, with 73% of customers
responding within 24 hours, compared to a previous average of
30 days. We have used robotics to move almost 40,000 employees
for one of our largest workplace pension clients onto our pension
platform, reducing a 150-hour manual process to 10 hours and we
have digitised payment and fund switching for around 1.75
million pension customers as part of our new easy transfer
process for customers with pots below £30,000.
• In January 2018 we made a significant investment in our platform
technology and migrated over 200,000 customers with 345,000
accounts and £20 billion of assets to a new provider. Despite some
technical issues, our customers are now benefiting from improved
reporting, extended investment choice and simpler online
processes. Significant progress has been made to address the
problems caused by the migration and to ensure any customers are
not disadvantaged. Growth of the platform has been resilient
throughout this period with assets under administration1 up 12%
in 2018 to £22.6 billion and net fund flows1 continue to be positive
at £3.9 billion.
• We are a trusted partner for individuals to manage their transition
into and through retirement, with market leading propositions
(investment, drawdown, annuity, equity release), online guides
and tools and our in-house advice service, Aviva Financial Advice.
In 2018 we launched a ‘Mid-Life MOT’ service for our own
employees aged 45 and over, providing targeted guidance on
wealth, work and wellbeing. We will use the findings from this
pilot to help inform discussions with government and the
business community about how best to support UK employees
more broadly as they approach retirement.
• We continue to build on our defined benefit (DB) de-risking and
bulk purchase annuity capabilities, supporting our business
customers looking to reduce risk. In 2018 we wrote £2.6 billion
of bulk purchase annuities, an increase of over 27% on 2017.
Market context and challenges
• We are well prepared for Britain’s exit from the EU, despite the
continued uncertainties as to the outcome of the negotiations.
• 2018 saw significant regulatory change in our UK markets, with
the Markets in Financial Instruments Directive (MiFID), the
Insurance Distribution Directive (IDD) and the General Data
Protection Regulation (GDPR) coming into force.
• We promote strong regulation that is effectively targeted,
efficiently delivered, and supports sustainable growth and
innovation. Through active engagement with our regulator, we
hope to see further improvements in the market over the next two
to three years, including a fairer pension taxation system and a
simpler regulatory environment which allows us to better serve
the needs of our customers.
• April 2019 will see a further rise in auto-enrolment minimum
contributions from 3% in 2018 to 5%, supporting better retirement
prospects for all UK workers. Enquiries from small and medium sized
businesses or their advisers about moving to a new auto-enrolment
workplace pension provider have increased 80% year on year as
companies realise the importance of workplace benefits.
• In 2018 the PRA launched a consultation process in respect of the
capital required by firms offering equity release mortgages. We will
continue to engage with the PRA throughout the consultation. We
believe equity release is a valuable product for certain customers
aged over 55, helping homeowners access money in their later life.
• In general insurance, market conditions have remained competitive
across our entire product range, particularly a softening personal
motor market. We believe injured motor claimants should be fully
compensated for any injuries they receive, but it is also vital that
individuals are not over-compensated to a level which increases the
cost of insurance premiums for individuals and businesses, large
and small. We have continued to support the need for motor
insurance reform through our Road to Reform campaign. In 2018
the Civil Liability Bill, which will reform compensation for whiplash
injuries from 2020, and the Ogden rate, used by the courts to
determine awards for significant bodily injury claims, completed its
passage through Parliament. Aviva has promised to pass on 100%
of the savings to its customers.
• We fully support the FCA review on pricing practices for new and
existing customers in the general insurance industry and are
leading the market in tackling unfair pricing through our AvivaPlus
proposition.
• We continue to improve prevention and detection of general
insurance fraud for our customers. In 2018 we avoided over 15,000
fraudulent policies (20% more than 2017). We also repudiated
£85 million in suspect fraudulent claims and have prosecuted
58 cases.
• We are committed to providing an excellent service for all our
customers, but we know that sometimes things can go wrong.
Where we fail to meet customers’ expectations our first priority
is to resolve the matter as quickly as possible and to act on the
feedback we receive. We constantly work to improve our
customer service, taking learnings from dissatisfaction and
analysing the root cause of complaints in order to improve
our customer performance. Following an industry wide
miscategorisation issue in 2018 we have been working to ensure
we categorise our complaints correctly, which has resulted in an
increase in our regulated complaint numbers.
1 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APM’s, including a reconciliation to the financial statements
(where possible), can be found in the ‘Other Information’ section of the Annual report and accounts.
Aviva plc Annual report and accounts 2018
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Market review
Continued
Priorities for 2019
• To deliver growth in the UK by extending our advantage across
products and intermediary partners, leveraging the power of
Aviva’s breadth of offering, while investing in future growth
strategies.
• Build on our strong employer proposition and become the
provider of choice in the workplace for employee investments and
insurance.
• Build on our reputation as a trusted partner for individuals
managing their transition into and through retirement.
• Focus on simplicity for customers and build simple digital
solutions using our data and analytics capabilities (Quantum) to
make it easier for our customers to do business with us.
• Drive operational efficiency, underpinned by a sustainable and
robust IT infrastructure. Completing our data centre migration will
be fundamental to supporting the level of service we offer.
• Build on our strong position with intermediaries by striving to be
their partner of choice.
• We will continue to lead the industry on the big customer issues:
simplifying our products and customer experience, increasing
transparency and putting the customer at the heart of everything
we do.
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Market review
Continued
International
CANADA
Overview
We are the second largest general insurance provider in the
market place, providing a range of personal and commercial
lines products to over 2.7 million customers with a 10% market
share1. Our business is primarily intermediated, sold through a
network of 1,000 independent broker partners and, following our
acquisition of RBC General Insurance (RBC GI) in 2016, RBC
insurance agents.
Profitability of the business deteriorated in early 2017,
principally due to increased physical damage and injury claims
costs in our motor insurance line of business, and the trend of
favourable reserve releases ceased. As Canadian motor
insurance is heavily regulated, we had difficulty achieving rate
increases quickly enough to offset the claims costs. In addition,
2017 and 2018 saw natural catastrophe losses above budget.
As a result, adjusted operating profit2,4 in 2018 did not recover
from the 2017 level despite the actions taken.
In 2018, we achieved significant rate increases in personal lines
business, not all of which will have earned into the 2018
adjusted operating profit2,4. We also reduced the number of
intermediaries with access to our products as well as tightened
underwriting criteria where appropriate. In commercial lines,
our focus was on better risk selection which has hampered net
written premium growth, although we are receiving higher
premium for much of our renewed business. We expect the
combination of rate increases, pricing sophistication and
expense management to continue until we achieve our sub-96%
target combined operating ratio3.
Financial performance
Adjusted operating profit2,4
Cash remitted to Group3
Expenses
Operating expenses3
Integration and restructuring costs
2018
£m
46
28
477
—
477
2017
£m
46
55
478
15
493
Combined operating ratio (COR)3
Net written premiums (NWP)
102.4% 102.2%
3,028
2,928
During 2018, adjusted operating profit2,4 remained flat compared
to the prior year at £46 million (2017: £46 million). The business
also continued to experience challenges in the Canadian motor
market and adverse weather conditions. Towards the end of
2017, an extensive profit remediation plan was put in place with
ongoing actions around pricing, indemnity management and
risk selection. The impacts of our extensive profitability actions
have started to flow through our 2018 results. In the second half
of the year, our combined operating ratio3 for the six months to
December 2018 improved to 100.2% (HY18: 104.6%).
All percentage movements below are quoted in constant
currency unless otherwise stated.
Profit
Adjusted operating profit2,4
Underwriting result
Long-term investment return
Other5
Total adjusted operating profit2,4
2018
£m
(70)
121
(5)
46
2017
£m
(64)
115
(5)
46
In 2018, the underwriting result was a loss of £70 million (2017:
loss of £64 million), mainly driven by increased claims frequency
and severity in our personal motor business, slightly adverse
weather conditions compared to the long-term average and the
inclusion of RBC GI integration costs within operating expenses3,
partially offset by favourable prior year reserve development.
The underwriting loss, along with adverse market movements
were the key drivers of the current year loss before tax
attributable to shareholders’ profits4 of £74 million (2017:
£54 million).
Cash
Cash remittances3 during the year decreased to £28 million
(2017: £55 million), reflective of our underwriting performance.
Expenses
Operating expenses3 remained broadly flat at £477 million
(2017: £478 million), which includes costs of £11 million related to
the completion of RBC GI systems migration and staff relocation.
These costs were reported within integration and restructuring
costs in 2017.
Net written premiums (NWP) and combined operating ratio
(COR)3
Personal lines
Commercial lines
Total
Net written premiums
Combined operating ratio3
2018
£m
2,107
821
2,928
2017
£m
2018
%
2017
%
2,171 104.2%
97.8%
857
102.5%
101.2%
3,028 102.4%
102.2%
NWP
Net written premiums were down 3% to £2,928 million (2017:
£3,028 million) but flat on a constant currency basis. In personal
lines, lower new business sales were offset by rate increases.
Commercial lines premiums reduced slightly over the prior year
as rate increases were offset by lower new business sales and
retention as we tightened our underwriting risk appetite.
COR3
The COR3 increased slightly to 102.4% (2017: 102.2%) due to
elevated claims frequency and severity, particularly in motor,
partially offset by favourable prior year reserve development.
1 Market Security & Analysis inc. 2017 online database
2 Adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section, note 5 –
‘Segmental Information’ and ‘Other Information’ within the Annual report and accounts for further information
3 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APMs, including a reconciliation to the financial statements
(where possible), can be found in the ‘Other Information’ section of the Annual report and accounts.
4 The amounts shown above in respect of adjusted operating profit and lost before tax attributable to shareholders’ profits do not reconcile to the corresponding amounts in note 5 – ‘Segmental information’ within the Annual
report and accounts due to the reclassification of non-insurance business to Other Group activities
Includes unwind of discount and pension scheme net finance costs
5
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Market review
Continued
Operational highlights
• Launched a profitability action plan with over 30 distinct actions
Financial performance
to improve financial performance.
• Completed 155 rate changes in personal lines.
• Piloted automated quoting for small commercial lines business.
• Completed the integration of RBC GI, decommissioning legacy
RBC GI systems and processes and successfully migrated all RBC
GI policies into our Guidewire (policy and claims) system.
• Reduced our number of offices from 27 to 21 which reduced our
operational footprint (square footage) by 25%.
Market context and challenges
During 2018, adjusted operating profit1 remained flat compared to
the prior year as we continue to experience poor results in the
Canadian motor market. Regulatory challenges, including
restrictions on price increases, are faced in both the provinces of
Ontario and Alberta, affecting the speed of our turnaround. Impacts
from adverse weather conditions continue with current year
catastrophe losses of £77 million well above the 5-year historical
average of £58 million.
Priorities for 2019
• Our primary focus is to improve profitability across all lines of
business.
• We will diversify our products more towards commercial lines and
personal property.
• We will continue to invest in pricing analytics and claims
management.
EUROPE
Overview
Aviva has a focused approach in Europe with insurance operations
in France, Italy, Poland, Ireland and Turkey. In the year we have
completed our disposal of Spain and one of our joint ventures in
Italy and acquired Friends First in Ireland.
Our European markets are a major contributor to the Group,
providing a valuable source of diversification.
We have over 10 million customers and operate a multi-line model
across all our European businesses except for Turkey where we offer
life and savings products.
We are present in attractive markets where we have a competitive
advantage and ability to source skills. We believe this offers us clear
potential for future profitable growth.
We remain cognisant of low interest rates and challenging
regulatory environments, and believe we are well positioned to
succeed.
Adjusted operating profit1,2
Life
General insurance & health
Cash remitted to Group3,4
Expenses
Operating expenses3
Integration and restructuring costs
New business
Present value of new business premiums (PVNBP)3
Value of new business on an adjusted Solvency II basis
(VNB)3
General Insurance
Combined operating ratio (COR)3
Net written premiums (NWP)
2018
£m
2017
£m
831
220
1,051
873
223
1,096
447
485
847
—
847
820
36
856
12,641
12,065
517
533
93.4%
1,985
93.3%
2,018
All percentage movements below are quoted in constant currency
unless otherwise stated.
Overall adjusted operating profit1,2 in Europe was down by 5%
to £1,051 million (2017: £1,096 million). However excluding
disposals, adjusted operating profit1,2 grew 10% to £1,034 million
(2017: £944 million), driven primarily by our life businesses which
continue to grow revenue, improve product mix and focus on
expense efficiencies.
Profit
Adjusted operating profit1,2
France (excl. Antarius)
Poland
Italy (excl. Avipop)
Ireland
Other Europe (excl. Spain)5
Total (excl. Antarius,
Avipop, Spain)
Antarius
Avipop
Spain
Total adjusted operating
profit1,2
2018
£m
436
170
156
44
10
816
—
6
9
831
Life
General insurance & health
2017
£m
403
156
136
33
12
740
22
32
79
873
2018
£m
110
20
32
56
—
218
—
2
—
220
2017
£m
104
21
26
53
—
204
—
19
—
223
1 Adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section, note 5
‘Segmental Information’ and ‘Other Information’ within the Annual report and accounts for further information
2 The amounts shown above in respect of adjusted operating profit and profit before tax attributable to shareholders’ profits do not reconcile to the corresponding amounts in note 5 – ‘Segmental information’ within the Annual
report and accounts due to the reclassification of Other operations to Other Group activities.
3 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APMs, including a reconciliation to the financial statements
(where possible), can be found in the ‘Other Information’ section of the Annual report and accounts.
4 Cash remitted to Group is managed at legal entity level. As Ireland constitutes a branch of the United Kingdom business, cash remittances from Ireland are not aligned to our management structure within Europe, but they are
reported within the United Kingdom
Includes Turkey.
5
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Market review
Continued
Excluding the impact of disposals, the adjusted operating profit1,2 of
our life businesses grew by 10% to £816 million (2017: £740 million).
Dealing with each of the markets in turn:
• In France, adjusted operating profit1,2 was up 7% to £436 million
(2017: £403 million), due to increase in new business volumes of
our unit-linked savings products.
• In Poland, adjusted operating profit1,2 was £170 million (2017:
£156 million), an increase of 8% as a result of the favourable
impact of equity market movements on assets under
management3 increasing fee income and an improved mix
towards protection business.
• In Italy, adjusted operating profit1,2 was £156 million (2017:
£136 million), an increase of 14% with significant net inflows
mainly driven by an increase in new business volumes of our
hybrid product.
• In Ireland, adjusted operating profit1,2 increased to £44 million
(2017: £33 million), an increase of 31% mainly driven by the
acquisition of Friends First, longevity releases and asset mix
optimisation on the annuity book, partially offset by lower sales of
annuity products.
• In Turkey, adjusted operating profit1,2 was lower at £10 million
(2017: £12 million), due to adverse foreign exchange movements.
However on a constant currency basis, profits were up 8% due to
growth in protection products.
Excluding disposals, the adjusted operating profit1,2 of our General
insurance businesses grew by 6% to £218 million (2017:
£204 million). Dealing with each of the markets in turn:
• In France, adjusted operating profit1,2 was £110 million (2017:
£104 million), an increase of 5%, due to growth, particularly in
commercial lines, turnaround of the health business and expense
efficiencies, partially offset by higher large losses and weather-
related claims.
• In Poland, adjusted operating profit1,2 was £20 million (2017:
£21 million) with the slight decrease mainly due to motor business
with improved performance in other lines of business.
• In Italy, adjusted operating profit1,2 increased to £32 million (2017:
£26 million) mainly driven by claims management actions on the
motor book.
• In Ireland, adjusted operating profit1,2 increased to £56 million
(2017: £53 million) driven by improvements to product mix and
higher earned premiums, partially offset by an increase in large
claims.
Profit before tax attributable to shareholders’ profits2 has reduced
to £995 million (2017: £1,044 million) as a result of lower profits on
disposal compared to 2017, partially offset by lower adverse
investment variances and economic assumption changes.
Cash
Cash remitted to the Group3,4 was £447 million (2017: £485 million).
Higher dividends from France and Poland were offset by Italy, where
the dividend was withheld to withstand the volatile market
conditions experienced in the year.
Expenses
Total operating expenses3 were up 2% to £847 million (2017:
£820 million) due to the inclusion of the Friends First business in
Ireland for the first time and the absorption of integration costs into
operating expenses3 in 2018, partly offset by a reduction due to the
disposal of our Spanish businesses. Excluding these items,
operating expenses3 are flat year on year.
New business
Excluding disposals, PVNBP3 was up by 20% to £12,625 million
(2017: £10,552 million) and VNB3 increased by 13%. In Italy VNB3
growth of 36% was mainly due to continued growth in sales of our
hybrid savings product. In France, PVNBP3 was up 6% reflecting
growth in sales of savings products, although VNB3 was down 4%
primarily due to reduced protection volumes and new business
margin reflecting increased competition in this market.
Net written premiums (NWP)
Excluding Avipop, NWP was broadly flat with growth in France offset
by decreases in Poland, Italy and Ireland, as we maintained strong
underwriting discipline. In France, NWP grew to £1,118 million (2017:
£1,053 million) with growth mainly in commercial lines. In Poland,
NWP decreased by 10% to £106 million (2017: £117 million)
reflecting a change in product mix from bancassurance business. In
Italy, NWP decreased by 7% due to continued underwriting action
taken on segments of the motor book. In Ireland, NWP was down
2% mainly due to rate reductions in a softening motor market.
Combined operating ratio (COR)3
Excluding the disposal of Avipop, COR3 in Europe has improved by
0.4pp to 93.5% primarily reflecting an improved performance in Italy
as underwriting action on the motor book takes effect.
Operational highlights
• In 2018, we completed the sale of our shareholdings in Caja
Murcia Vida, Caja Granada Vida and Pelayo Vida, concluding the
exit of our Spanish businesses. In Italy, we completed the sale of
our shareholdings in Avipop Assicurazioni S.p.A and Avipop Vita
S.p.A. (collectively known as Avipop) in March 2018. In Ireland, we
completed our acquisition of Friends First Life Assurance
Company in June 2018.
• In France we achieved strong profit growth and continued to
outperform the market by shifting our product mix towards
capital-efficient unit-linked products. In 2018, we realigned under
a single brand and made it easy for our customers to get the same
products at the same price no matter which distribution channel
they choose. We were also the first insurer to be granted a license
to transfer our pensions business into a supplementary
occupational pension fund (known as FRPS), improving our
capital efficiency and providing a unique offering to retirement
and pensions customers.
• In Italy our hybrid product continued to be highly successful,
supported by our continued innovation and top performing
funds, driving strong value of new business on an adjusted
Solvency II basis (VNB)3 growth and net flows in the Group.
• Our Polish business has experienced profit growth due mainly to
positive macroeconomic factors and supported by a strong
reputation in the market. MyAviva platform has increased both
the unique user base and the number of online transactions. The
Santander relationship in Poland has been improved and there is
a good level of growth from ING Poland.
1 Adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section, note 5
‘Segmental Information’ and ‘Other Information’ within the Annual report and accounts for further information
2 The amounts shown above in respect of adjusted operating profit and profit before tax attributable to shareholders’ profits do not reconcile to the corresponding amounts in note 5 – ‘Segmental information’ within the Annual
report and accounts due to the reclassification of Other operations to Other Group activities.
3 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APMs, including a reconciliation to the financial statements
(where possible), can be found in the ‘Other Information’ section of the Annual report and accounts.
4 Cash remitted to Group is managed at legal entity level. As Ireland constitutes a branch of the United Kingdom business, cash remittances from Ireland are not aligned to our management structure within Europe, but they are
reported within the United Kingdom
Aviva plc Annual report and accounts 2018
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Market review
Continued
• In Ireland we completed the acquisition of Friends First and
made significant progress with the integration. The integration
programme is ahead of expectations with benefits in 2018
continuing in 2019 and 2020. Our strong brand continued to
shine as we achieved the most trusted insurance brand of 20181.
• In Turkey we developed a new distribution model, launched in
February 2019, that allows our direct sales force to sell general
insurance and health products, manufactured by other insurers,
alongside Aviva life insurance products
Market context and challenges
• In France we offer a full range of life, general insurance, protection
and health insurance products with strength in distribution
through AFER, the number 1 savers association2, UFF the number
2 financial adviser network2 and through our number 2 direct
general insurance business2. In late 2018 the French government
proposed new laws that seek to shift savings and investment
towards the real economy, bringing about further opportunities
for our savings and retirement business.
• In Italy we offer life, general and health insurance, with
distribution through two major bancassurance partnerships,
multi-agents and independent financial advisers. Political
uncertainty and a change of government have caused volatility in
financial markets.
• In Poland we are one of the leading life insurers3 with one of the
largest tied agent salesforces on the market. We provide general
insurance distributed through a direct sales network, financial
advisers and two key bancassurance partnerships.
• In Ireland we are a market leading composite insurer4, and
continue to benefit from a strong macroeconomic environment
with high GDP and low unemployment. Despite softening in the
general insurance market, we achieved a 92% combined
operating ratio (COR)5 demonstrating the strength of our
underwriting capability.
• In Turkey we have a life insurance business through our joint
venture with Sabanci. Our business has responded well to the
political instability and financial volatility in the second half of
2018.
Priorities for 2019
• In France we will leverage the benefits of our single brand with
focus on four customer propositions (digital, professionals,
affluent and partnerships). We will also look to strengthen our
broker distribution and develop savings solutions aligned to
customer needs and the real economy, continuing to shift our
product mix towards unit-linked products and grow our
protection business.
• In Italy we will focus on brand awareness, growing the non-motor
general insurance business in an under-penetrated market; invest
in our direct channel to drive forward our new SME propositions,
and continue growth in hybrid sales.
• In Poland we remain focused on digitising through both self-
service and IFA platforms. We will continue expansion of
bancassurance partnerships with additional product launches in
pipeline and also look to exploit profitable and growing niches in
group life business and commercial lines general insurance.
• In Ireland we will focus on delivering the benefits of a strong
combined life insurance business with the integration of Friends
First. In particular, we will invest in new propositions and
improved customer journeys to meet the changing needs of our
customers. We will maintain a market leading position in general
insurance by leveraging our best-in-class underwriting, pricing
and indemnity management capabilities, and will continue to
invest in digitisation to improve efficiency and our customer
experience.
• In Turkey we will closely monitor the impact of current political
and financial uncertainty and take action where required. We will
simplify our portfolio and implement cross-sell initiatives to
maximise the potential of our partnership with Sabanci.
1 Aviva Global Brand Tracker Quarter 4 2018 – Ireland
2 AFER website, UFF website and French Insurance Federation
3 Polish Insurance association.
4
5 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APMs, including a reconciliation to the financial statements
Insurance Ireland Industry Statistics, GI and Milliman Temperature Gauge, Life.
(where possible), can be found in the ‘Other Information’ section of the Annual report and accounts.
Aviva plc Annual report and accounts 2018
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Other information
Other information
Market review
Continued
Asia
Overview
We are focused on six key markets: four large populous nations
China, India, Indonesia and Vietnam, and two advanced regional
wealth management centres in Hong Kong and Singapore. These
markets provide an accessible population of over 3 billion people
with relatively low insurance penetrations compared to more
developed Western markets. This offers us tremendous growth
opportunities in the region.
We currently provide life and health insurance solutions to over 4.5
million customers across our markets in Asia and a multi-product
offering including general insurance in Singapore. We operate a
multi-distribution strategy which includes tied agency, financial
advisers, bancassurance, digital, affinity partnerships, telemarketing
and direct sales force.
Our core strategy is to disrupt current market practices by placing
a greater emphasis on our customers and offering products,
individually or in tailored combinations, to meet their preferences
to create real value.
Investment in Asia’s distribution, digital and analytics capabilities
continued throughout 2018. Singapore continues to grow its
distribution network, including our financial adviser subsidiaries Aviva
Financial Advisers with 816 (2017: 673) advisers and Professional
Investment Advisory Services with 724 (2017: 593) advisers on board.
Aviva-COFCO, our joint venture in China, posted a modest growth in
adjusted operating profit1,3 amid regulatory tightening and an economic
slowdown. In Hong Kong, we launched Blue, our new digital life joint
venture with Tencent and Hillhouse in September 2018, which is
expected to disrupt the insurance market. Aviva Vietnam, which is now
a wholly owned subsidiary, is accelerating its business via a stronger
partnership with Vietinbank. In 2018, we also completed the sale of our
entire 49% shareholding in a joint venture in Taiwan.
Financial performance
Adjusted operating profit1,3
Life
General insurance & health
Cash remitted to Group2
Expenses
Operating expenses2,4
Integration and restructuring costs
2018
£m
2017
£m
300
(16)
284
235
(8)
227
6
—
186
—
186
207
—
207
New business
Present value of new business premiums (PVNBP)2
Value of new business on an adjusted Solvency II basis (VNB)2
2,656
189
2,719
162
General Insurance
Combined Operating Ratio (COR)2
Net written premiums (NWP)
122.1% 123.2%
13
13
All percentage movements below are quoted in constant currency
unless otherwise stated.
Profit
Adjusted operating profit1,3
Life adjusted operating profit1,3
Singapore
Other Asia (excl. FPI, Taiwan)
Total (excl. FPI, Taiwan)
General insurance & health adjusted operating
profit1,3
Total adjusted operating profit1,3 (excl. FPI, Taiwan)
FPI5
Taiwan6
Total adjusted operating profit1,3
2018
£m
141
8
149
(16)
133
151
—
284
2017
£m
118
(3)
115
(8)
107
119
1
227
Adjusted operating profit1,3 from our life and general insurance and
health businesses was £284 million (2017: £227 million). Excluding
FPI and Taiwan, life adjusted operating profit1,3 increased by 31% to
£149 million (2017: £115 million). Within this, Singapore’s adjusted
operating profit1,3 improved by 21% to £141 million (2017: £118
million), which was mainly due to a higher contribution from the
financial advisory channel. Improved results in China, Indonesia and
Vietnam were partly offset by the initial set up costs of Blue in Hong
Kong. Life adjusted operating profit1,3 for FPI improved from £119
million to £151 million as a result of improved operational
performance and cost reductions.
The general insurance and health business reported a £16 million
adjusted operating loss1,3 (2017: £8 million loss) as a result of higher
claims experience in our health business in Singapore. Management
has identified a number of actions, including re-pricing, product
design changes and cost containment measures to improve the
portfolio performance. These remediation actions have
commenced in 2018 and will continue throughout 2019.
Profit before tax attributable to shareholders’ profit3 of £101 million
has increased from a loss of £146 million in 2017, due in part to the
improved adjusted operating profit1,3 and also to the non-
recurrence of the £118 million initial remeasurement loss
recognised on FPI in 2017.
Cash
Cash remitted to Group2 in 2018 was £6 million (2017: £nil) as the
successful progress of our business in Singapore has allowed the
business to resume paying a dividend.
Expenses
Total operating expenses2 for Asia were £186 million (2017: £207
million). Excluding FPI, operating expenses2 were £143 million (2017:
£150 million). The decrease is mainly as a result of cost saving
initiatives as well as lower project development and IT costs.
New business
Gross of tax and non-controlling
interests
Singapore
Other Asia
2018
£m
1,279
929
Total (excl. FPI, Taiwan) 2,208
FPI5
Taiwan6
448
—
PVNBP
2017
£m
1,164
930
2,094
467
158
2018
£m
152
39
191
(2)
—
VNB2 New Business Margin
2017
£m
2018
%
2017
%
123 11.9% 10.6%
4.0%
4.2%
38
161
8.6%
7.7%
(6) (0.3)%
—
7
(1.2)%
4.4%
Total
2,656
2,719
189
162
7.1%
6.0%
1 Adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section, note 5
‘Segmental Information’ and ‘Other Information’ within the Annual report and accounts for further information
2 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APMs, including a reconciliation to the financial statements
(where possible), can be found in the ‘Other Information’ section of the Annual report and accounts.
3 The amounts shown above in respect of adjusted operating profit and profit before tax attributable to shareholders’ profits do not reconcile to the corresponding amounts in note 5 – ‘Segmental information’ within the Annual
report and accounts due to the reclassification of non-insurance business to Other Group activities.
4 Operating expenses relate to subsidiaries and exclude joint ventures.
5
6
In July 2017, Aviva announced the sale of Friends Provident International Limited (FPI). The subsidiary has been classified as held for sale from July 2017, when management were committed to a plan to sell the business.
In 2018 Aviva completed the sale of our entire 49% shareholding in a joint venture in Taiwan.
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Other information
Other information
Market review
Continued
While PVNBP1 has remained stable at £2,656 million in 2018,
estimated VNB1 increased by 18% to £189 million (2017: £162
million). Excluding FPI and Taiwan, VNB1 increased 22% to £191
million (2017: £161 million), primarily driven by Singapore where
higher new business volumes from the financial advisory channel
and an improved product mix towards protection products
improved VNB1 to £152 million (2017: £123 million).
Market context and challenges
We continue to believe that the long-term favourable trends of the
emerging middle-class, increasing awareness of retirement
planning and a growing market in healthcare will persist across the
region. We also believe Asia will continue to outperform other
markets in insurance growth towards 2020. Rising interest rates
could also potentially benefit life insurers.
Net written premiums (NWP) and combined operating ratio (COR1)
General insurance NWP were flat at £13 million (2017: £13 million).
The general insurance COR1 improved by 1.1pp to 122.1%
(2017: 123.2%) as a result of improved claims experience.
Operational highlights
• In May 2018, we were the first and only insurer in Singapore to
launch eCall assistance service in collaboration with Bosch for
our motor clients. This eCall assistance is expected to be quicker
by 40% compared to the average emergency response
• In July 2018, we launched Aviva’s global data science practice in
Singapore, Quantum Asia Hub, to use data and technology to
better understand customer experience and provide tailored
products and services to help our customers manage uncertainty
• We launched Blue, our digital insurance joint venture with
Hillhouse Capital and Tencent in Hong Kong, in September 2018
to fundamentally change the traditional insurance market with
zero commission, no intermediaries and easy-to-use, digital
insurance.
Asia is experiencing rapid growth in internet, social media and
mobile activity, and China is leading in the technology revolution
and digital applications. Today, digital has become an essential part
of our daily lives and we are strongly encouraged by the Asian
governments’ support of Fintech and consumers’ continued rapid
adoption.
Priorities for 2019
• We will continue to invest in our independent financial adviser
model in Singapore to accelerate growth while looking to capture
similar opportunities in other Asian markets
• We will continue to invest in our digital capabilities which will help
us to drive customer engagement, improve customer experiences
and increase operational efficiency
• We will further embrace the True Customer Composite model in
Asia to serve our customers in life, health, general insurance and
asset management
• Our focus in China is to accelerate growth by enhancing our
agency programme and geographical branch expansion
• We will continue to implement remediation actions to improve
the portfolio performance of our health business in Singapore.
1 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APMs, including a reconciliation to the financial statements
(where possible), can be found in the ‘Other Information’ section of the Annual report and accounts.
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Other information
Other information
Market review
Continued
Aviva Investors
Overview
We are Aviva’s global asset management business with expertise
in multi-asset, fixed income, equity, real assets and solutions.
We currently invest £331 billion on behalf of our customers across
a number of major markets. This gives us the size and scale to
successfully seek out opportunities that will deliver specific
investor outcomes.
Aviva Investors’ strategy is to be a global leader in outcome-
orientated solutions. Being an integral part of the Group, we provide
asset management services and solutions to both internal and
external customers, while at the same time building our external
base of institutional and wholesale clients around the world.
We combine our insurance heritage and DNA with our skills and
experience in asset allocation, portfolio construction and risk
management to provide asset management solutions to
institutional, wholesale and Aviva’s end retail clients. These
solutions deliver the investment outcomes clients are looking for.
In a world of low interest rates and Solvency II, we provide the
solutions for investors to achieve the returns they need. We offer
solutions to the Group and external investors alike.
Financial performance
Revenue: Fee income
Expenses
Operating expenses2
Integration and restructuring costs
Adjusted operating profit1,2
Fund management
Other operations
Assets under management2
Cash remitted to Group2
2018
£m
597
447
—
447
150
—
150
2017
£m
577
409
3
412
168
32
200
331bn
351bn
92
58
We continue to invest in growing our investment capabilities across
all asset classes and propositions, particularly in strengthening
Equities. During the year, we created a new Real Assets division,
focused on direct real estate and infrastructure investing. We further
expanded our distribution capability, particularly in the US. As a
result, we have experienced new business wins across a broader
range of products, creating a more diversified client base.
Revenue
Revenue increased by 4% to £597 million (2017: £577 million) driven
by sales across the business including £2.3 billion of Stewardship
fund assets in 2018 which were previously externally managed.
Expenses
Operating expenses2 in Aviva Investors were £447 million (2017:
£409 million). The increase in expenses reflects our investment in
our front office capabilities and expanded distribution reach. It also
reflects increased costs due to regulatory changes.
Profit
Fund management adjusted operating profit1 decreased by
£18 million to £150 million (2017: £168 million) due to continued
investment in capabilities (equities and real assets), expansion of
our global distribution reach and absorption of regulatory costs
(particularly MiFID II) which we did not pass on to our clients. Profit
before tax attributable to shareholders’ profit has reduced to
£170 million (2017: £188 million) due to the lower fund management
adjusted operating profit1. £32 million of insurance recoveries
included in 2017 adjusted operating profit1 are largely offset by the
2018 gain on disposal recognised on the transfer of the Real Estate
Multi-Manager business and our interest in the management of a
pan-European commercial property fund to another leading real
estate global asset manager3.
Cash
Cash remitted to Group2 was £92 million in 2018, an increase of
£34 million from 2017 (2017: £58 million).
Assets under management and under administration2
Assets under management2 represents all assets managed by Aviva
Investors. These comprise Aviva (internal) assets which are included
within the Group’s statement of financial position and those
belonging to external clients outside the Aviva Group which are
therefore not included in the Group’s statement of financial
position. These assets under management2 exclude those funds
that are managed by third parties. Assets under administration2
comprise assets managed by Aviva Investors and by third parties
on platforms administered by Aviva Investors.
Assets under management2 decreased by £20.0 billion to
£330.7 billion (2017: £350.7 billion) during the period. This is due to
£6.3 billion of disposals3, £12.4 billion adverse market and foreign
exchange movements and £1.3 billion net outflows. Assets under
management and administration2 at 31 December 2018 were
£359.8 billion (2017: £381.2 billion).
Operational highlights
• We took a decision to strengthen our Equity team in 2018. David
Cumming was hired to head the area and we added an additional
14 portfolio managers to bolster both our standalone Equity
propositions and idea generation for our multi-asset solutions.
• We created an integrated Real Assets business in May, combining
our Real Estate and Alternative Income Solutions functions. We
are already at a position of strength, as we have a long history in
this area and £40 billion of assets under management2. With
global allocations to private assets expected to double by 2025,
we now have the right structure in place to deliver opportunities
for clients.
• As part of the integration of our Real Assets business, we
transferred our indirect Real Estate Multi-Manager business and
our interest in the management of a pan-European commercial
property fund to another leading real estate global asset
manager.
• We successfully onboarded the management of £2.3 billion in
Stewardship funds in 2018, which had previously been
outsourced.
• We also created a new solutions function under Al Denholm,
focused on insurance solutions and environmental, social
thinking and governance (ESG) capabilities while working across
our broad capability set to deliver tailored outcome-orientated
solutions for the Group and external clients.
1 Adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section, note 5
‘Segmental Information’ and ‘Other Information’ within the Annual report and accounts for further information
2 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APMs, including a reconciliation to the financial statements
(where possible), can be found in the ‘Other Information’ section of the Annual report and accounts.
3 On 5 November 2018, Aviva Investors completed the sale of an indirect Real Estate Multi-Manager business and our interest in the management of a pan-European commercial property fund to another leading real estate
global asset manager.
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Market review
Continued
Market context and challenges
Brexit uncertainty continues to present challenges for the asset
management industry. We continue to plan for all eventualities
but believe Aviva Investors is already well placed both globally,
and particularly within Europe, as we have a significant and long-
standing established presence in France, Luxembourg and Poland.
Our preparations are also well underway for the outcomes of the
FCA’s Asset Management Market Study and the Senior Manager
and Certification Regime.
Market conditions have been volatile due to uncertainty around
Brexit and growing trade tensions between the US and the rest of
the world. This led to investment performance in certain areas of
the business not meeting expectations. We have however taken
steps to enhance our investment capabilities in 2018, including
adding additional resource to our Multi-Asset team and investing
heavily in our Equities capability, primarily to enhance our equity
performance but also idea generation into our broader solutions
including AIMS. We believe we are at something of an inflection
point in markets as the period of quantitative easing draws to a
close and we transition to an environment of quantitative
tightening. We expect global growth to ease in 2019.
In a slowing growth environment, market participants are likely to
focus even more on the downside risks. That should provide a basis
for positive, but likely mixed returns across risk assets.
Priorities for 2019
We will continue to build our investment capabilities, while also
selectively diversifying our business. Our key focus is on enhancing
investment returns for our clients. We will do this by:
• Building our Real Asset manufacturing capability across Europe
• Continuing to invest in our Equity proposition to add value to our
Multi-Asset propositions
• Continuing to build our solutions business. Our insurance DNA for
both the Group and our external clients should help us win in this
space
• Continuing to build out our distribution efforts in key markets
including third party insurers and partnerships with global
financial institutions
• Continuing to simplify and streamline our operating model
delivering a single Middle office, reducing fund complexity and
using proprietary digital tools as a foundation to enhance our
client and staff experience.
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Types of risk inherent to our business model
Risks customers transfer to us
• Life insurance risk includes longevity risk (annuity customers
living longer than we expect), mortality risk (customers with life
protection), critical illness risk, expense risk (the amount it costs
us to administer policies) and persistency risk (customers lapsing
or surrendering their policies)
• General insurance risk is the risk arising from loss events (fire,
flooding, windstorms, accidents etc)
• Accident and Health insurance risk covers healthcare costs and
loss of earnings arising from customers falling ill
Risks arising from our investments
• Credit risks (actual defaults and market expectation of defaults)
create uncertainty in our ability to offer a minimum investment
return on our investments
• Liquidity risk is the risk of not being able to make payments as
they become due because there are insufficient assets in cash
form
• Market risks result from fluctuations in asset values, including
equity prices, property prices, foreign exchange, inflation and
interest rates
Risks from our operations and other business risks
• Operational risk is the risk of direct or indirect loss, arising from
inadequate or failed internal processes, people and systems, or
external events including changes in the regulatory environment
• Asset management risk is the risk of customers redeeming funds,
not investing with us, or switching funds, resulting in reduced fee
income
Risk and risk management
Risk and risk
management
Risk management is key to Aviva’s success. We accept the risks
inherent to our core business lines of life, general, health and
protection and asset management. We diversify these risks through
our scale, geographic spread, the variety of the products and
services we offer and the channels through which we sell them.
We receive premiums which we invest to maximise risk-adjusted
returns, so that we can fulfil our promises to customers while
providing a return to our shareholders.
In doing so we have a preference for retaining those risks we believe
we are capable of managing to generate a return.
Looking forward, these risks may be magnified or dampened by
current and emerging external trends (for example, climate change,
cyber crime and political risks, such as Brexit) which may impact
upon our current and longer term profitability and viability, in
particular our ability to write profitable new business.
This includes the risk of failing to adapt our business model to take
advantage of these trends. The ‘Principal risk trends and causal
factors’ table in this section describes these trends, their impact,
future outlook and how we manage these risks.
How we manage risk
Rigorous and consistent risk management is embedded across the
Group through our Risk Management Framework, comprising our
systems of governance, risk management processes and risk
appetite framework.
Our governance
This includes risk policies and business standards, risk oversight
committees and roles and responsibilities. Line management in the
business is accountable for risk management which, together with
the risk function and internal audit, form our ‘three lines of defence’.
The roles and responsibilities of the Board Governance, Audit and
Risk Committees and management’s Disclosure, Asset Liability and
Operational Risk Committees in relation to the oversight of risk
management and internal control is set out in the ‘Directors’ and
corporate governance report’ in the Annual report and accounts.
Our process
The processes we use to identify, measure, manage, monitor and
report risks, including the use of our risk models, and stress and
scenario testing, are designed to enable dynamic risk-based
decision-making and effective day-to-day risk management. Having
identified and measured the risks of our business, depending on our
risk appetite, we either accept these risks or take action to reduce,
transfer or mitigate them.
Our risk appetite framework
This refers to the risks that we select in pursuit of return on capital
deployed, the risks we accept but seek to minimise and the risks we
seek to avoid or transfer to third parties, including quantitative
expressions of the level of risk we can support (e.g. the amount of
capital we are prepared to put at risk).
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Risk and risk management
Continued
Principal risk types
The types of risk to which the Group is exposed, described in the table below, have not changed significantly over the year. All of the risks
below, and in particular operational risks, may have an adverse impact on our brand and reputation.
Risk type
Risk preference
Mitigation
Credit risk
• Credit spread1
• Credit default
Market risk
• Equity price1
• Property
• Interest rate
• Foreign exchange
• Inflation
Life insurance risk
• Longevity1
• Persistency
• Mortality
• Expenses
General insurance
risk
• GI catastrophe
• GI reserving (latent
and non-latent)
• GI underwriting
• Expenses
Liquidity risk2
Asset management
risk
• Fund liquidity,
performance and
margin, Product,
and Persistency
risks
Operational risk
• Conduct
• Legal & regulatory
• People
• Process
• Data security
• Technology
We like credit risk as we believe
we have the expertise to manage
it and the structural investment
advantages conferred to insurers
with long-dated, relatively illiquid
liabilities enable us to earn
superior investment returns.
We actively seek some market
risks as part of our investment
and product strategy. We have a
limited appetite for interest rate,
foreign exchange and inflation
risks as we do not believe that
these are adequately rewarded.
We take measured amounts of life
insurance risk provided we have
the appropriate core skills in
underwriting and pricing. We like
longevity risk as it diversifies well
(i.e. has little or no correlation
against other risks we retain).
We take general insurance risk in
measured amounts for explicit
reward, in line with our core skills
in underwriting and pricing. We
have a preference for those risks
that we understand well, that are
intrinsically well managed and
where there is a spread of risks in
the same category. GI risk
diversifies well with our Life
Insurance and other risks.
The relatively illiquid nature of
insurance liabilities is a potential
source of additional investment
return by allowing us to invest in
higher yielding, but less liquid,
assets such as commercial
mortgages.
Operational risks specific to asset
management should generally be
reduced to as low a level as is
commercially sensible, on the
basis that taking on these risks
will rarely provide us with an
upside.
• Risk appetites set to limit overall level of credit risk
• Credit limit framework imposes limits on credit concentration by issuer,
sector and type of instrument
• Investment restrictions on certain sovereign and corporate exposures
• Credit risk hedging programme
• Specific asset de-risking
• Risk appetites set to limit exposures to key market risks
• Active asset management and hedging in business units
• Scalable Group-level equity and foreign exchange hedging programme
• Pension fund active risk management
• Asset and liability duration matching limits impact of interest rate changes
and actions taken to manage guarantee risk, through product design
• Risk selection and underwriting on acceptance of new business
• Aviva’s staff pension scheme longevity swap covering approximately
£5 billion of pensioner-in-payment scheme liabilities
• Product design that ensures products and propositions meet customer
needs
• Use of reinsurance to mitigate mortality/morbidity risks and, since 2016,
longevity risk for bulk purchase annuities and guaranteed annuity options
• Use of reinsurance to reduce the financial impact of a catastrophe and
manage earnings volatility
• Application of robust and consistent reserving framework to derive best
estimate with results subject to internal and external review, including
independent reviews and audit reviews
• Extensive use of data, financial models and analysis to improve pricing and
risk selection
• Underwriting appetite framework linked to delegations of authority that
govern underwriting decisions and underwriting limits
• Product development and management framework that ensures products
and propositions meet customer needs
• Formal and documented claims management procedures
• Maintaining committed borrowing facilities (£1.65 billion) from banks
• Asset liability matching methodology develops optimal asset portfolio
maturity structures in our businesses to ensure cash flows are sufficient to
meet liabilities
• Commercial paper issuance
• Use of our limit framework covering minimum liquidity cover ratio and
minimum central liquidity
• Contingency funding plan in place to address liquidity funding requirements
in a significant stress scenario
• Product development and review process
• Investment performance and risk management oversight and review process
• Propositions based on customer needs
• Client relationship teams managing client retention risk
Operational risk should generally
be reduced to as low a level as is
commercially sensible, on the
basis that taking operational risk
will rarely provide us with an
upside.
• Application of enhanced business standards covering key processes
• Our Operational Risk & Control Management Framework which includes the
tools, processes and standardised reporting necessary to identify, measure,
manage, monitor and report on the operational risks and the controls in
place to mitigate those risks within centrally set tolerances
• Enhanced scenario-based approach to determine appropriate level of capital
to be held in respect of operational risks
• On-going investment in simplifying our technology estate to improve the
resilience and reliability of our systems and in IT security to protect ours and
our customers’ data
1 Top three risks ranked by diversified Solvency II Solvency Capital Requirement
2 Not quantifiable in terms of economic capital
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Risk and risk management
Continued
Principal risk trends and causal factors
This table describes the external trends and causal factors impacting our inherent risks, their impact, future outlook and how we take
action to manage these risks:
Key trends and movement
Risk management
Outlook
Economic & credit cycle –
uncertainty over prospects for future
macroeconomic growth, credit and
interest rates, and the response of
Central Banks, could adversely
impact the valuation of our
investments or credit default
experience as well as the level of the
returns we can offer to customers.
Trend: Increasing
Risks impacted: Credit risk, Market
risks, Liquidity risk
UK-EU relations (Brexit
uncertainty) – there remains
considerable uncertainty over the
UK’s future relationship with the EU,
and the implications for economic
growth and productivity and in the
longer term for financial services
regulation, including Solvency II.
Trend: Volatile
Risks impacted: Credit risk,
Market risks, Operational risk
Changes in public policy – any
change in public policy (government
or regulatory) could influence the
demand for, and profitability of, our
products. In some markets there are
(or could be in the future) restrictions
and controls on premium rates,
rating factors and charges.
Trend: Volatile
Risks impacted: Operational risk
(developing the right strategy,
regulatory compliance)
Over the last few years we have taken significant
steps to reduce the sensitivity of our balance sheet
to investment risks. We aim to closely duration-
match assets and liabilities and take additional
measures to limit interest rate risk. We hold
substantial capital against market risks, and we
protect our capital with a variety of hedging
strategies to reduce our sensitivity to shocks. We
regularly monitor our exposures and employ both
formal and ad hoc processes to evaluate changing
market conditions. Other actions taken in the past
include reducing sales of products with
guarantees and shifting our sales towards
protection and unit-linked products.
Brexit is not expected to have a significant operational
impact on Aviva. We have been actively engaged to
ensure the interests of our customers, the Company
and the industry are appropriately taken into account.
We have addressed the loss of our ability to passport
business into the EU through insurance portfolio
transfers to our business in Ireland and expansion of
our business in Luxembourg to serve our EEA asset
management clients and funds. We have reviewed and
are amending contractual terms for data sharing and
transfers to allow continued uninterrupted flow of
personal data between our EU businesses and the UK.
Our Financial Event Response Plan ensures that we will
be able to respond swiftly and effectively to any severe
adverse financial event.
While interest rates are still well below pre-
financial crisis levels, during 2018 the US Federal
Reserve raised interest rates on four occasions,
in August the Bank of England raised its base
rate and in December the European Central
Bank ended its asset purchase programme.
While rates may remain below pre-2008 financial
crisis levels in the EU and UK for some time to
come, there is a risk that a rapid increase in rates
and a deterioration in companies’ fundamentals
could result in a re-rating of financial assets
leading to a collapse in bond prices, widening
spreads or credit defaults and reducing asset
prices.
UK Parliamentary approval of the EU Withdrawal
agreement remains uncertain and there are a
number of possible alternative outcomes
including departure from the EU without a deal,
deferral of the UK’s departure and a renegotiated
deal or even continuing membership of the EU
after a second referendum.
Uncertainty over UK-EU relations will continue
if as planned the UK withdraws on 29 March
2019, as the UK and EU start to negotiate their
future free trade agreement. While these
negotiations are intended to complete by
31 December 2020, the end of the transition
period under the withdrawal agreement, there
is a risk they may need to be extended.
We actively engage with governments and
regulators in the development of public policy and
regulation. We do this to understand how public
policy may change and to help ensure better
outcomes for our customers and the Company.
The Group’s multi-channel distribution and
product strategy and geographic diversification
underpin the Group’s adaptability to public policy
risk, and often provides a hedge to the risk. For
example, since the end of compulsory
annuitisation in 2015 in the UK we have
compensated for falling sales of individual
annuities by increasing sales of other life and
pension products including bulk purchase
annuities.
The UK government’s lack of parliamentary
majority and Brexit divisions could trigger a
general election and change of government
resulting in a shift in public policy with
consequences for the products we sell and our
investment strategy. Planned key UK regulatory
changes include Guaranteed Minimum Pension
equalisation, renewal pricing, Equity Release
Mortgage regulation, changes to the Ogden
rate and Whiplash Reform. In our other
markets: general elections will be held in
Canada and Poland in 2019; in France the Pacte
Law 1 will significantly change the French
savings market; and Italy-EU relations may
remain volatile over Italian fiscal policy.
New technologies & data – failure
to understand and react to the
impact of new technology and its
effect on customer behaviour and
how we distribute products could
potentially result in our business
model becoming obsolete. Failure to
keep pace with the use of data to
price more accurately and to detect
insurance fraud could lead to loss of
competitive advantage and
underwriting losses.
Trend: Increasing
Risks impacted: Operational risk
(developing the right strategy)
Aviva’s strategy is focused on transformation into
a digital leader by taking an enterprise-wide
approach to digital and automation, focused on:
[1] Digital customer centric propositions (e.g.
AvivaPlus) [2] A single view of the customer,
consolidating individual and company data on a
single platform [3] MyAviva, our digital portal for
customers and intermediaries [4] Quantum, our
data science practice facilitating market leading
innovation in use of data analytics to significantly
improve the customer journey (e.g. Ask it Never),
improve our understanding of how customers
interact with us, and improve underwriting
margins. Our Data Charter sets out our public
commitment to use data responsibly and securely.
Considerable work is going into modernising our
legacy infrastructure.
Data creation is likely to continue to grow,
while effective use of “Big data” through
artificial intelligence and advanced analytics
will increasingly become a critical driver of
competitive advantage for insurers, and subject
to increasing regulatory scrutiny.
The competitive threat to traditional insurers is
likely to increase with the potential for big
technology companies and low cost innovative
digital start-ups to enter the insurance market,
where previously underwriting capability, risk
selection and required capital have proven to
be a sufficient barrier to entry.
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Risk and risk management
Continued
Key trends and movement
Risk management
Outlook
Climate change – potentially
resulting in higher than expected
weather-related claims (including
business continuity claims) and
inaccurate pricing of general
insurance risk, as well as adversely
impacting economic growth and
investment markets.
Trend: Increasing
Risks impacted: General insurance
risk, Credit risk, Market risk
Medical advances and healthier
life styles – these contribute to an
increase in life expectancy of our
annuity customers and thus future
payments over their lifetime may be
higher than we currently expect.
Trend: Decreasing
Risks impacted: Life insurance risk
(longevity)
Cyber crime – criminals may
attempt to access our IT systems to
steal or utilise company and
customer data, or plant malware
viruses, in order to access customer
or company funds, and/or damage
our reputation and brand.
Trend: Increasing
Risks impacted: Operational risk
(fraud, business interruption)
Changes in customer behaviour –
will impact how customers wish to
interact with us and the product
offering they expect, including the
exercise of options embedded in
contracts already sold by us.
Trend: Stable
Risks impacted: Operational risk
(developing the right strategy,
regulatory compliance)
Outsourcing – we rely on a number
of outsourcing providers for business
processes, customer servicing,
investment operations and IT
support. The failure of a critical
outsourcing provider could
significantly disrupt our operations.
Trend: Increasing
Risks impacted: Operational risk
We are actively engaged in public policy debate
on the risks and impacts of climate change to
our business and customers. We use
reinsurance to reduce the financial impact of
catastrophic weather events. In the UK, our
flood mapping analytics helps us identify
properties most at risk and improve our risk
selection. Our responsible investment strategy
ensures climate change, as well as other
environmental and social issues are integrated
into our investment decisions. You can read
more about the physical, transition and liability
risks we face as an asset owner, insurer and
asset manager in our ‘Climate-related financial
disclosure’.
We monitor our own experience carefully and
analyse external population data to identify
emerging trends. Detailed analysis of the factors
that influence mortality informs our pricing and
reserving policies. We add qualitative medical
expert inputs to our statistical analysis and
analyse factors influencing mortality and trends
in mortality by cause of death. We also use
longevity swaps to hedge some of the longevity
risk from the Aviva Staff Pension Scheme and
longevity reinsurance for bulk purchase
annuities and guaranteed annuity options.
We are not complacent. We continue to invest
significantly in IT Security, introducing
additional automated controls to protect our
data, detect and prevent cyber-attacks. In
addition to implementing secure development
practices we employ our own ‘white hat’
hackers to regularly test our IT security
defences. We undertake regular activities with
our people to promote awareness of cyber and
data security, including: employee phishing
exercises, computer-based training and more
regular communications about specific threats
as they are identified.
Not only do we listen to our customers to
ensure we meet their needs, we also seek to
transform the customer experience through our
digital strategy, creating an effortless customer
experience. Our new vulnerable customer
policy recognises the needs of our less digitally
aware customers. For information on how we
are mitigating this risk through the execution of
Digital First and True Customer Composite
strategies refer to ‘Our strategy’.
Global average temperatures over the last five
years have been the hottest on record. Despite
the UNFCCC Paris agreement, the current trend
of increasing CO2e emissions is expected to
continue with global temperatures likely to
exceed pre-industrial levels by at least 2oC and
weather events (floods, droughts, windstorms)
increasing in frequency and severity. Disclosure
of potential impacts against various climate
scenarios and time horizons will become
increasingly common for all companies.
There is considerable uncertainty as to whether
the improvements in life expectancy that has
been experienced over the last 40 years will
continue into the future. Despite continued
medical advances emerging, dietary changes,
increasing obesity and strains on public health
services have begun to slow this trend, leading
in the UK to some significant industry-wide
longevity reserve releases in 2018, and in the
longer term may even result in a reversal in the
trend of increasing life expectancy.
In 2018 there continued to be several high
profile cyber security incidents for corporates in
the UK and elsewhere, and we expect this to
further increase in 2019 as the multiple threat
sources, including cyber criminals and rogue
states, become ever more sophisticated and
given the growing importance of digital
automation in business strategy. We will
continuously review the near-to-mid-term
threat environment to ensure that our cyber
investment remains appropriate to mitigate the
continued and changing nature of the cyber
threat.
We expect customers will be much more in
control, expecting to self-service and self-solve.
They will want to access data and insight and
use it to guide their own decisions. However, we
also expect regulatory scrutiny to increase to
ensure we continue to serve and treat fairly our
existing customers who are vulnerable and less
digitally aware.
Our businesses are required to identify business
critical outsourced functions (internal and
external) and for each to have exit and
termination plans and business continuity and
disaster recovery plans in the event of supplier
failure, which are reviewed annually. Business
continuity and disaster recovery plans are
subject to at least annual testing. We also carry
out supplier financial stability reviews at least
annually.
In 2018, the insolvency of Carillion, which was
not a direct supplier of services to Aviva, and
financial difficulties faced by other outsourcing
providers, as well as customer service issues
following the migration of our third party
provided investment platform has brought
added focus to this risk and we expect
regulatory scrutiny of outsourcing
arrangements to increase.
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Corporate responsibility
Corporate
responsibility
Defying uncertainty
Aviva’s purpose to Defy Uncertainty means helping our customers
look to the future with confidence. To do that we have to be a
responsible, sustainable business so that we can help protect and
improve the future for everyone.
Doing the right thing for our customers, our communities and the
wider society we serve underpins the long-term growth of our
business. We need a healthy planet, strong communities and a
sustainable global economy so that we can all continue to thrive.
As a result we are committed to helping tackle some of the world’s
most pressing social and environmental challenges, from the
implications of aging populations to climate change. We were
particularly proud this year to receive the UN Foundation’s
leadership award in recognition of our work to support the UN’s
Sustainable Development Goals (SDGs).
Putting the customer at the centre of everything we do
It all starts with helping our 33 million customers protect what’s
important to them and save for the future. In 2018 we paid out
£32.9 billion in benefits and claims around the world. We pay out
98%1 of all claims. We are improving our digital technology to pay
our customers more quickly and simplifying language so our
customers can better understand what their policy covers. We
have also enhanced our support for vulnerable customers.
Globally, we have 50 environmental and social products or
services which enable our customers to be more environmentally
responsible or gives them easier access to the protection they need
for themselves and their families.
For example, the ‘Build back better’ programme in Canada uses
10% of the total loss to commercial property to upgrade the rebuild
and ensure it is more resilient to prevent future losses. In Poland,
we launched an anti-smog campaign and funded 300 external air
quality sensors. Also in Poland, we extended our cover to include
cancer treatments during the early stages of the illness. In the UK,
we are working in partnership with a leading cancer charity to
speed up the handling of critical illness claims for cancer patients
from 60 days to just 24 hours.
During 2018, Aviva Ventures, our global capital investment business,
invested in a number of start-ups that have a positive social impact
such as Biofourmis, a personalised healthcare analytics platform
that uses Artificial Intelligence and Machine Learning to predict
health deterioration.
We work hard to offer great customer service and this is reflected in
our NPS score® which measures the likelihood of our customers to
recommend Aviva. Eight out of nine of our businesses are at or
above the market average which is an increase on last year. We have
renewed our strategic partnership with the British Red Cross (BRC)
for a further two years. Through this partnership, we have trained
our frontline service team in crisis response to better respond to our
customers’ personal emergencies (watch the video at
https://youtu.be/KRUDNSvmmfI). As a result, those who received
the psychosocial training from the BRC secured a 6% uplift in
customer satisfaction.
We know that we do not always get it right and we take any
complaints and feedback we receive seriously and investigate them
thoroughly. Our customer service commitment is reflected in the
Customer Experience Business Standard all our markets abide by
(see the policies section of www.aviva.com/social-purpose).
Making a difference in communities
The Aviva Community Fund (ACF) is now launched in ten markets
and helps local communities on a range of issues from social
inclusion and diversity to supporting small and medium enterprises
(SMEs) and water sanitation.
In 2018, we increased our community investment by 47%, totalling
£17.6 million (2017: £11.9 million), helping to benefit more than 1.5
million people and supporting over 3,000 local projects. We have
now helped over 7,000 projects since 2015, exceeding our target of
5,000 projects by 2020. Aviva France is incorporating La Fabrique
Aviva, their local version of ACF, into their Corporate and SME
strategy, offering discounts on essential insurances needed by start-
ups. ACF applications for funding in Canada are up almost 20%,
with more than 800 high-quality powerful social purpose projects
submitted.
Aviva’s people continue to make a difference in communities
around the world. Over 7,000 employees contributed more than
57,500 hours of volunteering time and gave or fundraised over
£2.1 million.
In 2018, through the British Red Cross partnership, our
#mapamillion campaign mapped buildings in North Indonesia
following the devastating earthquake and tsunami. In 2018 we
reached our goal of putting one million people on the map,
ensuring future aid work can be channelled to the point of need.
The Community Reserve Volunteer project aims to register 10,000
volunteers by the end of 2019 to support their local communities in
times of need. We have already signed up nearly 6,000 volunteers
including customers and our people. In 2019, we will increase the
impact of the Aviva Community Fund and BRC work across the
world and aim to support over 2.5 million beneficiaries through
our community activities by 2020.
Good governance and business ethics
We are committed to the highest standards of ethical behaviour as
outlined by our Business Ethics Code. This underscores our
commitment to operate responsibly and transparently. We require
all our people, at every level, to read and sign-up to our Code every
year (99% of our employees did so in 2018).
We have a zero-tolerance approach to acts of bribery and
corruption and to manage this we have a risk management
framework which sets policies and standards across all markets.
These policies and standards apply to everyone at Aviva and it is the
responsibility of CEOs (or equivalent) to ensure that their business
operates in line with them.
The Financial Crime Business Standard guides our risk-based
financial crime programmes. These seek to prevent, detect and
report financial crime, including any instances of bribery and
corruption, while complying fully with relevant legislation and
regulation. We use risk-based training to ensure employees and
others acting on Aviva’s behalf know what is expected of them and
how they should manage bribery and corruption risks.
1 The percentage was calculated by dividing all paid and rejected claims by the total number of claims received between 1 January and 31 December 2017. The figure includes all insurance product lines across all our
businesses and excludes benefits and pensions, which have a payout ratio of 100%. It also excludes invalid or incomplete claims, such as instances where claims were opened in error, abandoned or withdrawn by customers.
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Corporate responsibility
Continued
At a Group level, the Chief Risk Officer provides Aviva’s Board
Governance Committee with regular reporting on financial crime
matters. These include Aviva’s anti-bribery and anti-corruption
programme.
Our malpractice helpline, Speak Up, makes it easy to report any
concerns in confidence, with all reports referred to an independent
investigation team. In 2018, 50 cases were reported through Speak
Up (previously known as Right Call) (2017: 25), with zero related to
bribery and corruption concerns. 37 cases reached conclusion, and
13 remain under investigation. There has been no material litigation
arising from any case reported in 2018.
We conduct due diligence when recruiting and when engaging
external partners. In 2018, 82% of Group and UK managed suppliers
agreed to our Code of Behaviour (or had their own equivalent code
of behaviour) which requires compliance with all applicable
financial crime laws and regulations. In 2018, we engaged 95% of
our managed suppliers on corporate responsibility issues (including
modern slavery).
Our Board Governance Committee oversees our responsible and
sustainable business strategy and the policies that underpin it.
Aviva plc is subject to the UK Corporate Governance Code (the
Code), which we aim to comply with fully.
Details of the Company’s compliance with the Code can be found in
the Directors’ and Corporate Governance Report in the Annual
report and accounts and online at
www.aviva.com/investors/corporate-governance. The activities of
the Board Governance Committee can be found in the Governance
Committee Report in the Annual report and accounts.
We have assessed the environmental risks that we face as a
business. The most significant of these is the potential impact of
climate change on our customers’ lives and our company’s assets.
More detail can be found in this report in the ‘Risk and risk
management’ section and in ‘Our climate-related financial
disclosure’ section below.
We also manage the risks associated with our community
investment activities through the controls outlined in our
overarching Corporate Responsibility Business Standard. This
includes a governance framework for our charitable donations and
partnerships and details of how we manage the risks associated
with employee volunteering (for example, through safeguarding).
This standard is reviewed each year and communicated to all
Aviva businesses.
Caring more about human rights: Respecting human rights is the
right thing to do and it makes commercial sense. We support
initiatives such as the Corporate Human Rights Benchmark and
participate in forums, such as the UK Home Office ‘Business Against
Slavery’.
Our human rights policy (www.aviva.com/content/dam/aviva-
corporate/documents/socialpurpose/pdfs/policies-
responses/20171025-Human-Rights-Policy-Final.pdf) identifies our
main stakeholders as well as the most salient human rights issues
for our business. The scope of this policy is group-wide and sets out
the Group’s commitment to respect human rights.
Our approach to modern slavery is part our overall approach to
human rights. In 2018, we:
• Expanded the scope of our work to include Canada, Poland,
Ireland, France, Italy and Singapore. Procurement teams,
company secretaries, and corporate responsibility representatives
from these markets were briefed on our responsibilities regarding
modern slavery. We engaged our key suppliers in these markets
covering areas such as diversity and inclusion, awareness of the
1
Includes assessments, training, and other meaningful engagement with suppliers
Sustainable Development Goals (SDGs), human rights and
modern slavery issues
• Completed modern slavery threat assessments on eight suppliers
to include a review of recruitment processes, policies and
procedures. These assessments were carried out with two
suppliers in Singapore, two in Poland, and four in the UK across
the following services: car valeting, cleaning, media production
and digitisation
• Collaborated with the UN Global Compact as part of the UK
working group on modern slavery (which brings together peers
from across different industry sectors to share information to
support our work in tackling modern slavery). We peer-reviewed
participants’ modern slavery statements, received training and
shared experiences from within civil society and government
organisations
• Contributed to the review of the Modern Slavery Act (MSA) 2015
commissioned by the UK Government to strengthen and enhance
the current legislation. We participated in a number of high level
forums in 2018, including a workshop organised by the Home
Office and the Modern Slavery Review Secretariat 2015. Our Group
Company Secretary also participated in the UN Forum on
Business and Human Rights in Geneva to discuss due diligence,
emerging practice and challenges to accelerate progress and
support survivors.
We have adopted the following performance indicators to track
Aviva’s impact on preventing modern slavery issues.
Number of cases of modern slavery discovered at Aviva or in our
supply chain
Number of risk of modern slavery assessments conducted on
suppliers
2018
—
8
From 2019, we will also report on two additional KPIs: % of supplier
and contract owners in Aviva that have received training on modern
slavery during the year and number of suppliers engaged by Aviva
that declare they have improved their management of MSA risks as
a result of this engagement1.
For our complete modern slavery statement, please see:
www.aviva.com/modernslaverystatement
Towards a more sustainable future
Responsible investment is central to the way we deliver on Aviva’s
values to care more and create legacy. We use Environmental,
Social and Governance (ESG) insight to re-orientate capital away
from short-term thinking and actively promote good practice
among the companies in which we invest. We aim to identify and
reduce ESG risks in our portfolios by understanding the quality of
the Board of directors of a company and its strategy on issues, such
as climate change, human rights or the Living Wage. This helps us
gauge how well prepared they are to deal with current or emerging
ESG issues.
We believe the UN Sustainable Development Goals (SDGs) can
guide us, our customers and society towards a brighter, more
sustainable future. In September 2018 Aviva launched the World
Benchmarking Alliance, along with the Index Initiative and the
United Nations Foundation. The Alliance will establish public,
transparent and authoritative league tables, ranking companies on
their contribution to the SDGs. The first set of benchmarks will be
published in 2020 and will address food and agriculture, climate
and energy, digital inclusion and gender equality and
empowerment. The alliance is supported by the Governments of
the UK, the Netherlands and Denmark and was named as one of the
10 winning initiatives at the November 2018 Paris Peace Forum.
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Corporate responsibility
Continued
We continue to engage with a range of governments and wider
stakeholders worldwide, to drive market reform. This work included
co-convening a Finance Summit in July with HRH the Prince of
Wales at St James’ Palace and participating in the G20 Investor
Summit in Buenos Aires.
In 2014 Aviva France launched Aviva Impact Investing France. It
became the first financial institution in the country to create an
investment fund dedicated to financing socially and
environmentally responsible companies. This fund is now endowed
with €30 million and has invested in 48 enterprises. At the 7th
edition of the ‘Instil Invest Crowns’ Aviva France was awarded ‘Best
Initiative in Impact Investing’ in the ‘Major Themes’ category. This
reward recognises that investments can create social good as well
as healthy financial earnings.
We use our role as responsible shareholders to engage on issues such
as Anti Microbial Resistance (AMR) and climate change. We worked
with our investee companies, predominantly in the pharmaceutical
and food sectors, to develop a robust policy on AMR and phase out
antibiotic use across their supply chains. We also fulfilled the
Chairman’s promise made at the AGM, working with other investors,
to engage with the Polish coal mining sector on climate risk and the
need for greater transparency and disclosure.
As a further example of our commitment to the environment, Aviva
Investors became one of the largest shareholders in DS Smith, a
disruptor in the packaging and recycling industry with the majority of
their packaging materials now coming from recovered resources,
contributing to a reduction in waste to landfill. Aviva’s operations in
the UK continue to uphold our zero to landfill commitment which we
achieved in 2015. In 2018 we pledged to avoid single-use plastics in all
our sites which has resulted in a 50-tonne reduction in waste per year.
Our investments also support the transition to a low-carbon
economy (see below for more details). In 2018, Aviva assigned
£1.8 billion of new investment in wind, solar, biomass and energy
efficiency. We also set an associated carbon savings target for this
investment of 100,000 tonnes of CO2e annually. Aviva also hold
nearly £1.3 billion in green bonds to support the transition to a
low-carbon economy.
Leading by example on our own sustainability record
As the first financial services company to be a carbon neutral
company we continue to offset 100% of any remaining carbon
emissions. Our offsetting projects have helped over one million
people since 2012 live better lives (e.g. through provision of clean
cook-stoves in Kenya, providing safe water, improving health,
creating jobs and stimulating local economies).
We continue to manage the impact of our business on the
environment. Our Corporate Responsibility, Environment and
Climate change business standard focuses on the most material
operational environmental impacts, which we have identified as
greenhouse gas emissions. We report these as carbon dioxide
equivalent emissions (CO2e) on an operational basis in respect of
Aviva’s Group-wide operations. See the table below.
For example, in 2017 our Canadian head office moved into a Gold
LEED certified building and in 2018 we merged four other locations
into one energy efficient office site. Over 1,800 employees were
merged into the new office space reducing our operational footprint
(square footage) by 25%.
includes the property portfolio of our investment funds managed by
Aviva Investors.
Across the UK more than 400 employees have signed up to our car
share programme and there are 180 active car-sharing groups. We
have also introduced electric vehicle charging points at eight UK
locations and moved 30% of our car fleet to hybrid. In the past year
this has helped save 4,257 kg of CO2 emissions.
In addition to the car share, we have been granted planning
permission to install a car park solar system at our Horizon building in
Norwich. This will be the first of its kind anywhere in the UK and will
make Horizon energy self-sufficient when the sun is shining. The array
will be made up of 1,908 solar panels which will generate 528,148 kWh
per year. The Horizon building will consume 68% of this clean energy
and will export the remainder into the national grid. The annual
carbon emissions saved will be around 232 tonnes per annum. Last
year, Aviva Investors made a £400 million investment to help fund the
construction of what will be the world’s largest offshore windfarm
(www.avivainvestors.com/en-gb/about/company-
news/2018/11/aviva-investors-finances-construction-of-hornsea-1).
More details of our environmental KPI data and our
independent assurance process can be found at
www. aviva.com/CRkpisandassurance2018
Operational global greenhouse gas emissions data boundaries
Our carbon footprint boundaries show the scope of the data we
monitor and the emissions we offset. We report on Greenhouse Gas
(GHG) emission sources on a carbon dioxide emissions equivalents
basis (CO2e) as required under the Companies Act 2006 (Strategic
report and Directors’ reports) 2013 Regulations. We also refer to the
GHG Protocol Corporate Accounting and Reporting Standard, and
emission factors from the UK Government’s GHG Conversion
Factors for Company Reporting 2018. The table below shows the
absolute operational carbon emissions:
Tonnes CO2e
Scope 1
Scope 2
Scope 3
Absolute CO2e*
Carbon offsetting**
Total net emissions
2018
2017
2016
16,198 17,915 19,210
25,012 31,280 41,008
17,739 19,305 19,193
58,949 68,500 79,410
(58,949) (68,500) (79,410)
—
—
—
Scope 1 – natural gas, fugitive emissions (leakage of gases from air
conditioning and refrigeration systems), oil, and company owned
cars.
Scope 2 – electricity.
Scope 3 – business travel and grey fleet (private cars used for
business), waste and water.
The following table shows the carbon intensity of our operations:
2018
2017
2016
CO2e
tonnes per
employee
1.6
1.6
2.0
CO2e per
£m GWP
2.06
2.48
3.12
* 2018 Assurance provided by PricewaterhouseCoopers LLP available at
www.aviva.com/CRkpisandassurance2018
** Carbon offsetting through the acquisition and surrender of emissions units on the voluntary and
compliance markets.
To date globally we have achieved a 60% reduction in CO2e against
our 2010 baseline, meeting our 2020 target (of 50%) early. We
continue to work towards our ambitious long-term target of a 70%
reduction by 2030. Under the Carbon Reduction Commitment
Energy Efficiency Scheme, we reported total emissions of 82,278
tonnes of CO2e in 2018 costing £1.4 million. This mandatory scheme
is limited to UK business emissions from building energy, and
Corporate responsibility (CR) key performance indicators (including
2016-2018 figures) and the accompanying limited assurance
statement by PwC can be found on www.aviva.com/social-purpose,
alongside Aviva’s 2018 CR Summary and Environmental, Social and
Governance Data sheet. More details of our internal diversity,
inclusion and wellbeing approach can be found in the ‘Our People’
section of this report.
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Our climate-related financial disclosure
Our climate-related
financial disclosure
As an international insurance group1, our sustainability and financial
strength is underpinned by an effective risk management framework.
Our business is directly impacted by the effects of climate change.
Aviva believes that unmitigated climate-related risks present a
systemic threat to financial stability over the coming decades.
We have reported on climate change in our Annual Report and
Accounts since 2004. Our 2018 disclosure reflects Aviva’s response
to the recommendations of the Taskforce on Climate-related
Financial Disclosures, published in June 2017, and reflects our
multiple roles as an asset owner, an insurer and an asset manager.
This response sets out how Aviva incorporates climate-related risks
and opportunities into our governance, strategy, risk management,
metrics and targets and how we disclose our exposure. These
pages, along with the expanded version of our response, are
available at www.aviva.com/TCFD.
Governance
Acknowledging the increasing impact of climate-related changes,
Aviva has built a strong system of governance, with effective and
robust controls. Aviva’s Chief Risk Officer and Group General
Counsel and Company Secretary are the executive sponsors
overseeing this disclosure. However, other group executives and
local markets are responsible for managing specific areas of the
business which may impact or be impacted by climate change:
insurance, asset management, operations and finance.
At Board level, the Board Risk Committee and Board Governance
Committee oversee our management of climate-related risks and
opportunities.
• The Board Risk Committee met 5 times in 2018 to review,
manage and monitor all aspects of risk management, including
climate-related risks. Climate change is classified as an emerging
risk and it is assessed for its proximity and significance to Aviva as
part of our emerging risk processes.
• The Board Governance Committee met 4 times in 2018 to
oversee how Aviva meets its corporate and societal obligations
and formally considered Aviva’s strategic approach to climate
change during the year. This includes setting the guidance,
direction and policies for Aviva’s customer and corporate
responsibility agenda and advising the Board and management.
In December 2018, as part of our regular training programme, Aviva’s
climate-related risks and opportunities were presented to the Board.
The Board will use this training to give appropriate direction to the
Company and ensure actions are taken to identify, measure, manage,
monitor and report these risks and opportunities.
Strategy
This response focuses on the key climate-related risk factors and
related opportunities (i.e. physical, transition, and liability) described
in the Prudential Regulation Authority 2015 report2. The materiality
and horizons over which these risks and opportunities impact our
business depend on the specific insurance products, geographies and
investments being considered or decisions being made.
For example, our general insurance business considers risks in the
underwriting and pricing processes and setting the reinsurance
strategy based on a relatively short time horizon (one to three
years). Aviva recognises that the increased severity and frequency of
weather-related losses has the potential to negatively impact our
profitability. Consequently, large catastrophic losses are already
explicitly considered in our economic capital modelling to ensure
resilience to such catastrophic scenarios.
In contrast, when developing our new product strategy and
updating Aviva’s overall business plan, the impacts of these risks
need to be considered over the medium term (three to five years).
With respect to life and pensions, when setting premium rates and
reserves for annuities in payment as well as our investment strategy
to back those insurance liabilities, the impacts of these risks need to
be considered over a much longer time horizon (five years plus).
In our Strategic Response to Climate Change, published in 2015, we
have focused on five pillars:
• Integrating climate risk into investment considerations – Aviva
committed in 2012 to integrate Environmental, Social and Governance
factors across all asset classes and regions, to deliver long-term
sustainable and superior investment outcomes for our customers
• Investment in lower carbon infrastructure – Aviva announced
in 2015 an investment target of £500 million annually for the next
five years in lower carbon infrastructure
• Supporting strong policy action – Aviva continues to provide
strong and vocal support for capital market reform, to mobilise
the trillions of pounds required to transition to a low carbon
economy and properly correct existing market failures with
respect to climate change
• Active stewardship on climate risk – Aviva actively engages with
companies to achieve climate resilient business strategies
• Divestment where necessary – Aviva aims to use our
shareholder influence to encourage companies to transition to a
low carbon economy and divest highly carbon-intensive fossil fuel
companies where they are not making sufficient progress towards
the engagement goals set.
Alongside this strategic investment response, Aviva has continued
to further integrate consideration of climate-related risks and
opportunities into our insurance products. For example:
• GI reinsurance is now set on an annual aggregate basis and on a
per occurrence basis, taking into account the possibility of
extreme weather events
• Our exposure to flood risk for UK residential customers is
managed by ceding policies to FloodRe
• Promote customer awareness and risk prevention measures of
climate-related issues such as air pollution. For example, Aviva
Poland has installed air monitors in local communities to enable
their customers to access up to date information about air
pollution levels on their smartphones.
• Help customers to build resilience to extreme weather such as
the upgrade to Commercial Property Insurance in Canada which
provides a ‘build back better’ element
• Provide products and services that support customers’
choices to reduce their environmental impact, such as bespoke
electric vehicle policies and supporting the sharing economy
• Limit our exposure to underwriting the most carbon intensive
elements of the economy through restrictions in the terms of our
Group Underwriting Boundaries for sectors such as mining and
power generation. In line with our commitments to manage
climate change, Aviva’s Global Corporate and Specialty team has
announced an immediate move away from insuring fossil fuel
power production to renewable energy generation in the UK.
1 Aviva is an asset owner with assets under management to the value of £470 billion, an insurer with gross written premiums of £28.7 billion, and Aviva Investors has assets under management of £331 billion.
2 www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/publication/impact-of-climate-change-on-the-uk-insurance-sector.pdf
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Our climate-related financial disclosure
Continued
Aviva continues to deliver in all areas of our current climate change
strategy. However, in the light of the latest Intergovernmental Panel
on Climate Change (IPCC) report1 and the risk of climate tipping
points being reached that could cause runaway warming, as well as
the findings from our internal analysis of potential climate change
impacts, our strategy is being refreshed to accelerate our ambition
to be aligned to a 2°C (or lower) transition.
Risk management
Rigorous and consistent risk management is embedded across
Aviva through our Risk Management Framework, comprising our
systems of governance, risk management processes and risk
appetite framework. This framework sets out how Aviva identifies,
measures, manages, monitors and reports on the risks to which it is,
or could be, exposed (including climate-related risks). It also defines
the accountabilities of management, the risk function and internal
audit with respect to enterprise-wide risk management.
Aviva considers climate change to be a material long-term risk to
our business model, and a proximate risk, because its impacts are
already being felt. We are therefore taking action now to mitigate
and manage the impacts of climate change both today and in the
future. Through these actions, Aviva continues to build resilience to
climate-related transition, physical and liability risks.
In conjunction with the United Nations Environment Programme
Finance Initiative (UNEP FI), Aviva has developed models and
scenario analysis tools to assess the potential impact on our
business of the four IPCC scenarios. Outputs include financial
metrics such as direct/indirect emission costs, additional capital
expenditure, and revenue implications broken down by sector and
geography. Each scenario describes a potential trajectory for future
levels of greenhouse gases and other air pollutants and can be
mapped to likely temperature rises (levels of mitigation required):
1.5°C (emissions halved by 2050), 2°C (emissions stabilise at half
today’s levels by 2060), 3°C (emissions rise to 2080 then fall) and 4°C
(emissions continue rising at current rates).
To assess the impact of climate change on our business, Aviva is
calculating a Climate Value-at-Risk (Climate VaR) from the model
outputs for each IPCC scenario to assess the climate-related risks
and opportunities over the next 15 years with the ability to look at
shorter time periods (three to five years) where appropriate. A range
of different financial indicators are used to assess the impact on our
investments and insurance liabilities. These impacts are aggregated
together to determine the overall impact of climate-related risks
and opportunities across all scenarios by assigning relative
likelihoods or probabilities to each scenario.
The Climate VaR includes the financial impact of transition risks and
opportunities. This covers the projected costs of policy action related
to limiting greenhouse gas emissions as well as projected profit from
green revenues arising from developing new technologies and
patents. In addition, it captures the financial impact of physical risks
from extreme weather (e.g. flood, windstorm and wildfires) as well as
the impact of rising sea levels and mean temperatures, although we
recognise that the most extreme physical effects may only be felt in
the second half of the century. Aviva also recognises the growing
trend in climate-related litigation and has assessed its potential
exposure to litigation risks accordingly.
Metrics and targets
In addition to Climate VaR, Aviva uses a variety of other metrics to
manage, monitor and report its alignment with global or national
targets on climate change mitigation and the associated potential
financial impact on our business. These are covered below.
We use carbon foot-printing and weighted average carbon
intensity data (tCO2e/£m sales) to assess and manage the exposure
of our assets to a potential increase in carbon prices. In addition, we
measure our operational carbon emissions and we have already
reduced our emissions by 60% since 2010 and have a long-term
reduction target of 70% by 2030 compared to this baseline. In 2018,
Aviva was recognised as one of 20 companies that reported 100%
of their Scope 12 emissions. These figures can be found in the
expanded version of this report (www.aviva.com/social-
purpose/policies).
We divest where necessary. To date we have divested Aviva’s own
assets from 17 thermal coal mining and power generation
companies from the Coal 403. In addition in 2018, we were asked by
Urgewald, an environmental and human rights non-governmental
organisation (NGO), to review our holdings against their CoalExit list
of 120 coal companies. Aviva actively-manages positions within our
beneficial holdings in 15 of these companies with a total market
value of £415 million or 0.09% of our total assets. Ten of the 120
companies on the list are companies that we have put on our
investment stoplist. More details of this engagement can be found
on www.aviva.com/social-purpose.
Aviva is also committed to investing in lower carbon
infrastructure, amounting to £2.5 billion in the period between
2015-2020, with the intention of delivering 100,000 tonnes of CO2
savings per year. Aviva currently holds more than £4.3 billion of
green assets, including £3.1 billion in low carbon infrastructure
investments (mainly solar, wind and waste-to-heat biomass) and
£1.3 billion in green bonds.
Aviva has used Carbon Delta’s warming potential metric to assess
our corporate bond and equity holdings’ alignment with the Paris
agreement 2°C target. This warming potential methodology
captures investments’ Scope 12 emissions as well as investments in
low-carbon technology to provide a forward-looking perspective.
We plan to extend this analysis to our whole portfolio over time.
Aviva has used Notre-Dame University’s Notre Dame-Global
Adaptation Index measure for country climate change risk to assess
the physical risk profile of Sovereign holdings. This measure
considers exposure and vulnerability to climate change; readiness
and adaptation; ability to raise money for mitigation and post-
disaster repair; ability to raise money via taxation and debt; reliance
on foreign aid and support of the International Monetary Fund and
other supra-national bodies.
Aviva uses the Global Real Estate Sustainability Benchmark to
understand climate resilience and broader sustainability
performance of individual properties and real estate funds within
our investment portfolio. In 2018, we assessed the performance of
18 property funds and Aviva Investors have achieved 32 green stars.
Whilst three funds have improved their performance over the year,
the remaining fifteen recorded a small reduction in their overall
score. This is because the benchmark is designed to encourage
continual improvement in the entities that it is assessing, and as
such the scoring methodology becomes more challenging each
year. We will continue to work in new areas to maintain and
improve our scores.
We build the possibility of extreme weather events into our
planning to ensure our pricing is adequate. Catastrophic event
model results are supplemented by in-house disaster scenarios. We
have purchased property catastrophe protection up to a 1-in-250-
year return period or beyond that limits Aviva’s losses depending on
the territory to a relatively low retention level (£150 million on a per
occurrence basis and £175 million on an annual aggregate basis).
1 www.ipcc.ch/sr15/
2 Scope 1 emissions cover: natural gas, fugitive emissions, oil and company owned cars
3 Coal 40 – 40 thermal coal mining and power generation companies selected from Aviva’s beneficial holdings for targeted engagement in an effort to influence the transition to a lower carbon economy
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Governance
In this section
Chairman’s Governance Letter
Our Board of Directors
Directors’ and Corporate Governance Report
Directors’ Remuneration Report
Page
40
42
44
68
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Chairman’s Governance Letter
Chairman’s
Governance Letter
Our governance
Good governance is the foundation of what we do at Aviva. It
underpins our values, our culture and the way we operate our
businesses. Without good governance, we would be unable to
deliver on our core purpose to help our customers ‘Defy
Uncertainty.’
In July 2018 the Financial Reporting Council introduced a revised
UK Corporate Governance Code. The revised Code emphasises the
requirement for boards to adopt a longer-term time horizon when
considering issues and making decisions. Our company has been
operating successfully for more than three hundred years because
we understand the importance of long-term thinking, and the Board
will continue to govern the Company in this way.
The revised Code also places emphasis on the role the Board plays
in creating a positive, responsible and responsive culture and we
welcome the importance the new Code affords to workforce
engagement and the representation of the employee voice in the
boardroom. We have a wide range of processes and mechanisms
that speak to this requirement and are particularly proud of the
ongoing dialogue between board members and the Evolution
Council (a diverse group of high calibre leaders from across the
business), and Your Forum, a broad-based body which represents
UK and European employees and includes trade union
representatives. A description of our stakeholder engagement
activities appear later in this report.
Our Preference shareholders
There were challenges of our own making during the year, including
our announcement in March 2018 that we were “evaluating
alternatives” for the Aviva plc and General Accident plc preference
shares. While we responded quickly to certain investor concerns by
confirming we would take no action, and put in place a goodwill
payments scheme for eligible preference shareholders who incurred
losses from selling these securities during the period, it was a
disappointing episode and lessons have been learned.
Our external environment
We constantly strive to make sure that our approach to risk
management is effective, extending beyond financial risk to a wider
range of operational risks. There is a full report on our activities in
this area in our ‘Risk and risk management report.’ We have worked
hard to ensure that Aviva is appropriately positioned for all
eventualities in relation to Brexit. The political climate in the UK is
possibly the most uncertain it has been for several decades, and we
have factored that uncertainty into our Board discussions and
specifically into determining how we can best position our business
to continue providing excellent service to all our customers. The
range of outcomes on Brexit, and the consequences of the final
decision, will continue to be a focus for the Board during our
strategic discussions in 2019.
The Board also remains committed to ensuring that Aviva operates
as a responsible corporate citizen, and we have taken steps to
minimise our impact on the environment wherever we operate.
This includes our commitment to avoid the use of single use
plastics in our offices. We also see it as a vital part of our wider
corporate purpose to support organisations such as the Red Cross,
providing funds and volunteers to help victims of natural disasters
and other emergencies both in the UK and globally (see our
‘Corporate responsibility’ report for more detail). In uncertain times
our core purpose to ‘Defy Uncertainty’ is more pertinent and more
important than ever.
During 2018 we have created the Aviva Foundation. Its goals are to
promote financial capability and inclusion, develop community
resilience and enable sustainable finance. To support the
Foundation we have released dormant assets held on our share
register for a minimum of twelve years. This is an ongoing
programme, and I look forward to being able to provide further
updates on the achievements of the Foundation.
Changes to the Board
On 9 October 2018, Mark Wilson stepped down as Group CEO of
Aviva and I became Executive Chairman whilst the search for a new
CEO was underway. We were pleased to be able to interview a
number of excellent internal and external candidates for the
position in a thorough and highly competitive process. In this task,
we were guided by the recommendations of our Nomination
Committee who ensured that there was a diverse selection of
candidates and that all the candidates aligned with the culture and
value set of the company. This process led to a unanimous
conclusion with the appointment of Maurice Tulloch as Group
Chief Executive on 4 March 2019.
Maurice is appointed at a time of great challenge but also of great
possibility, and we look forward to the future under his leadership
with confidence and excitement.
Maurice joined Aviva in 1992 and was appointed to the Board of
Aviva plc in June 2017. Maurice was previously Aviva’s Chief
Executive Officer, International Insurance. Maurice had
responsibility for Aviva’s life insurance and general insurance
operations in France, Canada, Ireland, Italy, Poland, Turkey and
India. Prior to that Maurice was Chief Executive Officer of Aviva UK
and Ireland General Insurance, one of the largest businesses in the
Aviva group.
Following the appointment of Maurice as Group CEO, I returned to
my previous role of Non-Executive Chairman.
We announced in January 2019 that, following nine years on the
Board, Michael Hawker would retire from the Board as a Non-
Executive Director, and as Chairman of the Risk Committee and as a
member of the Audit and Nomination Committees with effect from
31 March 2019. Michael has brought to the Board a wealth of
knowledge and experience gained over a long career in the banking
and insurance industries in both executive and non-executive roles
in Europe, Asia and Australia, and was a distinguished Chairman of
the Risk Committee. I would like to thank him for the enormous
contribution he has made to Aviva. The appointment of the new
Risk Committee Chair is well advanced, and will be announced
following completion of the relevant regulatory approval process.
Aviva plc Annual report and accounts 2018
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Governance
IFRS financial statements
Other information
Chairman’s Governance Letter
Continued
Board and Group Executive diversity
The charts below illustrate the diversity of the Board and senior
management as at the date of this report.
Board of Directors
Group Executive
Non-Executive
Executive
Future appointments to the Board and Group Executive will be
made in line with the Board Diversity and Inclusion Statement, and
for the Group Executive to be consistent with our Global Inclusive
Diversity Strategy, which is described in the Directors’ and corporate
governance report.
Sir Adrian Montague CBE
Chairman
6 March 2019
Composition
Total
Gender
Male
Female
Experience and Skills1
Insurance
Banking
Actuarial
Transformation
Law
Government
Customer
IT/Digital
Strategy
International experience1
Europe
Asia Pacific
The Americas
Middle East & Africa
Tenure
>10 years
5-10 years
4 years
3 years
2 years
1 year
<1 year
Age
30-39
40-49
50-59
60+
8
5
3
7
6
6
8
6
7
8
8
8
8
3
1
1
—
5
—
2
1
—
—
—
1
3
4
3
3
—
3
3
3
3
3
2
3
2
3
3
1
2
—
—
—
1
1
—
1
—
—
—
3
—
9
6
3
8
6
5
3
3
1
5
1
6
8
2
3
1
—
4
2
2
—
—
1
—
1
7
1
1
Individual directors may fall into one or more categories
Diversity remains an important area of focus, with the revised Code
stressing the importance of diversity in creating a successful and
sustainable business. The Board and I are committed to improving
diversity in its widest sense, including gender, ethnicity, diversity of
thought, tenure, age, experience, skills, geographical expertise,
educational and professional background.
We continue to support the target for women to represent a
minimum of 33% of our Board, and a minimum of 33% of Executive
Committee members and direct reports, by 2020. As at the date of
this report the percentage of women on the Board is 27%. Female
representation on our Group Executive stands at 33%.
I am proud to be an active member of the FTSE 100 30% Club and
that we are part of the Future Boards Scheme. Our Board Diversity
and Inclusion Statement was published in May 2017 and reflects the
continued support for the diversity and inclusiveness programme
throughout the business. You can find the statement on our website
at www.aviva.com/corporate-governance.
Aviva plc Annual report and accounts 2018
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IFRS financial statements
Other information
Andy Briggs n
Position: Chief Executive Officer, UK Insurance
Nationality: British
Committee Membership: N/A
Tenure: 3 years 11 months. Appointed to the Board as Executive
Director in April 2015
Qualifications: Fellow of the Institute of Actuaries
Skills and Experience: Andy is the CEO of UK Insurance and is
responsible for all Aviva’s insurance businesses in the UK. Previously
CEO of the Friends Life business, Andy’s knowledge and experience
of the UK insurance sector is invaluable to the Board. His role as
Senior Independent Director, and previously Chairman, of the
Association of British Insurers gives him a unique perspective of the
UK insurance industry and regulatory environment.
External Appointments: Chairman of the NSPCC’s Fundraising
Committee and a member of the Board of Trustees and Senior
Independent Director of the Association of British Insurers. Andy is
also the Government’s Business Champion for Older Workers.
Claudia Arney ▲
Position: Independent Non-Executive Director
Nationality: British
Committee Membership: Governance Committee (Chair),
Nomination Committee, Remuneration Committee, Risk Committee
Tenure: 3 years 1 month. Appointed to the Board in February 2016
Qualifications: MBA (INSEAD)
Skills and Experience: Claudia has significant experience of building
digital businesses, strategy formulation, business transformation
and customer strategy. Claudia previously worked for the Financial
Times, where she was part of the team that launched FT.com. In
addition, Claudia acted as CEO of the internet start up,
TheStreet.co.uk.
External Appointments: Non-Executive Director of Kingfisher plc,
Derwent London plc, Halfords Group plc (until 1 March 2019) and
the Premier League.
Glyn Barker ▲
Position: Senior Independent Non-Executive Director
Nationality: British
Committee Membership: Audit Committee, Nomination Committee,
Risk Committee, Governance Committee, Remuneration Committee
Tenure: 7 years 1 month. Appointed to the Board in February 2012
and became Senior Independent Non-Executive Director in May
2017
Qualifications: Member of the Institute of Chartered Accountants of
England and Wales (ICAEW); BSc Economics and Accounting (Bristol
University)
Skills and Experience: Glyn’s knowledge of the Aviva Group and his
in depth understanding of the issues that may affect shareholders
and other stakeholders of the company provides him with the skills
to fulfil the role of Senior Independent Director. His experience
enables him to support the Chairman and the Board in driving the
appropriate culture and values throughout the Company. Glyn was
previously a Vice Chairman of PricewaterhouseCoopers LLP (PwC)
and was responsible for leading the strategy and business
development for Europe, the Middle East, Africa and India.
External Appointments: Chairman of Irwin Mitchell Holdings Ltd
and Interserve plc, Senior Independent Non-Executive Director of
Berkeley Group Holdings plc and Non-Executive Director of
Transocean Ltd.
Our Board of Directors: Biographies
Our Board of
Directors
Sir Adrian Montague, CBE ▲
Position: Chairman
Nationality: British
Committee Membership: Nomination Committee (Chair)
Tenure: 6 years 2 months. Appointed to the Board as a Non-
Executive Director in January 2013, as Chairman in April 2015 and
Executive Chairman from October 2018 to March 2019
Qualifications: MA, Law (Cambridge); Qualified Solicitor
Skills and Experience: In October 2018 Sir Adrian was asked by the
Board to assume executive responsibilities during the search for,
and transition period to, a new Group Chief Executive Officer. After
the appointment of the new Group Chief Executive Officer, Sir
Adrian reverted to the role of Non-Executive Chairman. Having held
appointments as Chairman of Anglian Water Group Ltd, Friends
Provident plc, British Energy Group plc, Michael Page International
plc and Crossrail Ltd, Sir Adrian possesses a wealth of experience as
a Chairman. He has extensive leadership skills, together with deep
knowledge of the financial services industry, government affairs and
regulatory matters. His diverse skill-set and strategic awareness
facilitate open discussion and allow for constructive challenge in
the boardroom.
External Appointments: Chairman of The Manchester Airports
Group and Cadent Gas Ltd and trustee of the Commonwealth War
Graves Foundation.
Maurice Tulloch n
Position: Group Chief Executive Officer (CEO)
Nationality: British/Canadian
Committee Membership: N/A
Tenure: 1 year 9 months. Appointed to the Board as an Executive
Director in June 2017 and as CEO in March 2019
Qualifications: Chartered Professional Accountant (CPA, CMA); Master’s
degree in Business Administration (MBA) (Heriot-Watt University,
Edinburgh); BA Economics (University of Waterloo, Ontario)
Skills and Experience: Maurice has more than 25 years’ experience
within Aviva and most recently held the role of CEO of International
Insurance. Maurice had responsibility for Aviva’s life insurance and
general insurance operations in France, Canada, Ireland, Italy,
Poland, Turkey and India, together with our Global Corporate and
Speciality (GCS) business. He brings deep expertise of general
insurance and the Group’s International businesses into the
Boardroom.
External Appointments: Non-Executive Director of Pool Reinsurance
Company Ltd and a member of the Insurance Development Forum.
Thomas Stoddard n
Position: Chief Financial Officer
Nationality: American
Committee Membership: N/A
Tenure: 4 years 11 months. Appointed to the Board and as
Chief Financial Officer in April 2014
Qualifications: BA Economics (Swarthmore College); Juris Doctor
(University of Chicago Law School)
Skills and Experience: Tom’s financial expertise and strategic
decision-making skills play a fundamental role in driving Aviva
to attain its financial goals. As a result of Tom’s work Aviva has
strengthened its financial position and now has sufficient financial
flexibility to withstand stress and invest in opportunity. Prior to
joining Aviva, Tom worked in senior positions as an investment
banker in highly respected US firms, including Blackstone Advisory
Partners LP, where he was responsible for successfully driving
Blackstone’s business advising banks, insurers and other financial
institutions globally.
External Appointments: N/A.
Aviva plc Annual report and accounts 2018
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Our Board of Directors: Biographies
Continued
Patricia Cross ▲
Position: Independent Non-Executive Director
Nationality: Australian
Committee Membership: Remuneration Committee (Chair), Audit
Committee, Nomination Committee
Tenure: 5 years 3 months. Appointed to the Board in December
2013
Qualifications: BSc (Hons), International Economics (Georgetown
University); Life fellow of the Australian Institute of Company
Directors
Skills and Experience: Patricia is an experienced company director
with over 20 years’ experience of serving on multiple ASX-30 Boards
including Macquarie Group Ltd and Macquarie Bank Ltd, National
Australia Bank, Wesfarmers Ltd, AMP Ltd, and Qantas Airways Ltd.
She is the founding Chair of the 30% Club in Australia. Patricia has
held a number of Australian government positions, including with
the Financial Sector Advisory Council, Companies and Securities
Advisory Committee, Panel of Experts to Australia as a Financial
Centre Forum and Sydney APEC Business Advisory Council. Patricia
has served on a wide range of not for profit boards, including the
Murdoch Children’s Research Institute, and she was a founding
Director of The Grattan Institute. In 2001, Patricia received the
Australian Centenary Medal for service to Australian society through
the finance industry and was awarded Life Fellowship of the
Australian Institute of Company Directors in 2018. Having started
her career in the U.S. Government working in foreign affairs, Patricia
had a long career in senior executive roles in very large international
banking and investment management organisations. She has lived
and worked in seven countries in Europe, the U.S. and Australia.
External Appointments: Chair of the Commonwealth
Superannuation Corporation, and Ambassador for the Australian
Indigenous Education Foundation.
Belén Romana García ▲
Position: Independent Non-Executive Director
Nationality: Spanish
Committee Membership: Governance Committee, Nomination
Committee, Risk Committee
Tenure: 3 years 8 months. Appointed to the Board in June 2015
Qualifications: BSc, Business and Economics (Universidad
Autonomo de Madrid)
Skills and Experience: Belén has extensive governmental and
regulatory experience and a detailed knowledge of the financial
services industry and European regulation and she brings this
expertise to the Boardroom. Belén has held senior positions at the
Spanish Treasury and represented the Spanish government at the
Organisation for Economic Co-operation and Development.
External Appointments: Independent Non-Executive Director of
Banco Santander.
Michael Hawker, AM* ▲
Position: Independent Non-Executive Director
Nationality: Australian
Committee Membership: Risk Committee (Chair), Audit Committee,
Nomination Committee
Tenure: 9 years 2 months. Appointed to the Board in January 2010
Qualifications: BSc (University of Sydney); Senior Fellow of the
Financial Services Institute of Australia
Skills and Experience: Michael brings to the Board broad experience
from his career in both the banking and insurance industries within
Europe, Asia and Australia, which included seven years as CEO of
Australia’s largest general insurer (IAG). Michael’s tenure at Aviva
makes him well placed to determine the nature and extent of the
potential risks that could stop Aviva achieving its strategic
objectives and maintaining sound risk management and internal
controls.
External Appointments: Non-Executive Director of Macquarie Group
Ltd, Macquarie Bank Ltd, Washington H Soul Pattinson Pty and
Company Limited (an investment house) and Rugby World Cup Ltd.
Michael is also Chairman of The George Institute for Global Health.
*Michael Hawker will retire from the Board with effect from 31 March 2019.
Michael Mire ▲
Position: Independent Non-Executive Director
Nationality: British
Committee Membership: Governance Committee, Nomination
Committee, Remuneration Committee, Risk Committee
Tenure: 5 years 6 months. Appointed to the Board in September
2013
Qualifications: MBA, (Harvard)
Skills and Experience: Michael has a detailed understanding of the
financial services sector and a wealth of experience in business
transformation and developing strategies for retail and financial
services companies, which alongside his governmental experience,
allows Michael to bring a unique perspective and insight to the
Board.
External Appointments: Chairman of HM Land Registry, Non-
Executive Director of the Department of Health and Social Care, and
senior adviser to Lazard.
Keith Williams ▲
Position: Independent Non-Executive Director
Nationality: British
Committee Membership: Audit Committee (Chair), Governance
Committee, Nomination Committee, Risk Committee
Tenure: 2 years 7 months. Appointed to the Board in August 2016
Qualifications: Associate member of the Institute of Chartered
Accountants (ICAEW)
Skills and Experience: Keith has significant financial experience
including a detailed knowledge of business planning, capital
projects and project finance gained in a number of industries. Keith
has more than ten years of executive experience as CFO and CEO at
British Airways plc until 2016 and, during that time, Keith
transformed the company into a customer focused organisation.
External Appointments: Non-Executive Chairman of Halfords Group
plc, Non-Executive Deputy Chairman of the John Lewis Partnership,
Non-Executive Director of Royal Mail plc and member of the Audit
Committee of the British Museum. Keith is also Independent Chair
of the UK Transport Department’s Rail Review.
Kirstine Cooper u
Position: Group General Counsel and Company Secretary
Nationality: British
Committee Membership: N/A
Tenure: 8 years 3 months. Appointed as Company Secretary in
December 2010 and a member of the Group Executive in May 2012
Qualifications: Bachelor of Laws degree (Glasgow University);
Qualified Solicitor; Graduate of the General Manager Programme
(INSEAD)
Skills and Experience: Kirstine has over 25 years’ experience at Aviva
and is a trusted advisor to the Board. As a qualified solicitor Kirstine
is able to execute the role of Company Secretary by advising the
Board on governance issues and the regulatory environment.
Kirstine established the legal and secretarial function as a global
team and is responsible for the provision of legal services to the
Group. She also leads the team on public policy and corporate
responsibility. During March 2016 to March 2017, Kirstine was the
Commissioner on the Cabinet Office’s Dormant Assets Commission
which was tasked with identifying new pools of dormant assets and
working with industry to encourage the contribution of these assets
to good causes.
External Appointments: Trustee of the Royal Opera House and Non-
Executive Director of HM Land Registry. Kirstine is also Insurance
and Pension champion for the Dormant Assets Commission.
The full biographies for all our Board and Group Executive committee
members are available online at www.aviva.com/about-us
Key
n Executive
▲ Non-Executive
uGroup General Counsel and Company Secretary
Mark Wilson stepped down from the Board and as Chief Executive Officer of the Group on 9 October 2018 and
will remain with the Group until April 2019.
Aviva plc Annual report and accounts 2018
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IFRS financial statements
Other information
Directors’ and Corporate Governance report
Directors’ and
Corporate
Governance report
The UK Corporate Governance Code
As a UK Premium Listed company, Aviva’s governance structure is
based on the principles of the 2016 UK Corporate Governance Code
(2016 Code). Details of how we have applied the principles of the
2016 Code and complied with its provisions are set out in this report
and the Directors’ Remuneration Report. The Board can confirm
that the Company was compliant with the 2016 Code throughout
the financial year under review, with the exception of the interim
change in status for Sir Adrian Montague from Non-Executive
Chairman to Executive Chairman from 9 October 2018 until the
appointment of Maurice Tulloch as our new Group Chief Executive
Officer (Group CEO) on 4 March 2019. As a result, the company was
non-compliant with Provision A.2.1 of the 2016 Code for this interim
period. Further details of the role of the Executive Chairman are
given below.
The Board welcomes the introduction of the 2018 UK Corporate
Governance Code (2018 Code) which applies to the Company for its
financial year beginning 1 January 2019. The Company will report
on its compliance with the 2018 Code in the 2019 Annual report and
accounts.
Changes to the Board
On 9 October 2018, Mark Wilson stepped down as the Group CEO.
Sir Adrian Montague, the Non-Executive Chairman of Aviva,
assumed the role of Executive Chairman whilst the search for a new
Group CEO was undertaken. The Board considered a number of
options for the interim leadership of the Group, and agreed that the
appointment of the Chairman as Executive Chairman would provide
continuity in the leadership of the Group and would support the
transition of responsibilities to the new Group CEO. Whilst
discharging these responsibilities, Sir Adrian led a Chairman’s
Committee comprised of the three executive directors, Andy Briggs
(CEO, UK Insurance), Tom Stoddard (Chief Financial Officer) and
Maurice Tulloch (CEO, International Insurance). Sir Adrian Montague
reverted to the role of Non-Executive Chairman of Aviva upon
appointment of the new Group CEO. These interim arrangements
were discussed and agreed with our regulators.
The role profile for the position of Executive Chairman included
arrangements for potential conflicts of interest in the execution of
Sir Adrian’s executive responsibilities within the company alongside
his role as Chairman of the Board. The role profile for the Senior
Independent Director, Glyn Barker, was also amended to include
additional responsibilities around assisting Sir Adrian in his
Chairman’s role, and monitoring any issues around conflicts. No
conflicts were identified in the discharge of the role of Executive
Chairman. No additional remuneration was paid in respect of these
additional responsibilities, as set out in the Directors’ Remuneration
Report, and there were no other changes in the terms of any other
directors during this period.
The Nomination Committee led the process to appoint a new Group
CEO and interviewed a number of excellent internal and external
candidates for the position in a thorough and highly competitive
process. The Nomination Committee ensured that there was a
diverse selection of candidates and that all the candidates aligned
with the culture and values set of the company. This process led to
a unanimous conclusion with the appointment of Maurice Tulloch
as Group Chief Executive.
We announced in January that Michael Hawker will retire from the
Board as a Non-Executive Director, as Chairman of the Risk
Committee and as a member of the Audit and Nomination
Committees, with effect from 31 March 2019. He has served as a
Non-Executive Director since January 2010. We would like to thank
Michael for his enormous contribution to Aviva over the past nine
years. He has brought to the Board a wealth of knowledge and
experience gained over a long career in the banking and insurance
industries in both executive and non-executive roles in Europe, Asia
and Australia, and has been a distinguished Chairman of the Risk
Committee. The appointment of the new Risk Committee Chair is
well advanced, and will be announced following the completion of
the relevant regulatory approval process.
The Board
As at the date of this report the Board is comprised of the Chairman,
three Executive Directors and seven Independent Non-Executive
Directors (NEDs). As noted above Michael Hawker will be retiring
from the Board and the committees he serves on 31 March 2019.
Details of the role of the Board and its committees are described in
this report. The duties of the Board and of each of its committees
are set out in the respective Terms of Reference. Our committees’
Terms of Reference can be found on the Company’s website at
www.aviva.com/committees and are also available on request from
the Group Company Secretary. The Terms of Reference list both
matters that are specifically reserved for decision by our Board and
those matters that must be reported to it. The Board delegates
clearly defined responsibilities to various committees and reports
from the Audit, Governance, Nomination and Risk Committees are
contained in this report. A report from the Remuneration
Committee is included in the Directors’ Remuneration Report.
Board diversity and inclusion
Diversity and inclusion are integral parts of Aviva’s culture, and our
Board seeks to reflect this. The Board agreed a Diversity and
Inclusion Statement in May 2017 and this supports the Nomination
Committee in its approach to succession planning, and was
incorporated into the Committee’s approach to identifying Maurice
Tulloch as our new Group CEO. The statement sets out our beliefs
around the importance of diversity and inclusion in the Group, and
aligns with our Global Inclusive Diversity Strategy (Diversity
Strategy). The Diversity and Inclusion Statement can be found on
the Company’s website at www.aviva.com/corporate-governance.
The approach to Board diversity is monitored by the Nomination
Committee which reviews the balance of skills, knowledge,
experience and diversity on the Board; leads on succession
planning for appointments to the Board and the senior executive
team; and oversees the talent development and broader talent
pipeline across the Group. The Board’s approach to NED succession
planning was refreshed during the year to further enhance the
periodic review of tenure, skills and capabilities, delivering a more
continuous succession review cycle. The Board’s skills matrix
supports this approach by enabling us to map the broad diversity of
skills, knowledge and experience of the Board and to link these to
our strategy. The Nomination Committee continued to review the
internal and external talent pipeline for senior executive positions,
both for immediate readiness to take on roles, and for the medium
term. This included making progress in the development
programmes that supported the talent development pipeline.
We recognise that the Board sets the tone for inclusion and diversity
across the Group and believe that a diverse leadership team
supports good decision making. At Aviva, diversity encompasses a
broad range of factors including experience, skills, tenure, age,
Aviva plc Annual report and accounts 2018
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IFRS financial statements
Other information
Directors’ and Corporate Governance report
Continued
geographical expertise, professional background, ethnicity,
disability and sexual orientation. As at the date of this report, the
percentage of women Board members has increased to 27%. We
continue to support our target of at least 33% women on the Board
by 2020, as evidenced from our participation in initiatives such as
the Women in Finance Charter and the 30% Club. The diversity
charts in the Chairman’s Governance Letter show that the Board
has a broad mix of financial services experience, relevant
professional skills and international business exposure.
Board activities during 2018
Board strategy and business plans
• Approved the 2019-2021 Group Plan and received presentations
and reports from our businesses in respect of strategy execution
and performance against the Group Plan
• Held an annual dedicated two day offsite strategy session in June
2018, supplemented by further specific strategy sessions, to
review and further develop the Group’s strategy
• Reviewed and constructively challenged reports from the Group
CEO and CFO, proposals for significant transactions, changes in
senior management, regulatory developments, the control
environment, and progress against the Group Plan and the
Group’s strategy
• Discussed regular updates from the Chairman (or Executive
Chairman when appointed) on Board matters for which he is
responsible, such as Board composition
Stakeholder Engagement
• Customer
– Received updates on customer metrics, strategies and
challenged action plans to reduce customer complaints
– Undertook deep dives into renewal pricing, customer
experience journeys, and customer operations and
transformation
– Monitored customer reputation issues in relation to IT platform
migrations
– Discussed reports from the Governance Committee on
customer conduct issues
• Shareholders
– Considered the views of major shareholders on company
strategy and performance, and assessed investor sentiment
more broadly in conjunction with the Group’s corporate
brokers
– Reviewed and agreed our investor relations strategy
• Government and regulators
– Discussed and provided input into dialogue with regulatory
and governmental authorities in the UK
– Engaged with the regulatory authorities in our key markets
• Our people
– Discussed reports from the Evolution Council on various
matters including strategy, cyber risk and Aviva’s products,
and held several informal discussions with the Council
Oversight of risk and risk management
• Scrutinised reports from the Chief Risk Officer (CRO), and assessed
the Group’s significant risks and regulatory issues, approved the
Group’s risk appetite, approved the Group risk policies which
provide the risk framework for managing risk across the Group,
and received updates on the Group’s capital and liquidity position
• Reviewed and discussed the strategy for the simplification and
rationalisation of legacy IT systems
• Undertook regular reviews of the Group’s cyber risk profile
• Discussed updates on the operational impact of Brexit on the
company; considered and agreed a risk management approach to
Brexit planning
• Monitored reports on the migration to a cloud based IT
architecture
Corporate governance
• Discussed regular updates from Board committees and
management on legislation and proposed consultations that will
affect the Group’s legal and regulatory obligations, including
the 2018 Code
• Received assurance that governance structures remained
appropriate for the businesses and the global markets in which
we operate, while supporting the Group’s overall strategy and
culture
• Discussed and agreed strategies around the management of the
Group’s preference shares, and the subsequent goodwill payment
programme launched in July 2018
Significant transactions and expenditure
• Approved financial matters in line with the Group Funding Plan,
including a capital return to shareholders via a £600 million share
buyback programme, the redemption of the €500 million Tier 2
debt instrument, and the redemption of US$575 million perpetual
subordinated loan notes issued by Friends Life Holdings plc (a
Group subsidiary)
• Approved strategic M&A activities including the disposal of the
Group’s two Spanish joint ventures to Bankia, and the launch of a
digital insurance joint venture in Hong Kong with Hillhouse
Capital Group and Tencent Holdings Limited. Concluded the
disposal of Aviva’s shareholding in its joint venture in Italy, Avipop
Assicurazioni S.p.A. to Banco BPM S.p.A. in March 2018
Financial reporting and controls, capital structure and dividend
policy
• Monitored the Group’s financial performance, financial results,
and approved dividend payments
• Assessed the Group capital and liquidity requirements, arising
from the Group’s strategy and Group Plan
• Discussed reports provided by its committees on key matters of
financial reporting, providing the opportunity for the Board to
input and challenge where necessary
• Approved the full year results and Annual report and accounts,
and the half year results
People, culture, succession planning and Board effectiveness
• Reviewed and discussed the succession plan for the Board, with
particular emphasis on identifying Maurice Tulloch, our new
Group CEO
• Undertook an external evaluation of the Board’s effectiveness, the
effectiveness of each committee and individual directors and
implemented an action plan in accordance with its
recommendations
• Reviewed the results of the 2018 Voice of Aviva survey, and
discussed them in respect of culture
• Regularly discussed the current Group culture, its alignment with
strategy, and how it has been further strengthened during the
year
• Approved the new Board succession planning process
Aviva plc Annual report and accounts 2018
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Continued
Board appointments
Maurice Tulloch was appointed as Group CEO on 4 March 2019.
Maurice was appointed following an extensive search that produced
a shortlist of exceptional external and internal candidates. Maurice
brings a deep understanding of insurance, both general and life
insurance, to the board. He is exceptionally well qualified to re-
energise Aviva and deliver long term growth.
The Board has processes in place to appoint NEDs who can apply
their wider business skills, knowledge and experience to the
oversight of the Group, and provide input and challenge in the
boardroom to assist in the development and execution of the
Board’s strategy. Similarly, Executive Director appointments are
made to ensure the effective formulation and implementation of
the Group’s strategy. The Nomination Committee, on behalf of the
Board, reviews the skills of Board members at least annually,
identifying any areas of skills, experience and knowledge that we
can further strengthen. All director appointments are made by the
Board and are subject to a formal, rigorous, and transparent
Board and Committee structure
process, and to the appropriate regulatory approvals. No new NED
appointments were made during the year.
The Nomination Committee report sets out the process that would
be adopted to identify and appoint new NEDs, which includes
consideration of diversity criteria. The NEDs assist management in
the development of the Group’s strategy, so it is important that they
have experience of strategy formulation, business planning and
transformation. To be effective, it is the Board’s view that the
majority of our NEDs should also have a sound understanding of
the financial services industry to be able to fully understand the
strategic issues and opportunities the Company faces so that they
can provide appropriate challenge. All Board appointments are
also subject to continued satisfactory performance following the
Board’s annual effectiveness review, and the Company’s articles
of association (Articles), which prescribe that all serving directors
will retire and stand for election or re-election at each Annual
General Meeting (AGM).
Aviva plc Board
Collectively responsible for promoting the long-term sustainability of the Company, generating value for shareholders
in a manner which also allows it to discharge its responsibilities to its stakeholders. The Board sets the Group’s
purpose, strategy and values, and seeks to ensure that the culture of the Group is aligned with these. The Board sets
the Group’s risk appetite and satisfies itself that financial controls and risk management systems are robust, whilst
ensuring the Group is adequately resourced.
n = Board committee
Board independence
The Nomination Committee, having considered the matter
carefully, is of the opinion that the current NEDs remain
independent, in line with the definition set out in the 2016 Code,
and are free from any relationship or circumstances that could
affect, or appear to affect, their independent judgement. Over half
of the Board members, excluding the Chairman, are independent
NEDs.
Michael Hawker has served as a director since his appointment in
January 2010 and Glyn Barker since his appointment in February
2012. In accordance with Provision B.1.1 of the 2016 Code, the
independence of Michael Hawker and Glyn Barker was subject to a
particularly stringent review by the Nomination Committee. The
review recognised Michael Hawker’s deep knowledge of Aviva and
his extensive operational experience of the insurance industry
which he brings to his role as Chair of the Risk Committee and to the
Board. Glyn’s deep understanding of accounting and regulatory
issues and his extensive experience as a business leader means he
also continues to provide independent insight and challenge in the
boardroom. After careful consideration, it was agreed that both
Michael and Glyn remain independent and continue to make a
valuable contribution to the Board. Michael Hawker will step down
from the Board and its committees on 31 March 2019. The
appointment of the new Risk Committee Chair is well advanced,
and will be announced following the completion of the relevant
regulatory approval process.
The review of the directors’ other interests, examined the ‘cross
directorships’ of Keith Williams and Claudia Arney who both sat on
the Board of Halfords plc (Keith Williams is Non-Executive
Chairman). The Nomination Committee was satisfied that the cross
directorships did not impact the independence of either Claudia
Arney or Keith Williams or their ability to carry out their role as
directors of the Company and Claudia Arney stepped down from
the board of Halfords plc on 1 March 2019. The Nomination
Committee also examined the cross directorships of Patricia Cross
and Michael Hawker on the board of Macquarie Group and was
satisfied that the cross directorships did not impact the
independence of either Patricia Cross or Michael Hawker or their
ability to carry out their role as directors of the Company. Patricia
Cross stepped off the Macquarie Group Board during 2018. The
Nomination Committee examined Glyn Barker’s former position as
a partner at the Group’s current auditors and was satisfied this did
not affect the judgement or independence of Glyn Barker as a
director.
Time commitment
Each NED must be able to devote sufficient time to the role in order
to discharge his or her responsibilities effectively. The Chairman
assesses the time commitment of the NEDs as part of the annual
review of their effectiveness, and the Senior Independent Director
(SID) reviews the time commitment of the Chairman. This
assessment takes into account the number of external
commitments each director has and considers whether each
director has demonstrated that they have sufficient time to devote
to their present role within Aviva including under potential periods
of corporate stress.
Prior to accepting the role of interim Executive Chairman, Sir Adrian
discussed how he would discharge the role with the Executive and
Non-Executive Directors, and also with our regulators. This included
the creation of a Chairman’s Committee, composed of the Executive
Chairman and Executive Directors, to advise the Executive
Chairman on the strategic, monitoring and control aspects of the
day to day management of the Group. In addition the role of the
Aviva plc Annual report and accounts 2018
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Directors’ and Corporate Governance report
Continued
Senior Independent Director was expanded to ensure that any
potential conflicts between the Chairman’s role as Executive
Chairman and Non-Executive Chairman were managed
appropriately. The creation of the Chairman’s Committee, an
increased personal time commitment to Aviva, and the interim
nature of the role, enabled Sir Adrian to effectively discharge the
role of Executive Chairman.
According to the Board’s policy, Executive Directors may hold one
external directorship and must obtain the prior consent of the
Board before accepting a non-executive directorship in any other
company. During the year, this procedure was followed when
former Group CEO Mark Wilson became a non-executive director of
BlackRock, Inc. the US-based asset manager in March 2018. The
time commitment and potential conflicts involved were carefully
examined and the appointment was approved on the basis that
exposure to BlackRock’s businesses for Mark would be to the
benefit of Aviva, particularly in terms of developing Mark’s exposure
to the priorities of strategic investors. In addition the potential
conflicts could be adequately managed by the Chairman and Chief
Financial Officer.
Conflicts of interest
In accordance with the Companies Act 2006, the Company’s Articles
of Association allow the Board to authorise potential conflicts of
interest that may arise and to impose such limits or conditions as it
thinks fit. The decision to authorise a conflict of interest can only be
made by non-conflicted directors (those who have no interest in the
matter being considered) and in making such a decision the
directors must act in a way they consider, in good faith, will be most
likely to promote the Company’s success for the benefit of its
shareholders as a whole.
The Board’s procedure is to review and approve actual and
potential conflicts of interest as they arise. This procedure operated
effectively during the year, including the review of Mark Wilson’s
appointment as a Non-Executive Director of BlackRock, Inc. in
March 2018, and the review of any potential conflicts resulting from
Sir Adrian Montague’s assumption of the Executive Chairman role in
October 2018. In both cases, nothing was found to exist to prevent
acceptance of these roles, with appropriate mitigation being put in
place should any conflict arise which would include being recused
from certain discussions that could give rise to a conflict.
Independent advice
All directors have access to the advice and services of the Group
Company Secretary and directors wishing to do so may take
independent professional advice at the Company’s expense. During
the year, the Board took independent advice to further inform and
support its discussions with management on the Company’s
strategy. The Company arranges appropriate insurance cover in
respect of legal actions against its directors. The Company has also
entered into indemnities with its directors as described in the Other
Statutory Information section in this report.
Executive Chairman, non-Executive Chairman, and Group Chief
Executive Officer
Consistent with the Board Terms of Reference and those of the
Chairman’s Committee while it operated, and separately with the
Senior Insurance Managers Regime (SIMR), there are role profiles for
the Non-Executive Chairman, Executive Chairman (when
appointed), and the Group CEO which set out the duties of each
role. The Non-Executive Chairman’s priority is to lead the Board,
monitor the Group’s culture and ensure its effectiveness. The
priority of the Group CEO and the interim Executive Chairman is the
management of the Group. The Board has delegated the day-to-day
running of the Group to the Group CEO or the interim Executive
Chairman within certain limits, above which matters must be
escalated to the Board for determination. Summaries of the role
profiles for the Chairman, Executive Chairman, SID, Group CEO and
NEDs are available on the Company’s website at
www.aviva.com/about-us/roles.
Senior independent director (SID)
The SID’s role is to act as a sounding board for the Chairman, to
serve as an intermediary for the other directors where necessary
and to be available to shareholders should they have concerns they
have been unable to resolve through normal channels, or when
such channels would be inappropriate. In addition, Glyn Barker met
each NED from time to time, providing a forum in which they could
raise matters. The SID role profile was also amended to enhance his
role in managing any potential conflicts of interest following the
appointment of an Executive Chairman.
Induction, training and development
The Board believes strongly in the professional development of the
directors and all the Group’s employees. Each director commits to
continuing their professional development as part of their service
contract. During the year, the directors attended a number of
internal training sessions on topics including longevity
assumptions, cash and operating capital generation and
responsible investing. Training sessions have been built into the
Board and Committees’ plans for 2019. The Chairman ensures that
any new directors receive a comprehensive induction programme
over a number of months, tailored to their particular needs. All new
directors would receive induction materials, which include: the
current strategic and operational plan; recent Board and committee
minutes and meeting packs; organisation structure charts; role
profiles; a history of the Group; and relevant policies, procedures
and governance material. Any knowledge or skill enhancements
identified during the director’s regulatory application process
would also be addressed through their induction programme. No
new non-executive directors were appointed during the year.
Board calendar
During 2018, 14 Board meetings were held, of which nine were
scheduled meetings and five were additional meetings called at
short notice. In addition, the Board delegated responsibility for
certain items to specially created Board committees, which met
twice only to discuss these particular items.
The Board visits different markets each year and during 2018 held a
Board meeting at our Italian head office. This gave the Board the
opportunity to meet the senior management teams and to gain a
deeper understanding of the operations and performance of the
Italian market. In June 2018, the Board held its annual two-day
strategy meeting offsite in the UK to set and monitor progress
against the Group’s strategic plan.
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Continued
Board and Committee meetings attendance during 2018
Number of meetings held1
Executive Chairman (interim)
Sir Adrian Montague2
Executive Directors
Mark Wilson3
Tom Stoddard
Andy Briggs
Maurice Tulloch
Non-Executive Directors
Glyn Barker4, 6
Patricia Cross5
Belén Romana García4
Michael Hawker4,7
Michael Mire
Claudia Arney6
Keith Williams
Board1
14
Audit
Committee
7
Governance
Committee
4
Nomination
Committee
3
Remuneration
Committee
7
Risk
Committee
5
14/14
11/11
14/14
14/14
14/14
12/14
14/14
13/14
13/14
14/14
14/14
14/14
—
—
—
—
—
7/7
6/7
—
7/7
—
—
7/7
—
—
—
—
—
4/4
—
4/4
—
4/4
4/4
4/4
3/3
—
—
—
—
3/3
3/3
3/3
3/3
3/3
3/3
3/3
—
—
—
—
—
6/7
7/7
—
—
7/7
6/7
—
—
—
—
—
—
5/5
—
5/5
5/5
5/5
5/5
5/5
1 During the year there were 14 Board meetings, of which 9 were scheduled meetings and 5 were called at short notice. In addition, there were two further Board sub-committee meetings held at short notice and attended by
the Chairman and the NEDs.
2 Sir Adrian Montague assumed executive responsibilities on 9 October 2018 immediately after Mark Wilson stepped down as Group CEO. He reverted to the role of Non-Executive Chairman upon appointment of the new Chief Executive Officer on
4 March 2019.
3 Mark Wilson stepped down as the Chief Executive Officer of the Group on 9 October 2018.
4 The Board meeting on 22 March 2018 was called at short notice and, due to this, Glyn Barker, Michael Hawker, and Belén Romana García were unable to attend due to other prior commitments. The Board meeting on
8 October 2018 was also called at short notice and due to this Glyn Barker was unable to attend due to other prior commitments. Papers were circulated to all directors before the meetings and those unable to attend could
raise issues and give comments to the Chairman in advance of the meetings taking place.
5 Patricia Cross was unable to attend the Audit Committee meeting on 8 May 2018 due to medical reasons.
6 Claudia Arney was unable to attend the Remuneration Committee meeting on 2 October 2018, and Glyn Barker was unable to attend the Remuneration Committee meeting on 6 October 2018, both due to other prior
commitments as the meetings were called at short notice.
7 Michael Hawker will retire from the Board of Aviva on 31 March 2019.
Board priorities
The Board made solid progress during 2018 on a number of the
objectives set at the beginning of the year. These included the
execution of capital management strategies to reduce expensive
subordinated debt; the buy-back of £600m of ordinary shares and
further increase in value for our shareholders by implementing the
fourth consecutive year of double digit dividend growth. Succession
planning was also a focus of activity in relation to the departure of
Mark Wilson and the identification of a new Group CEO.
The Board continued to monitor customer metrics to ensure that
we deliver on our purpose to Defy Uncertainty through our
comprehensive product offering and customer service. The Board
also engaged, challenged and worked with management when the
Group did not meet our customer and stakeholder expectations,
such as in the migration of some of our digital platforms to a new
vendor system.
Consistent with our Digital First ambition and linking to our
customer agenda, in October 2018 we launched Blue, our Hong
Kong digital insurance joint venture together with Hillhouse Capital
and Tencent Holdings Limited. These items were in addition to the
Board’s routine standing agenda which includes financial reporting
and strategic planning.
During the year, the Board was supported by the Evolution Council,
made up of high calibre developing leaders from across the
business, which provided insights from an employee perspective on
digital, brand and customer.
During 2019, the Board’s agenda will focus on further orientating
the organisation towards our customers, embedding our new CEO,
continuing to evolve our strategy and simplifying our IT estate. The
Board will continue to drive progress to achieve consistently
excellent customer service and a comprehensive product offering
that meets customers’ evolving needs. Digital First will remain our
preferred approach, for example through our new AvivaPlus
proposition. We will continue to monitor our risks and controls
around IT and Cyber Security, the operational impact of Brexit, and
developments in our IT platforms that will simplify and support
digitising our service delivery to customers. Offsite strategy days are
used to set, and reflect on progress against the Company’s strategy.
In these sessions the Board discusses the strategic priorities for the
year ahead and sets the three-year strategic plan and these sessions
will continue to occur in 2019.
The Audit, Governance and Risk Committees will continue to
consider the opportunities and risks associated with each market
and the Remuneration Committee will assess any consequential
impact on reward decisions. As part of our employee engagement
commitments, the Board will continue to interact with the Evolution
Council, ‘Your Forum’, and other employee forums and to carefully
consider and respond to the annual all-employee survey, ‘Voice of
Aviva’. Succession planning and the continued development of the
talent pipeline will continue to be a focus for both the Board and
the Nomination Committee.
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Continued
Board evaluation
The effectiveness of the Board is vital to the success of the Group.
The Board undertakes a rigorous evaluation process each year to
assess how it, its committees and individual directors are
performing. During 2017, an external evaluation was conducted,
with a series of outcomes reported during 2018. A follow up external
evaluation was conducted in 2018, with the outcomes reported in
2019. Both external evaluations were facilitated by Independent
Board Evaluation (IBE). IBE is an external board evaluation
facilitator which has no other connection with Aviva. Although the
2016 Code only requires an externally facilitated evaluation every
three years, the Board considered that an externally facilitated
evaluation in 2018 would support its strategic thinking, and further
Outcomes and steps taken in 2018
Focus area
Theme
Feedback/actions
develop its effectiveness. Interviews were conducted with every
Board member, according to a set agenda tailored for the Board,
which had been agreed with the Chairman and the Group Company
Secretary. In addition, interviews were held with senior managers
and advisers. Following the final report, recommendations were
considered by the Board and shared with each committee, and a
further action plan for areas of focus was agreed. The 2018 actions
are outlined in the table below. These will be reviewed during 2019.
In addition, during the year the NEDs, led by the Chairman, met to
discuss the executives’ performance. The NEDs, led by the SID Glyn
Barker, also met without the Chairman present to consider the
Chairman’s performance.
Strategic focus
Focussing on strategic
themes and
incorporating
investors’ input
The Board prioritised discussions on strategy during 2018 and held in depth strategy
discussions in June and September. The Board undertook an investor survey to garner
investor thoughts and feedback. This feedback was incorporated into Board discussions
on strategy and into the areas of focus for the Board during the year.
Succession planning Board and executive
level succession
planning
Governance
Developing the
relationship between
Aviva plc and
subsidiary boards
International focus
Strategic priorities
Culture
Diversity and inclusion
The identification of Maurice Tulloch as our new Group CEO built on the succession
planning work carried out by the Board in previous years. The Board also considered
ways in which a pipeline of suitable candidates for executive and non-executive
directorships could be maintained and enhanced, and refreshed and strengthened its
NED succession framework during the year.
The annual Chairman’s conference was held in November 2018, allowing the Board to
engage with subsidiary company board members. The appointment of Non-Executive
Directors from the Board to the Group’s material subsidiaries has strengthened
communications and strategic linkages between Group companies. During the course of
the year, the Board received reports and deep dives into different business areas and
markets and held a Board meeting in Italy to get a greater insight into the Italian business
and to meet with the Italian board. A number of Aviva plc directors also attended
subsidiary board meetings.
The Board has enhanced its focus on its international markets through business unit
presentations from key international markets and visits to offices outside the UK. This
was supported by Maurice Tulloch’s appointment to the Board in June 2017.
The Board is committed to playing a leading role in maintaining a culture which values
diversity and inclusion throughout the Group. It uses information from the Voice of Aviva
all-employee engagement survey, input from the Evolution Council and from NED
participation in the ‘Your Forum’ employee forum to increase insight into our Group’s
culture. The Board monitors closely feedback from the Group employee survey and the
progress of culture development programmes.
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Continued
Our stakeholders
The Board understands that the long-term sustainable success of Aviva is dependent on effective engagement with our key stakeholders.
We recognise the role that each stakeholder group plays in our success and our responsibilities towards them. Building strong stakeholder
engagement mechanisms, based on dialogue and participation, is a foundational part of our social ‘licence to operate.’ The table below
identifies those key stakeholders and sets out how the Board engages with them.
Our stakeholders
Why they are important to us
How are we engaging
Customers
Our people
Our customers are the users of our
products and services and are
those who we support to ‘Defy
Uncertainty.’
We serve customers in our eight
major markets and in other
jurisdictions where we have
strategic investments.
Our people are essential to
meeting our purpose to help our
customers to Defy Uncertainty and
deliver simple, innovative and
customer centric products and
services.
The Board received two formal presentations on customer issues during
the year and focused on customer issues during the Board’s strategy
offsite meetings. The Governance Committee, working in support of the
Board, considers customer matters at every meeting to ensure a
consistent and deep focus on the customer experience and on customer
issues. As noted in the Directors’ Remuneration Report, customer
measures have been introduced into the annual bonus element of
executive directors’ pay, to further encourage a more customer centric
approach. As a business we conduct extensive direct customer testing and
during 2019 the Board has made the customer a priority area of focus.
The Board engages with our people in several ways. The Board receives
regular updates on the culture and engagement of our employees. We
have a fully elected employee forum ‘Your Forum’ representing UK and
European employees, which meets with one of our Non-Executive
Directors annually. We also have the ‘Evolution Council,’ made up of high
calibre developing leaders from across the business, that provides insight
on digital, brand and strategy. The Executive Chairman chairs all meetings
of the Evolution Council and two other Non-Executive Directors have also
attended meetings. We also engage with our people through forums such
as ‘Uncut’, unscripted Q&A sessions with senior managers streamed live,
and a programme of town hall meetings.
Business
partners/suppliers
Shareholders
Regulators
Communities
Our business suppliers and
partners provide us with the tools
and services we need to deliver for
our customers.
Our Procurement function conducts supplier surveys and supports a
programme of supplier engagement, some of which is linked to our
annual statement on Modern Slavery. During 2019 the Board will continue
to review this engagement activity.
Our shareholders are the ultimate
owners of the Company and are
involved with certain stewardship
activities.
Aviva is subject to financial
services regulations in all the
markets it operates and requires
regulatory approval to operate.
The Board meets with shareholders at the Annual General Meeting which
provides an opportunity, predominantly for our retail shareholders, to
engage directly with the Board. The Chairman and Executive Directors
have a programme of meetings with institutional investors during the
year. The Board also receives weekly reports from the Investor Relations
team and briefings from our corporate brokers on investor views.
Aviva is subject to close and continuous supervision from its regulators.
This includes a programme of regular meetings between Board members
and our regulators.
Aviva approaches business in a
responsible and sustainable way
that aligns with our purpose and
values and supports the
communities in which we operate.
The Board receives regular updates on our community activities, such as
our partnership with the Red Cross, and the establishment of the Aviva
Foundation. The Governance Committee supports the Board in this area
and approves the corporate responsibility strategy for the Group and
oversees the implementation of that strategy.
Employee engagement
The 2018 Code, which Aviva will report against in our 2019 Annual report and accounts, sets out three ways in which companies can engage
with the workforce. The Board will consider its approach during the year and currently the company is applying a hybrid arrangement. This
consists of engagement with ‘Your Forum’, our workforce engagement forum, which is supplemented by attendance from Non-Executive
Directors where appropriate. The Evolution Council provides a further employee engagement forum and is also attended by Board
members. This enables the Board attendees to share output from these employee bodies with the wider Board and provide feedback to the
Your Forum and Evolution Council. In addition to these arrangements the Board meets with employees at ‘Talent Breakfasts’ and regularly
conducts business unit meetings to engage with a wider pool of employees.
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Continued
Committee effectiveness
As part of the Board effectiveness review process, each committee
considers the feedback from the Board evaluation exercise and
develops an action plan as appropriate.
Frameworks for risk management and internal control
The Board is responsible for promoting the long-term success of the
Company for the benefit of shareholders, as well as taking account
of other stakeholders including employees and customers. This
includes ensuring that an appropriate system of risk governance is
in place throughout the Group. To discharge this responsibility, the
Board has established frameworks for risk management and
internal control using a ‘three lines of defence’ model and reserves
for itself the setting of the Group’s risk appetite. Further details are
contained on the following pages.
In-depth monitoring of the establishment and operation of prudent
and effective controls in order to assess and manage risks
associated with the Group’s operations is delegated to the Risk,
Governance and Audit Committees which report regularly to the
Board. However, the Board retains ultimate responsibility for the
Group’s systems of internal control and risk management and has
reviewed their effectiveness for the year. The frameworks for risk
management and internal control play a key role in the
management of risks that may impact the fulfilment of the Board’s
objectives. They are designed to identify and manage, rather than
eliminate, the risk of the Group failing to achieve its business
objectives and can only provide reasonable and not absolute
assurance against material misstatement and loss. The frameworks
are regularly reviewed and were in place for the financial year under
review and up to the date of this report. They help ensure the Group
complies with the Financial Reporting Council’s (FRC) guidance on
Risk Management, Internal Controls and Related Financial and
Business Reporting.
A robust assessment was conducted by the Board of the principal
risks facing the Company, including consideration by the Risk
Committee of those emerging risks that could impact the Group’s
business model, future performance, solvency and liquidity. In 2018
the Risk Committee reviewed a number of emerging risk scenarios
and focused on Brexit (regular updates), systemic cloud risk and
‘silent cyber’, competitive threats from technology companies
entering the insurance market, risks posed by climate change,
outsourcing supplier collapse risk and other emerging risks and
sources of market uncertainty. Further information is contained in
the Risk Committee report.
Risk management framework
The Risk Management Framework (RMF) is designed to identify,
measure, manage, monitor and report the principal risks to the
achievement of the Group’s business objectives and is embedded
throughout the Group. It is codified through risk policies and
business standards which set out the risk strategy, appetite,
framework and minimum requirements and controls for the
Group’s worldwide operations. Further detail is set out in note 59.
Internal controls
Internal controls facilitate effective and efficient operations, the
development of robust and reliable internal reporting and
compliance with laws and regulations. Group reporting manuals
in relation to IFRS and Solvency II reporting requirements and a
Financial Reporting Control Framework (FRCF) are in place across
the Group. FRCF relates to the preparation of reliable financial
reporting, covering both IFRS and Solvency II reporting activity.
The FRCF process follows a risk-based approach, with management
identification, assessment (documentation and testing),
remediation (as required), reporting and certification over key
financial reporting related controls. Management regularly
undertakes quality assurance procedures over the application of
the FRCF process and controls.
In 2018, the Group was focused on reinforcing its operational
resilience by driving major control improvements in a number of
areas, including continued investment in the Group’s IT estate,
disaster recovery capability and the strengthening of its cyber
security controls. This work will continue through 2019. More
broadly, the Group seeks to continue to monitor and further
enhance its control frameworks across the business, including
financial crime prevention and data privacy. Further information
can be found in the Audit and Risk Committee reports.
First line – management monitoring
The Group Executive members and each market Chief Executive
Officer are responsible for the application of the RMF, for
implementing and monitoring the operation of the system
of internal control and for providing assurance to the Audit,
Governance and Risk Committees and the Board.
Second line – risk management, compliance and actuarial functions
The Risk Management function is accountable for the quantitative
and qualitative oversight and challenge of the identification,
measurement, monitoring and reporting of principal risks and for
developing the RMF.
The Actuarial function is accountable for the Group wide actuarial
methodology, reporting to the relevant governing body on the
adequacy of reserves and capital requirements, as well as
underwriting and reinsurance arrangements. The Compliance
function supports and advises the business on the identification,
measurement and management of its regulatory, financial crime
and conduct risks. It is accountable for maintaining the compliance
standards and framework within which the Group operates, and
monitoring and reporting on its compliance risk profile.
Third line – internal audit
The third line of defence is Internal Audit. This function provides
independent and objective assessment on the robustness of the
RMF and the appropriateness and effectiveness of internal control
to the Audit, Governance and Risk Committees, market audit
committees and the Board. Further information can be found in the
Audit Committee report.
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Continued
The principal committees that oversee risk management are as follows
The Risk Committee
The Governance Committee
The Audit Committee
Assists the Board in its oversight of risk and
risk management across the Group and
makes recommendations on risk appetite
to the Board. Reviews the effectiveness of
the Risk Management Framework, and the
methodology in determining the Group’s
capital and liquidity requirements.
Ensures that risk management is properly
considered in setting remuneration policy.
Works closely with the Risk Committee and
is responsible for assisting the Board in its
oversight of operational risk across the
Group, particularly the risk of not delivering
good customer outcomes and compliance
with our corporate governance principles.
Works closely with the Risk Committee and
is responsible for assisting the Board in
discharging its responsibilities for the integrity
of the Company’s financial statements, the
effectiveness of the system of internal controls
and for monitoring the effectiveness,
performance and objectivity of the internal
and external auditors.
The risk management framework of a small number of our joint
ventures and strategic equity holdings differs from the RMF outlined
in this report. We continue to work with these entities to understand
how their risks are managed and to align them, where possible, with
our framework.
Communication with shareholders
The Company places considerable importance on communication
with shareholders. The Executive Directors have an ongoing
dialogue and a programme of meetings with institutional investors,
fund managers and analysts which are managed by the Company’s
Investor Relations function. The Chairman met a number of the
Company’s major shareholders during 2018. At these meetings a
range of issues were discussed within the constraints of information
already made public, to understand shareholders’ perspectives.
Shareholders’ views are regularly communicated to the Board
through the Group CEO’s, or Executive Chairman’s, and CFO’s
reports and weekly briefings from the corporate brokers and the
Investor Relations function. The SID was available to meet with
major investors to discuss any concerns that could not be resolved
through normal channels.
2019 AGM
The 2019 AGM will be held on Thursday 23 May 2019 and the Notice
of AGM and related papers will, unless otherwise noted, be sent to
shareholders at least 20 working days before the meeting. The AGM
provides a valuable opportunity for the Board to communicate with
private shareholders. All serving directors attended the Company’s
2018 AGM, and plan to attend the 2019 AGM. A presentation on the
Group’s performance will be given at the 2019 AGM and made
available on the Company’s website after the meeting at
www.aviva.com/agm.
Shareholders are invited to ask questions related to the business of
the meeting at the AGM and have an opportunity to meet with the
directors following the conclusion of the meeting. Further details on
the AGM are provided in the Shareholder Services section of this
report.
Board oversight of risk management
The Board’s delegated responsibilities regarding oversight of risk
management and the approach to internal controls are set out on
the previous pages. There are good working relationships between
the Board committees and they provide regular reports to the
Board on their activities and escalate significant matters where
appropriate. The responsibilities and activities of each Board
committee are set out in the committee reports.
Assessment of effectiveness of risk management
Each business unit Chief Executive Officer and Chief Risk Officer is
required to make a declaration that the Group’s governance and
system of internal controls are effective and are fit for purpose for
their business and that they are kept under review through the year.
Any material risks not previously identified, control weaknesses or
non-compliance with the Group’s risk policies or local delegations
of authority must be highlighted as part of this process. This is
supplemented by investigations carried out at Group level and a
Group CEO and CRO declaration for Aviva plc.
The effectiveness assessment also draws on the regular cycle of
assurance activity conducted during the year, as well as the results
of the annual assessment process. During 2018, this has been
supported by the application of the Group’s Operational Risk &
Control Management framework. Through this the Group has
defined a common system and methodology for the management
of operational risks and the controls to be deployed throughout the
Group. This framework includes tools, processes and standardised
reporting necessary to identify, measure, manage, monitor and
report on the operational risks to which the business is, or could be,
exposed and the controls in place to mitigate those risks within
centrally set tolerances. The details of key failings or weaknesses
are reported to the Audit Committee and the Board on a regular
basis and are summarised annually to enable them to carry out an
effectiveness assessment.
The Audit Committee, working closely with the Risk Committee on
behalf of the Board, carried out a full review of the effectiveness of
the systems of internal control and risk management in March 2018
covering all material controls, including financial, operational and
compliance controls and the Risk Management Framework (RMF).
There has been regular reporting to the committee throughout the
year to ensure that outstanding areas of improvement are both
identified and remediated. Whilst there has been substantial
progress during the year there remains a number of areas where
significant work is still required. The reports to the committee refer
to the need to embed controls in a number of areas and the need to
make significant improvement in areas which represent key aspects
of the Group’s control environment, such as cyber security, IT
resilience and disaster recovery, as well as financial crime
prevention, data management, UK Insurance complaints
management (including data migrations) and ongoing
improvements in Canada. The Audit Committee on behalf of the
Board will continue to monitor progress throughout 2019.
Aviva plc Annual report and accounts 2018
52
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IFRS financial statements
Other information
Directors’ and Corporate Governance report
Continued
Nomination
Committee
report
Committee focus during 2018
I am pleased to present the Nomination Committee’s report for the
year ended 31 December 2018.
During the year, the Committee reviewed and refreshed the Non-
Executive Director succession process and reviewed the succession
and talent development framework for senior executives.
On 9 October 2018, the Group Chief Executive Officer (Group CEO)
Mark Wilson stepped down from the Board and during the
remainder of the year, the Committee was focused on overseeing
the selection process for the new Group CEO.
Committee membership
The members of the Committee are shown in the table below.
Details of their experience and qualifications are shown in the
Directors’ biographies, and their attendance at Committee
meetings during the year is shown within the Directors’ and
Corporate Governance report. There were no changes to the
composition of the Committee during 2018.
In January 2019, we announced that Michael Hawker would retire
from the Board as a Non-Executive Director and as Chairman of the
Risk Committee and as a member of the Audit and Nomination
Committees with effect from 31 March 2019. The appointment of
the new Risk Committee Chair is well advanced and will be
announced following completion of the relevant regulatory
approval process.
The Committee determines a Non-Executive Director’s
independence by evaluating their character and judgement, in line
with the 2016 UK Corporate Governance Code.
The Committee conducted a rigorous review of Glyn Barker, who
has served on the Board for more than six years, and concluded that
he remains independent. Glyn has a deep understanding of
accounting and regulatory issues and extensive experience as a
business leader and continues to provide independent oversight
and challenge in the boardroom.
The Committee also reviews the appointment of Executive Directors
to external positions. During the year Mark Wilson, at the time Group
CEO, was invited to become a Non-Executive Director of BlackRock
Inc. Aviva’s policy is to permit Executive Directors to hold one
external Non-Executive role, provided there are no conflicts with the
interests of Aviva, and to retain any fees from such appointments.
The Committee considered the time commitment required by the
BlackRock role and any potential conflicts of interest that might be
created. Following a review of the proposed role and a discussion of
the potential conflicts, the Committee authorised Mark’s
acceptance of the BlackRock Non-Executive Director role, subject to
certain safeguards being put in place around potential conflicts of
interest. These included the Group CEO recusing himself from any
meetings that were held with BlackRock as a shareholder in the
Company, with the Chairman and CFO assuming this responsibility.
In addition the day-to-day management of Aviva Investors, the
Group’s asset management business, was carried out directly by the
management and Board of Aviva Investors.
Board and executive succession planning
In July 2018, the Financial Reporting Council introduced the revised
UK Corporate Governance Code (the 2018 Code). The new Code
places greater emphasis on succession planning and, in
preparation for the 2018 Code, the Committee has built on its
existing processes to enhance its focus in this area. To support
effective future succession and appointments, the Committee will
continue to engage with external stakeholders (including
shareholders and regulators) when appropriate.
Name
Sir Adrian Montague1
Claudia Arney
Glyn Barker
Patricia Cross
Belén Romana García
Michael Hawker2
Michael Mire
Keith Williams
Member Since
06/03/2013
08/02/2016
01/07/2012
01/12/2013
26/06/2015
01/07/2012
12/09/2013
01/08/2016
Years on the
Committee
6
3
6
5
3
6
5
2
CEO Appointment
Maurice Tulloch was appointed as Group CEO on 4 March 2019 and
was selected following an extensive search that produced a shortlist
of exceptional candidates. The Committee appointed Spencer
Stuart to support the search and interviewed a number of excellent
internal and external candidates for the position in a thorough and
highly competitive process. The Committee ensured that there was
a diverse selection of candidates and that all the candidates aligned
with the culture and value set of the Company. This process led to a
unanimous conclusion with the Committee recommending the
appointment of Maurice Tulloch as Group CEO.
1 Chair
2 Michael Hawker will retire from the Nomination Committee with effect from 31 March 2019.
Committee Purpose
The main purpose of the Committee is to monitor and maintain an
appropriate balance of skills, knowledge, experience and diversity
amongst the Directors. To assist in identifying and nominating
candidates for the Board, the Committee oversees succession
planning for the Executive and Non-Executive Directors and Senior
Management. The Nomination Committee also has responsibility
for the oversight of talent development throughout the Group.
Independence
During 2018, the Committee reviewed the balance of skills,
experience and independence of the Board. For Non-Executive
Directors, independence in thought and judgement is vital to
facilitating constructive and challenging debate in the boardroom,
and is essential to the operational effectiveness of the Board and
Committees of Aviva.
Aviva plc Annual report and accounts 2018
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IFRS financial statements
Other information
Committee activities during 2018
Evaluation and annual assessment
• Assessed the Non-Executive Directors’ independence
• Considered and recommended to the Board the election/re-
election of each continuing director ahead of their election/re-
election by shareholders at the Company’s 2018 AGM
• Reviewed and made recommendations to the Board in respect of
each Directors actual, potential or perceived conflicts of interests
Board composition and diversity
• Led the search process for the new Group CEO
• Reviewed the composition of the Board and its committees and
whether the Board required additional skills and experience
which would complement those of the existing members and the
Company’s risk profile and strategy
• Considered specific steps to be taken in relation to diversity in
Board and executive succession planning
Succession planning
• Continued to focus on succession planning arrangements at both
Board and executive level, against a specification for the role and
capabilities required for the position and the composition of the
Board
• Considered plans for succession for each Group Executive
member, including talent development below Group Executive
level
• Recommended the new succession planning framework to the
Board for approval
Talent pipeline
• Reviewed the career and development plans for the Group
Executive to ensure that there is an adequate talent pool of
potential executive directors
• Provided oversight of talent development throughout the Group
and ensured there is a sufficient and diverse pipeline of talent
available to execute the Company’s current and future strategy
Directors’ and Corporate Governance report
Continued
Talent Management
The Committee also maintains close involvement in the managing
and strengthening of the talent pipeline across the Group. During
the year the Committee reviewed the Group talent development
framework and discussed executive succession, senior leadership
capability, and the Group’s leadership development programmes.
The framework also aims to improve diversity in our talent pipeline:
for example, through our ‘Women in Leadership’ programme, we
target development of future female leaders. Members of the
Committee have also been involved in various initiatives including
an ongoing programme of ‘Talent Breakfasts’ where high potential
employees meet the Board.
Diversity
We believe at Aviva that a diverse board better understands its
customer base and its business. The Board is committed to having a
diverse and inclusive leadership team which provides a range of
perspectives, insights and the challenge needed to support good
decision making. Diversity at Aviva is not limited to gender; but is
inclusive of all strands of diversity including skills and experience,
geographical expertise, ethnicity, disability, and sexual orientation.
The Board is supportive of the recommendations set out in the
Parker Review and we aim to increase the ethnic diversity of the
Board by 2021, as well as monitoring ethnic diversity in our
leadership pipeline. As a global business Aviva recognises the
importance of reflecting the diversity of the customers we serve in
the composition of our Board and the senior management of the
markets we operate in.
At the date of the report the representation of women on the Board
was 27%. As part of our goal for diversity, we actively support
women advancing into senior roles, with the Chairman an active
member of the 30% Club. We are a charter signatory of HM
Treasury’s Women in Finance Charter, which commits financial
services companies to a range of measures to improve gender
diversity amongst senior management. During 2018, Aviva
sponsored ‘The Female FTSE Board Report 2018’ produced by
Cranfield University, examining changes in women’s representation
on Boards and measures that could be used to accelerate progress.
In May 2017, the Board adopted a Diversity and Inclusion statement
which supports the Committee in its approach to succession
planning. This Diversity and Inclusion statement, which is in line
with the overall Group Diversity and Inclusion strategy, is available
on the Company’s website at www.aviva.com/corporate-
governance.
Board effectiveness review
The Committee undertakes a review of its effectiveness annually.
More information can be found in the Directors’ and Corporate
Governance report.
2019 priorities
In 2019 the Committee will continue to focus on succession
planning both for the Board and at senior management level, and
will continue to develop a strong talent pipeline and associated
leadership programmes.
Sir Adrian Montague
Chair of the Nomination Committee
6 March 2019
Aviva plc Annual report and accounts 2018
54
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IFRS financial statements
Other information
Directors’ and Corporate Governance report
Continued
Risk Committee
report
Committee focus during 2018
I am pleased to present the Committee’s report for the year ended
31 December 2018.
The Company’s approach to risk and risk management together
with the principal risks that face the Group are explained within the
Risk and risk management section of this report.
During the year the Committee’s focus remained on the political
environment, in particular Brexit planning, economic outlook,
outsourcer contagion risk, the emerging strategic risks posed by
technology changes, risks posed by climate change, the heightened
risk of cyber threats and data security, together with ongoing
regulatory change.
The Company’s overall risk profile has remained fairly constant
throughout 2018. The Committee continued to review and oversee
the strengthening of the Group’s operational risk environment and
ongoing monitoring of the businesses’ capacity to deliver a number
of mandatory and strategic change projects underway.
The Committee continues to monitor the current risk environment,
with IT and operational risk remaining as significant themes. This
aligns to the Committee’s focus on cyber and IT, which includes
cyber security, transformation of IT infrastructure, and the ability
to deliver data digitally to meet the needs of our customers.
Due to the ongoing Brexit negotiations between the United
Kingdom and the European Union, the political landscape has
remained volatile in 2018, with the Committee continuing to
monitor the political environment, Brexit planning and preparation
activities.
Committee membership
The members of the Committee are shown in the table below.
Details of their experience and qualifications are shown in the
Directors’ biographies, and attendance at Committee meetings
during the year is shown within the Directors’ and Corporate
Governance report. There were no changes to the composition
of the Committee during 2018.
Name
Michael Hawker1
Glyn Barker
Belén Romana García
Michael Mire
Claudia Arney
Keith Williams
Member Since
01/01/2010
02/05/2012
26/06/2015
12/09/2013
01/01/2017
03/08/2017
Years on the
Committee
9
6
3
5
2
1
1 Chair. Michael Hawker will retire from the Risk Committee with effect from 31 March 2019. The appointment
of the new Risk Committee Chair is well advanced, and will be announced following completion of the
relevant regulatory approval process.
Committee purpose
The main purpose of the Committee is to assist the Board in its
oversight of risk within the Group, with particular focus on reviewing
the Group’s risk appetite and risk profile in relation to capital,
liquidity and franchise value and reviewing the effectiveness of the
Group’s Risk Management Framework. The Committee reviews the
methodology used in determining the Group’s capital requirements
and stress testing and ensures that due diligence appraisals are
carried out on strategic or significant transactions. In addition to the
risks inherent in the Group’s investment portfolio, the Committee
reviews the Group’s operational risks, and significant ongoing
changes to the regulatory framework, while monitoring the
prudential regulatory requirements across the Group. The
Committee also works with the Remuneration Committee to ensure
that risk management is properly considered in setting the
Remuneration Policy, and is responsible for promoting a risk
awareness culture for the Group.
Cyber
Given the importance of cyber security to the Group, all cyber
activity is governed in one portfolio of transformation activity to
ensure efficiency, transparency and the ongoing ability to manage
the holistic execution alongside specific people, process and
technology delivery. During the year the Committee reviewed the
linkage between the Group’s cyber environment and customer
satisfaction, which remained a key theme of the Cyber Major
Control Improvement Topic (MCIT).
The Committee reviewed the Group’s Cyber Dashboard, which
focused on seven capabilities (threat led strategy, governance,
security engineering, detect and respond, assurance, culture and
recovery) and further enhanced how the Group assesses and
manages cyber risk. The dashboard provides the Group with a
strong framework and a simplified process with consistent
measures which enables the Committee to review the progress of
the Group’s capabilities for the benefit of all stakeholders. The
Group also recently completed external benchmarking on the Cyber
Controls and reviewed these controls within the Operational Risk &
Control Management (ORCM) framework to provide increased
clarity, rigour and understanding within the business units of the
Group’s requirements.
Work is progressing to further strengthen the cyber and disaster
recovery controls, which the Committee will monitor closely to
ensure they continue to evolve with changes in the shifting
environment and threats as they emerge.
IT infrastructure and security
A particular focus for the Committee during 2018 was the
monitoring of the IT security culture within the Group and it was
recognised that the culture had further improved through the
delivery of a refreshed training programme and strengthened
security awareness. Service improvement was also a key area of
focus in 2018 with significant effort on identifying, understanding
and addressing the underlying causes of IT service matters. In
recognition of the fundamental and long-term nature of the
challenges around IT security, the Committee continues to review
the strategic approach to IT service remediation and improvement.
During the year the Committee challenged the risk management
of the Group’s IT estate and ensured business focus on network
availability remained a priority to support our customer and
business needs. The proposed transformation of the IT
infrastructure in 2019 is a key part of supporting the end to end
business process and provides enhanced capacity for the future.
The Committee recognises that the risk cultural awareness in the
businesses has been strengthened further, especially in relation to
overall application governance and business prioritisation and
remains satisfied that the appropriate steps are being taken to
mitigate the risks of a complex IT estate.
Aviva plc Annual report and accounts 2018
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Governance
IFRS financial statements
Other information
Directors’ and Corporate Governance report
Continued
Data migration
During the year a number of data migration and functional service
activities had not delivered the customer service outcomes we
expected or required. The Committee reviewed the lessons learned
from these activities and used the insights gained to further
enhance risk assessments and monitoring ahead of future
migration activity. The Company’s data migration risk profile has
been driven largely by the Group’s external regulatory and conduct
environment, and the impact of previous data migration projects.
The Committee has further increased its focus on risk management
within UK Insurance and Group-wide IT and change projects
underway. The risks, governance, regulatory accountability,
resource allocation, business prioritisation and project
management around the Company’s overall change agenda was a
particular focus of the Committee’s meeting agenda in 2018, and
will continue to be a focus as we go into 2019. As a result, the
Committee has requested that an enhanced governance structure
be established for the most material Group change programmes.
This enhanced structure has brought together members of the
Board, Non-Executive Director representatives from key operating
and regulated group boards, as well as senior executive
management. This structure was further supplemented by
representatives of the second and third line oversight functions
(Risk and Internal Audit) with external third party assurance where
appropriate. The enhanced structure supplemented the Committee
Chair’s ongoing engagement with the Risk Committee Chairs in a
number of our regulated subsidiaries.
Capital and liquidity
During the year the Committee reviewed the current and projected
liquidity position, risk environment and risk profile including credit
cycle analysis and the economic outlook.
While reviewing the risk profile the Committee oversaw the analysis
of the Group’s current and projected Solvency II capital and liquidity
position, which included reviewing forecasted operating capital
generation over the plan period. The Committee reviewed the
different levels of risk appetite and capital ranges across the Group
and reviewed the capital positions in the Group’s subsidiaries and
Group sensitivities.
Brexit
During the year the Committee monitored the ongoing Brexit
negotiations between the UK and EU, and reviewed the Group’s
operational readiness planning ahead of the scheduled UK
departure on 29 March 2019. Specifically, this included reviewing
progress in executing the necessary insurance portfolio transfers to
subsidiaries in the Republic of Ireland and establishing our fund
management business in Luxembourg, which will be the Group’s
hub to serve clients located in the European Economic Area (EEA).
More generally the Committee has also reviewed the Group’s
contingency plans to ensure continuous service to customers in the
event of a hard Brexit, and considered the impact on supply chain.
The Committee also considered the potential risk that Brexit could
trigger an early general election in the UK. Brexit will remain on the
Committee’s agenda throughout 2019, whilst we monitor
developments and the impacts, both on the external environment
and on our business.
Committee effectiveness review
The Committee undertakes a review of its effectiveness annually.
More information can be found in the Directors’ and Corporate
Governance report.
2019 priorities
The Committee will continue to monitor the political environment, the
expected exit of the UK from the EU, and the current global economic
cycle, particularly the impact around perceived inflated asset values. It
will also focus on the economic and market impacts on the Group
operationally, together with managing any balance sheet volatility that
these may bring. There will be an ongoing and significant focus on
further strengthening the control framework, particularly in relation to
change management, cyber risk reduction and disaster recovery
capabilities of the Group. Particular attention will also remain on
emerging risks, and the potential benefits that could be derived from
them, particularly around advances in technology across financial
services, automotive and healthcare.
Michael Hawker
Chair of the Risk Committee
6 March 2019
Committee activities during 2018
Risk appetite, risk management and risk reporting
• Reviewed reports from the Chief Risk Officer (CRO), which
included updates on significant risks facing the Group, the
Group’s capital and liquidity position, the control environment,
emerging risks and risk profile, liquidity risk appetite and
operational, regulatory and conduct risk
• Reviewed and recommended the Group’s risk policies for Board
approval
• Reviewed reports on the updated audit approach under the
Group’s ORCM Methodology
• Reviewed and recommended for Board approval the Group’s
Solvency II (SII) Capital and Liquidity risk appetite
• Approved the Group’s foreign exchange risk appetite and SII
capital risk tolerances by risk type
Group capital and liquidity, financial plan and stress testing
• Approved the 2018 Group Capital and Liquidity Plan and
subsequent updates
• Reviewed capital and liquidity projections including the Group’s
Solvency II shareholder cover ratio and liquidity cover ratio
• Reviewed updates on credit risk and the Company’s credit
exposure and reviewed mitigating actions
• Received updates on the asset portfolio; including global
economics, assessment of macro economic impacts on the equity
release market and investment updates
• Approved the Global Systemically Important Insurer Plans,
including Recovery Plan and Liquidity Risk Management Plan
• Received the scenarios for group-wide stress testing to support
the Group Recovery Plan
• Reviewed the 2019-2021 Group Plan
Internal model
• Undertook a review of the internal model components, reviewed
internal model validation reports and governance updates
External factors
• Reviewed regular updates on the performance of the Group’s
investment portfolios and on the external economic environment,
and assessed the implications on the Group’s asset portfolio
• Monitored the risk for cyber security, the progress against cyber
risks and reviewed the results of simulated security attacks
against the Group
• Monitored the potential impact of Brexit, in particular the exit
scenarios and regularly reviewed updates regarding the potential
impact on our customers and capital and liquidity
• Reviewed the most significant emerging risk scenarios affecting
the delivery of the Company’s strategy, including EU GDPR
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Other information
Directors’ and Corporate Governance report
Continued
Regulatory, governance and internal audit
• Received updates from the UK Business Units
• Reviewed the Group Own Risk and Solvency Assessment
• Approved the refresh of certain Group Business Standards
• Approved the annual objectives of the CRO
• Reviewed the effectiveness of the systems of internal control and
Supervisory Report and approved its submission to the regulator
risk management
• Received updates on the disaster recovery, IT security,
outsourcing and cyber risk MCITs, and monitored and challenged
progress by management
• Received quarterly reports from the Chief Audit Officer (CAO) on
internal audit which included progress on improving the control
environment, progress on MCITs, and the review of the Internal
Audit function
• Recommended the 2019 Risk and Control Goal for approval by the
Remuneration Committee
• Reviewed the adequacy and quality of the risk management
function
• Assessed the performance of all Group Business Units against the
2018 Group Risk and Control Goal
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IFRS financial statements
Other information
Committee member requirements
The Committee annually reviews how its members meet the
expertise criteria set out in the 2016 UK Corporate Governance Code
(the 2016 Code) and the Disclosure Guidance and Transparency
Rules (DTRs). Following the review undertaken for 2018, a
recommendation was made to the Board that I, as Committee
Chair, continued to fulfil the Code requirement for recent and
relevant financial experience and the DTR requirement for
competence in accounting and auditing, as did Glyn Barker. Patricia
Cross and Michael Hawker confirmed that they meet the Code
requirement for recent and relevant financial experience. The
Committee as a whole has competence relevant to both the
insurance and financial services industry.
Committee purpose
The main purpose of the Committee is to assist the Board in
discharging its responsibilities for monitoring the:
• integrity of the Company’s financial statements;
• adequacy and effectiveness of our systems of internal control
including whistleblowing provisions; and,
• monitoring the effectiveness, performance and objectivity of our
internal and external auditors.
The Committee acts independently of management and works
closely with the Governance, Remuneration and Risk Committees.
There is cross-membership between these Committees to ensure
a good understanding and efficient communication of the work
of each.
Directors’ and Corporate Governance report
Continued
Audit Committee
report
Committee focus during 2018
I am pleased to present the Audit Committee’s report for the year
ended 31 December 2018.
2018 has been a year of continued political and business turbulence
as uncertainty around Brexit continued to impact financial markets
and business planning. Against this background, the Committee
has continued to focus on the fundamentals of financial reporting,
our system of internal controls and the performance of the internal
and external auditors. The potential impact of a number of new
International Financial Reporting Standards (IFRS), including the
new insurance accounting standard (IFRS 17) on the Company’s
financial operations and financial reporting has remained under
close review by the Committee.
The Committee continued to provide oversight on behalf of the
Board of all the Major Control Improvement Topics (MCITs) on
Cyber Security, Compliance Effectiveness, Data Governance,
Disaster Recovery, Outsourcing and Fraud Management. The
Committee has specific accountability for the Fraud Management
MCIT. Four MCITs were closed during 2017 and are now monitored
as part of our business as usual processes. The remaining Cyber
Security and Disaster Recovery MCITs remain in operation and will
continue to be overseen by the Risk Committee. The MCIT
programme was designed to assist management in providing even
greater focus on enhancing our control environment around the six
thematic areas identified.
Committee membership
The members of the Committee are shown in the table below.
Details of their experience, qualifications and attendance at
Committee meetings, together with the number of Committee
meetings held, during the year are shown in the Directors’
Biographies and Directors’ and Corporate Governance report. There
were no changes of the composition of the Committee during 2018.
Name
Keith Williams1
Glyn Barker
Patricia Cross
Michael Hawker2
Member Since
01/08/2016
08/08/2012
01/12/2013
01/09/2011
Years on the
Committee
2
6
5
7
1 Chair
2 Michael Hawker will retire from the Committee with effect from 31 March 2019.
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Directors’ and Corporate Governance report
Continued
Significant issues
The significant issues that the Committee considered during the year are set out in the table below.
Areas of focus
Actions taken by the Committee
IFRS and Solvency II
(SII) key issues and
judgements
Longer Term
Viability Statement
(the Statement)
New IFRS
IFRS and SII Life technical
provisions and reserves
IFRS and SII GI reserving
issues and judgements
Challenged estimates and judgements for IFRS and SII reporting bases. IFRS judgements included goodwill and intangible
asset impairment reviews, valuation for hard to value investments, reserving for insurance contracts and the additional
liability arising in the UK defined benefit pension schemes for Guaranteed Minimum Pensions (GMPs), following the High
Court judgement in October 2018. The Committee also reviewed the product governance provision in respect of historical
advised sales by Friends Provident.
Reviewed and challenged the principles underpinning the Statement for 2018, and concluded that the Company and its
subsidiaries will be able to continue in operation and meet their liabilities as they become due over the period covered by the
Statement. The Committee continues to consider it appropriate that the Statement covers a three year period.
Prepared for the implementation of new IFRS, including IFRS 17, the new insurance accounting standard, IFRS 15, in respect of
revenue from contracts, IFRS 9 on financial instruments, and IFRS 16 on leases. The Committee assessed the impact of each
on the Group’s financial position, processes, systems and data. While the impact of adopting IFRS 17 has yet to be fully
assessed it is expected that it will have a significant impact on the measurement and disclosure of insurance contracts. It is
not yet possible to assess the effect of adopting IFRS 9 as the Group has elected to apply the deferral approach permitted by
IFRS 4 (with the result that the Standard will be considered alongside IFRS 17). The adoption of IFRS 15 in 2018 and IFRS 16 in
2019 does not have a significant impact on the Group.
Challenged the assumptions used in the calculation of the Best Estimate Liability component of the technical provisions and
the reserves required under SII. Reviewed and challenged the longevity, expense and credit default assumptions used for the
2018 half and full year. The challenge around the setting of longevity assumptions was a particularly significant area for
review. During 2018, a detailed analysis was conducted, and reviewed by the Committee, to validate changes observed in
recent mortality experience and the resulting impact on our existing longevity assumptions. In particular, the Committee
reviewed the rate of annuitant mortality improvement reflecting recent experience in the UK market. The Committee met with
the Chair of the UK Life Audit Committee, which had conducted its own ‘deep dive’ on longevity assumptions, together with
the UK Life Chief Financial Officer. Following assessment of the proposed assumption changes the Committee considered the
associated release of margins and the timing of recognition of changes in longevity experience in the financial statements.
During the year the Committee considered, reviewed and approved the adoption of the relevant industry tables for the Bulk
Purchase Annuity business in the UK. The Committee also reviewed proposals for adoption of CMI 2017 model for mortality
improvement including the selection of parameters within the CMI model. The Committee also reviewed the implementation
of a new actuarial modelling system in the UK. During 2018, annuities and certain protection products were transferred onto
the new model. In addition, the Committee continued to review the allowance for the possible adverse impact of the decision
for the UK to leave the European Union.
Reviewed and challenged the principal assumptions in the calculation of the GI reserves, in particular the continued
appropriateness of maintaining the provision for bodily injury claims, which was first made in the 2016 financial statements.
The Committee continued to monitor progress in the changes in Ogden rate, noting the passing of the Civil Liability bill, and
the range of estimates for the change in the rate.
Global Finance for The Future The Committee reviewed and challenged management’s plans for the creation of a ‘Global Finance for the Future’ (GFF)
Internal controls
Preference shares
model for the Group’s internal finance functions. The primary objective of GFF is to simplify and consolidate finance systems
and operations to a single model and underlying IT systems, driving simplicity and lower cost.
The Committee continued to challenge and drive the ongoing implementation of the Operational Risk and Control
Management framework (ORCM) to ensure ORCM is adopted across the Group and to further support a risk aware culture.
The Committee received and reviewed the disclosures relating to our ability to cancel our preference shares following a
shareholder and court approved reduction of capital.
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Continued
External auditor
PricewaterhouseCoopers LLP (PwC) was appointed as the Group’s
External Auditor (Auditor) in 2012 following a formal tender process.
In line with the Company’s policy for the external audit contract to
be put out to tender at least every ten years, and in conformance
with European rules on mandatory audit rotation, the Committee
propose that a competitive tender process will next be completed
no later than for the 2022 year end. While there is no requirement
to rotate audit firms until the current auditor has served a maximum
of 20 years, in determining the timing of a tender process the
Committee is mindful that it is necessary to allow the selected
auditor appropriate time to become independent should the
Committee propose that an auditor other than PwC be selected to
serve shareholders going forwards. For this reason, it is currently
proposed that a tender process be completed in the 2020 financial
year for the 2022 year end. The Committee will continue to monitor
the effectiveness and independence of PwC, as well as considering
whether this proposed timing remains appropriate in light of
business developments.
The external audit is currently led by the PwC audit partner, Marcus
Hine who has held the role for four years. The role of audit partner
will be rotated after completion of the 2018 year end reporting
process. The incoming PwC audit partner for the year ending
31 December 2019 has been agreed and a transition plan is in place.
An annual review of the Auditor was undertaken through
completion of a questionnaire by the Committee, senior
management, and members of the Group’s finance community.
The Committee concluded that PwC continued to perform
effectively and is recommended to shareholders for reappointment
at the 2019 AGM.
The Company has complied with the Statutory Audit Services
for Large Companies Market Investigation (Mandatory Use of
Competitive Tender Processes and Audit Committee
Responsibilities) Order 2014 for the year ended 31 December 2018.
The Company has an External Auditor Business Standard
(Standard) in place which is aimed at safeguarding and supporting
the independence and objectivity of the Auditor. The Standard is
compliant with all UK and International Federation of Accountants
rules and takes into account the FRC’s Revised Ethical Standard
2016 and the EU Audit Directive (2014/56/EU).
Non-audit fees
In 2018 the Group paid PwC £20.4 million (2017: £22.3 million) for
audit and audit-related assurance services, a saving of £1.9 million
following completion of the Friends Life Part VII transfer in 2017.
In addition, PwC were paid £1.9 million (2017: £3.0 million) for
other services, including £0.9 million (2017: £2.2 million) for other
assurance services, giving a total fee to PwC of £22.3 million
(2017: £25.3 million).
In line with the Standard, our Committee satisfied itself that for all
non-audit engagements, robust controls were in place through a
quarterly review process for audit related and non-audit services
provided, to ensure that PwC’s objectivity and independence was
safeguarded, and concluded that it was in the interests of the
Company to purchase these services from PwC due to their specific
expertise. Further details are provided in note 13 of the financial
statements.
Internal control
The Committee is responsible for supporting the Board in ensuring
a robust system of internal control and risk management in the
Group. The Committee receives regular reports on the status of the
control environment, reports on our remaining Group MCIT, and
updates on the management of operational risks and controls
under ORCM. More information about our system of internal control
and risk management can be found in the Directors’ and Corporate
Governance report.
The Committee also receives quarterly control reports from the
Internal Audit function and reviews and challenges management on
the actions being taken to improve the quality of the overall control
environment and the risk control culture across the Group.
The Committee reviews and approves the bi-annual Internal Audit
Plan. It also conducts an annual review of the Internal Audit
Function to assess its effectiveness and to satisfy itself that the
quality, experience and expertise of the Internal Audit function is
appropriate for the business. This is carried out by reviewing reports
issued by Internal Audit and the output of an annual stakeholder
effectiveness survey. This formal process is supplemented by
regular private discussions with executive management, the
Internal Auditor, and the External Auditor. In 2018, the Internal
Audit function also undertook an external quality assurance review,
and the Committee assessed the outcome of this review. The
Committee concluded that for 2018 the function performed well
and remained effective.
For the financial year under review, the Company met the relevant
provisions of the 2016 Code relating to internal controls, and the
FRC’s 2014 ‘Guidance on Risk Management, Internal Control and
Related Financial and Business Reporting’.
The Committee is also supported in its work by the Audit
Committees that operate in the Group’s regulated subsidiary
entities. These subsidiary Audit Committees review the operation
of internal controls, and actively challenge judgement made by
management, strengthening the overall governance and control
framework for the Group. The Committee Chair has engaged with
subsidiary company entity chairs during the year on Group matters.
Whistleblowing
The Committee Chair is the whistleblowers’ champion for the Group
and has responsibility to oversee the integrity, independence and
effectiveness of the Group’s policies. The Committee as a whole is
responsible for establishing and overseeing the effectiveness of
controls put in place in accordance with regulatory requirements in
respect of whistleblowing. The Board annually receives a formal
report in respect of whistleblowing activity and compliance in line
with our regulatory requirements.
Committee effectiveness review
The Committee undertakes a rigorous review of its effectiveness
annually. More information can be found in the ‘Directors’ and
Corporate Governance report’ in this report.
2019 priorities
In 2019, in addition to carrying out its principal function, the
Committee will continue to monitor the implementation of the new
IFRS, with particular focus on IFRS 17, regarding the accounting
treatment of insurance contracts, ahead of its expected effective
date of 1 January 2022. The Committee will also closely monitor the
developments related to the impact of Brexit, changes in the
Ogden rate and will continue to support the development of the
ORCM framework.
Keith Williams
Chair of the Audit Committee
6 March 2019
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Continued
Committee activities during 2018
Financial Statements and accounting policies
• Recommended to the Board for approval the 2018 half and full
Internal audit
• Reviewed reports from the Chief Audit Officer (CAO)
• Reviewed and approved changes to our Internal Audit Charter and
year results
• Approved the IFRS and SII technical provisions with the 2018 half
and full year results
• Recommended to the Board for approval the SII Solvency and
Financial Condition Report
• Reviewed and challenged the reserve positions relating to our
UK Life and GI operations
• Reviewed and challenged the treatment and recoverability of
goodwill and other intangible assets
Business Standard
• Reviewed and approved our Internal Audit Plan
• Assessed the independence of the CAO
• Held private meetings with the CAO without management present
• Reviewed the objectives of the CAO
Internal controls, including financial reporting control framework
and financial reporting developments
• Received quarterly updates on the effectiveness of our FRCF
• Reviewed the Chief Financial Officer’s reports which included:
framework and rectification of controls
• Reviewed management’s assessment of the effectiveness of our
risk management and control environment
• Oversaw the MCIT programme
• Reviewed the Internal Audit function report to ensure adequacy of
our systems of internal control and risk management
• Ensured an appropriate whistleblowing framework was in place
IFRS and SII key issues and judgements; accounting
developments with particular regard to the new IFRSs; and
overview of internal control and risk management over financial
reporting
• Reviewed and challenged the going concern assumptions for
2018 and the principles underpinning our Longer Term Viability
Statement
• Reviewed and prepared for changes in the Ogden rate
• Reviewed the Group Risk Actuary’s report on significant issues
related to the technical provisions of SII and IFRS
• Assessed that the Annual Report was considered fair, balanced
and understandable
External audit, auditor engagement and policy
• Reviewed the effectiveness of the External Auditor and was
satisfied that the services it provided remained effective, objective
and fit for purpose
• Reviewed the External Auditor’s compliance with the
independence criteria set out in the Code
• Monitored compliance with our External Auditor Business
Standard on a quarterly basis
• Refreshed our External Auditor Business Standard to reflect new
regulatory requirements
• Held private meetings with the External Auditor without
management present to provide an appropriate forum for issues
to be raised
• Approved auditor terms of engagement and remuneration
• Reviewed reports from the External Auditor with regard to: the
2018 Audit Plan and progress against plan and reports on the
audit of the 2018 half and full year results including key
assumptions used and outcomes of the audit
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Continued
Governance
Committee report
Data
Ahead of the implementation date of the General Data
Protection Regulation (GDPR) the Committee reviewed our data
governance arrangements and monitored our implementation
preparations.
The Committee has also reviewed our broader approach to data
privacy to assess how Aviva demonstrates that it uses customer
information appropriately.
Committee focus during 2018
I am pleased to present the Governance Committee’s report for
the year ended 31 December 2018.
Conduct agenda
In the past year the Committee has continued to pay close
attention to Aviva’s conduct risk agenda.
In addition to UK conduct risks, the Committee has also
reviewed conduct and compliance risks across our markets.
During the year, the Committee received a deep dive on conduct
risk in our Singapore business from the Chief Risk Officer of Aviva
Singapore and in our Polish business from the Chief Executive
Officer of Aviva Poland.
Governance
The Committee focused on changes in the internal governance
of the Group, particularly governance within our subsidiary
businesses. A set of subsidiary governance principles were put in
place in 2016 within the Group to provide a consistent
governance framework. As part of a review and refresh of the
principles, in 2018 a succession management framework was
established for subsidiary entities to consider board succession
planning, non-executive director tenure profiling and the skills
and composition of the boards. The Committee has provided
oversight of the succession framework and this has led to
enhanced visibility of the subsidiary boards.
The Committee also reviewed the outcomes of the board
evaluations completed by subsidiaries across the Group, and
monitors the action plans developed by subsidiary boards to
reflect those outcomes.
Compliance
The Committee has monitored material compliance
developments and changes in the regulatory landscape from
a conduct risk perspective. The Committee also approves the
annual Group Compliance Plan and reviews performance against
this plan. The Committee continued to monitor the financial crime
risks for the Group, and associated action plans and during the
year particularly focused on further strengthening first line anti-
fraud controls. The Committee also monitored the Financial Crime
Transformation Programme that built on the existing financial
crime structures.
During 2018, the Committee considered and monitored a range
of matters which included our treatment of our customers, our
corporate responsibility agenda, our governance operations,
and stakeholder engagement. The customer conduct oversight
for Aviva UK Digital (UKD) transitioned during the year from the
Committee to the UKD Board following the establishment of a
Conduct Committee, with Non-Executive Director membership,
to monitor and review conduct and governance matters relating
to the UKD business.
Committee membership
The members of the Committee are shown in the table below.
Details of their experience, qualifications and attendance at
Committee meetings during the year are shown within the
Directors’ and Corporate Governance report. There were no
changes to the composition of the Committee during 2018.
Name
Claudia Arney1
Glyn Barker
Michael Mire
Belén Romana García
Keith Williams
1 Chair
Member
Since
Years on
the Committee
01/06/2016
10/05/2017
12/09/2013
26/06/2015
01/08/2016
2
1
5
3
2
Committee purpose
The main purpose of the Committee is to assist the Board in
overseeing our customer and conduct obligations, our data
governance, compliance with our corporate governance
principles, our broader compliance activities and shaping the
culture and ethical values of the Group and our approach to
corporate responsibility.
Customers
During 2018, the Committee received regular updates from
management on how we measure customer satisfaction and
brand metrics. The regular review of a dashboard of customer
data metrics helps us better understand our customers’ needs,
the challenges they face and how we can address these.
In addition to these enhancements, the Committee has
conducted ‘deep dives’ into customer complaints when our
products and services have not met our customers’ expectations
for any reason, and monitored the resulting upskilling of our
people and improvements in our IT systems as we support our
customer contact colleagues.
The Committee has also been updated on the culture action
programme which aims to drive delivery of our customer first
and operational simplicity goals.
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Continued
Corporate responsibility
The Committee continued to monitor our approach to corporate
responsibility and the corporate responsibility strategy to build
pride and trust in our company. During the year, the Committee
reviewed Aviva’s reporting on modern slavery and also received
updates on the Aviva Foundation, which has been established to
distribute the proceeds of our share forfeiture programme which
became operational in 2018. At the end of 2018, £3 million had
been raised for the Aviva Foundation.
Aviva is committed to behaving as a responsible corporate
citizen and the Committee sets the guidance, direction and
policies for the Group’s corporate responsibility agenda. We
supported the launch of the World Benchmarking Alliance with
the aim of helping businesses to do more to achieve the UN
Sustainable Development Goals. Further information on our
integrated responsibility and sustainable business approach can
be found on the Company’s website at: www.aviva.com/social-
purpose.
Committee effectiveness review
The Committee undertakes a review of its effectiveness annually.
More information can be found in the Directors’ and Corporate
Governance report.
2019 priorities
In 2019, the Committee will continue to review the customer
agenda, concentrating on further improving the experience we
provide to customers and reviewing customer conduct risk
matters.
We will also review the scope and potential outcomes from a
governance review of our UK businesses and how this might be
reflected in changes to our governance framework across the
Aviva Group.
The Committee will also monitor the wellbeing and engagement
of our people through responses to the Voice of Aviva surveys
and the embedding of our culture action programme.
Claudia Arney
Chair of the Governance Committee
6 March 2019
Committee activities during 2018
Customer and risk
• Focused on the customer agenda and received regular
updates and monitored progress on customer metrics relating
to customer complaints and the conduct agenda, sales,
retention and claims experience
Corporate responsibility
• Continued to drive the corporate responsibility agenda and
monitored compliance with the Group’s corporate
responsibility strategy
• Reviewed the Group’s modern slavery statement, annual
corporate responsibility reporting and the Group’s Financial
Crime, Regulatory Business and Corporate Responsibility,
Environment and Climate Change Business Standards
• Received updates on the Group’s health and safety
performance
Governance
• Considered regular updates from the Group Company
Secretary on governance matters, legal and litigation risks
which had the potential to impact the reputation of the Group
• Monitored the Group’s compliance with the UK Corporate
Governance Code and other areas of regulation and guidance
• Reviewed and where appropriate approved changes to the
composition of the material subsidiary boards
• Discussed the outcomes of the 2018 effectiveness review
• Considered succession planning for material subsidiaries
around the Group
People
• Reviewed the results of the Voice of Aviva surveys
• Reviewed and considered the talent development
programmes for leadership across the Group, with particular
focus on diversity
• Approved the Business Ethics Code
Regulatory and financial crime
• Regularly reviewed updates from the Group Compliance
Oversight Director
• Reviewed potential financial crime risks and any actions
required in response
• Monitored data governance
• Monitored the Group’s relationship and interaction with
regulatory bodies and actions taken in respect of regulatory
developments
• Reviewed and challenged management’s explanations and
actions in response to issues/events
UK Digital (UKD)
• Reviewed the Chief Risk Officer’s report and Internal Audit
Report on UKD
• During 2018 the UKD Board established a conduct committee
and the Committee’s role and oversight of the conduct agenda
for UKD was transitioned to the UKD Board
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Directors’ and Corporate Governance report
Continued
Other statutory
information
The directors submit their annual report and accounts for Aviva plc,
together with the consolidated financial statements of the Aviva
group of companies, for the year ended 31 December 2018.
The Directors’ report required under the Companies Act 2006
comprises this Directors’ and Corporate Governance report, the
Directors’ Remuneration Report and the following disclosures in
the Strategic report:
• Corporate responsibility – Disclosure of our greenhouse gas
emissions
• Our people – Inclusive diversity – details of our employment
policies
• Our people – Engaging with our people – details of employee
engagement
• Our strategy – Delivering on a clear plan of action
• Important events since the financial year end
Details of significant post balance sheet events that have occurred
after 31 December 2018 are disclosed in note 65.
The management report required under Disclosure and
Transparency Rule 4.1.5R comprises the Strategic report (which
includes the principal risks relating to our business) and details of
material acquisitions and disposals made by the Group during the
year which are included in notes 3 and 4. This Directors’ and
Corporate Governance report fulfils the requirements of the
corporate governance statement under Disclosure and
Transparency Rule 7.2.1.
Our policy on hedging
The hedging policy is disclosed in note 60.
Related party transactions
Related party transactions are disclosed in note 62 which is
incorporated into this report by reference.
Dividends
Dividends for ordinary shareholders of Aviva plc are as follows:
• Paid interim dividend of 9.25 pence per ordinary share
(2017: 8.4 pence)
• Proposed final dividend of 20.75 pence per ordinary share
(2017: 19.00 pence)
• Total ordinary dividend of 30.00 pence per ordinary share
(2017: 27.40 pence)
• Total cost of ordinary dividends paid in 2018 was £1,128 million
(2017: £983 million)
Subject to shareholder approval at the 2019 AGM, the final dividend
for 2018 will become due and payable on 30 May 2019 to all holders
of ordinary shares on the Register of Members at the close of
business on 12 April 2019 (payment date approximately four
business days later for holders of the Company’s American
Depositary Shares (ADS)). In compliance with the rules issued by the
Prudential Regulation Authority in relation to the implementation of
the Solvency II regime, the dividend is required to remain
cancellable at any point prior to becoming due and payable and to
be cancelled if, prior to payment, the Group ceases to hold capital
resources equal to or in excess of its Solvency Capital Requirement,
or if that would be the case if the dividend was paid. Details of any
dividend waivers are disclosed in note 34.
Dividend policy
For the full year dividend for 2018 the Board of Directors has
proposed a 9% increase to 30.0 pence per share. We are moving to
a progressive dividend policy. Moderating the rate of dividend per
share growth will enhance our flexibility to repay debt and invest in
business improvement.
Under UK company law, we may only pay dividends if the Company
has ‘distributable profits’ available. ‘Distributable profits’ are
accumulated, realised profits/(losses) not previously distributed or
capitalised, less accumulated, unrealised losses not previously
written off based on IFRS. Even if distributable profits are available,
we pay dividends only if the amount of our net assets is not less
than the aggregate of our called-up share capital and
undistributable reserves and the payment of the dividend does not
reduce the amount of our net assets to less than that aggregate.
As a holding company, the Company is dependent upon dividends
and interest from our subsidiaries to pay cash dividends. Many of
the Company’s subsidiaries are subject to insurance regulations
that restrict the amount of dividends that they can pay to us.
Historically, the Company has declared an interim and a final
dividend for each year (with the final dividend being paid in the year
following the year to which it relates). Subject to the restrictions set
out above, the payment of interim dividends on ordinary shares is
made at the discretion of the Board, while payment of any final
dividend requires the approval of the Company’s shareholders at a
general meeting. Dividends on preference shares are made at the
discretion of the Board.
The Company pays cash dividends in pounds sterling and euros,
although the articles of association permit payment of dividends on
ordinary shares in any currency and in forms other than cash, such
as ordinary shares.
Interim dividends have previously been paid in November of each
year. Following feedback from shareholders, to bring Aviva’s
practice in line with its peers and to reduce the gap between the
interim results announcement and dividend payment, from 2018
interim dividends are paid in September, subject to declaration by
the Board. A final dividend is typically proposed by the Company’s
Board after the end of the relevant year and generally paid in May.
The following table shows certain information regarding the
dividends that we paid on ordinary shares.
Year
2013
2014
2015
2016
2017
2018
Interim
dividend
per share
(pence)
Interim
dividend
per share
(cents)1
Final
dividend
per share
(pence)
5.60
5.85
6.75
7.42
8.40
9.25
N/A
N/A
N/A
N/A
9.50
10.25
9.40
12.25
14.05
15.88
19.00
xx.xx
Final
dividend
per share
(cents)1
N/A
N/A
N/A
18.71
21.77
–
1 Euro dividend rate per share
Distributable reserves
Under UK company law, dividends can only be paid if a company
has distributable reserves sufficient to cover the dividend. At 31
December 2018, Aviva plc itself had distributable reserves of greater
than £4.1 billion. In UK Life, our largest operating subsidiary,
distributable reserves, which could be paid to Aviva plc via its
intermediate holding company, are based on the updated
Companies Act 2006 (Distributions of Insurance Companies)
Regulations 2016 which uses an adjusted Solvency II Own Funds
measure in determining profits available for distribution. While the
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Directors’ and Corporate Governance report
Continued
UK insurance regulatory laws applicable to UK Life and our other UK
subsidiaries impose no statutory restrictions on an insurer’s ability
to declare a dividend, the rules require maintenance of each
insurance company’s solvency margin, which might impact their
ability to pay dividends to the parent company. Our other life,
general insurance, and fund management subsidiaries’ ability to
pay dividends and make loans to the parent company is similarly
restricted by local corporate or insurance laws and regulations. In
all jurisdictions, when paying dividends, the relevant subsidiary
must take into account its capital position and must set the level of
dividend to maintain sufficient capital to meet minimum solvency
requirements and any additional target capital expected by local
regulators. We do not believe that the legal and regulatory
restrictions constitute a material limitation on the ability of our
businesses to meet their obligations or to pay dividends to the
parent company, Aviva plc.
Acquisition of own shares
A share re-purchase programme was one method by which we
intended to return capital to shareholders. Our capital strength
provided us with significant flexibility in terms of capital allocation,
and as a result we outlined plans to commence a share buy-back of
ordinary shares. The Board believed that a buy-back was a
compelling use of Aviva’s excess capital.
During 2018, the Company re-purchased 119,491,188 ordinary
shares of 25 pence each for an average of £5.0213 per share and an
aggregate amount of £600 million. The purchased shares represent
2.54% of called-up share capital as at 31 December 2018. All shares
purchased have been cancelled.
Details of shares purchased, held or disposed by employee share
plan trusts on behalf of the Company in 2018 are set out in note 34.
Share class and listing
All the Company’s shares in issue are fully paid up and the ordinary
and preference shares have a Premium and Standard listing
respectively on the London Stock Exchange.
Details of the Company’s share capital and shares under option at
31 December 2018 and shares issued during the year are given in
notes 32 to 35. The calculation of earnings per share and the impact
of the share buy-back on the number of shares in issue is included
in note 15.
Share capital
During the year, 119,491,188 ordinary shares were cancelled
following re-purchase by the Company as outlined above, and
9,160,708 ordinary shares were allotted to satisfy amounts under
the Group’s employee share and incentive plans. At 31 December
2018 the:
• issued ordinary share capital totalled 3,902,352,211 shares of
25 pence each (83% of total share capital)
• issued preference share capital totalled 200,000,000 shares of
£1 each (17% of total share capital)
Further details on the ordinary share capital of the Company are
shown in note 32.
Rights and obligations attaching to the Company’s ordinary shares
and preference shares
Rights and obligations attaching to the Company’s shares together
with the powers of the Company’s directors are set out in the
Company’s articles of association (the Articles), copies of which can
be obtained from Companies House and the Company’s website at
www.aviva.com/articles, or by writing to the Group Company
Secretary. The powers of the Company’s directors are subject to
relevant legislation and, in certain circumstances (including in
relation to the issue or buying back by the Company of its shares),
are subject to authority being given to the directors by shareholders
at a general meeting. At the 2019 AGM, shareholders will be asked to
renew the directors’ authority to allot new securities. Details are
contained in the Notice of 2019 Annual General Meeting (Notice of
AGM).
Restrictions on transfer of securities
With the exception of restrictions under the Company’s employee
share incentive plans, while the shares are subject to the plan rules,
there are no restrictions on the voting rights attaching to the
Company’s ordinary shares or the transfer of securities in the
Company.
Where, under an employee share incentive plan operated by the
Company, participants are the beneficial owners of shares but not
the registered owners, the voting rights are normally exercised at
the discretion of the participants. No person holds securities in the
Company carrying special rights with regard to control of the
Company. The Company is not aware of any agreements between
holders of securities that may result in restrictions on the transfer of
securities or voting rights.
Significant agreements – change of control
There are a number of agreements that take effect, alter or
terminate upon a change of control of the Company following a
takeover bid, such as commercial contracts and joint venture
agreements. None are considered to be significant in terms of their
potential impact on the business of the Group as a whole. All of the
Company’s employee share incentive plans contain provisions
relating to a change of control. Outstanding awards and options
would normally vest and become exercisable on a change of
control, subject to the satisfaction of any performance conditions
and pro rata reduction as may be applicable under the rules of the
employee share incentive plans.
Authority to purchase own shares
Details of shares purchased during 2018 are outlined above. At the
2019 AGM, shareholders will be asked to renew these authorities
for another year and the resolution will once again propose a
maximum aggregate number of ordinary shares which the
Company can purchase of less than 10% of the issued ordinary
share capital. Details are contained in the Notice of AGM available at
www.aviva.com/agm. The Company held no treasury shares during
the year or up to the date of this report.
Disclosure guidance and transparency rule 5 – major shareholders
The table below shows the holdings of major shareholders in the
Company’s issued ordinary share capital in accordance with the
Disclosure Guidance and Transparency Rules as at 31 December
2018 and 6 March 2019.
Shareholding interest
Shareholder
BlackRock, Inc1
Notified holdings Nature of holding Notified holdings Nature of holding
Above 5%
Indirect
Above 5%
Indirect
At 31 December 2018
At 6 March 2019
1 Holding includes holdings of subsidiaries.
Directors
The directors as at the date of this report, together with their
biographical details and details of Board appointments,
resignations and retirements during the year are shown earlier
in the report.
The rules regarding the appointment and removal of directors are
contained in the Company’s Articles. Under the Articles, the Board
can appoint additional directors or appoint a director to fill a casual
vacancy. The new director must retire at the first AGM following
their appointment and can only continue as a director if they are
elected by shareholders at the AGM.
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IFRS financial statements
Other information
Directors’ and Corporate Governance report
Continued
At no time during the year did any director hold a material interest in
any contract of significance with the Company or any of its subsidiary
undertakings other than an indemnity provision between each
director and the Company and employment contracts between each
executive director and a Group company. The Company has
purchased and maintained throughout the year directors’ and
officers’ liability insurance in respect of itself, its directors and others.
in the strategic report. The performance review includes the Risk
and risk management section. In addition, the financial statements
sections include notes on the Group’s borrowings (note 52); its
contingent liabilities and other risk factors (note 55); its capital
management (note 57); management of its risks including market,
credit and liquidity risk (note 59); and derivative financial
instruments (note 60).
The Company has also executed deeds of indemnity for the benefit of
each director of the Company, and each person who was a director of
the Company during the year, in respect of liabilities that may attach
to them in their capacity as directors of the Company or of associated
companies. The Articles allow such indemnities to be granted. These
indemnities were granted at different times according to the law in
place at the time and where relevant are qualifying third-party
indemnity provisions as defined by section 234 of the Companies Act
2006. These indemnities were in force throughout the year and are
currently in force. Details of directors’ remuneration, service contracts,
employment contracts and interests in the shares of the Company are
set out in the Directors’ Remuneration Report.
The Company has also granted indemnities by way of a deed poll to
the directors of the Group’s subsidiary companies, including former
directors who retired during the year and directors appointed
during the year, which is a ‘qualifying third party indemnity’ for the
purposes of the applicable sections 309A to 309C of the Companies
Act 1985. The deed poll indemnity was in force throughout the year
and remains in force.
Financial instruments
Group companies use financial instruments to manage certain
types of risks, including those relating to credit, foreign currency
exchange, cash flow, liquidity, interest rates, and equity and
property prices. Details of the objectives and management of these
instruments are contained in the risk and capital management
section and in note 59 on risk management.
Political donations
Aviva did not make any political donations during 2018.
Disclosure of information to the auditor
In accordance with section 418 of the Companies Act 2006, the
directors in office at the date of approval of this report confirm that,
so far as they are each aware, there is no relevant audit information
of which the Company’s External Auditor, PricewaterhouseCoopers
(PwC), is unaware and each director has taken all steps that ought
to have been taken as a director in order to make themselves aware
of any relevant audit information and to establish that PwC is aware
of that information.
Annual general meeting
The 2019 AGM of the Company will be held on Thursday 23 May
2019 at the Queen Elizabeth II Centre, Broad Sanctuary,
Westminster, London SW1P 3EE at 11am. The Notice of AGM
convening the meeting describes the business to be conducted
thereat. Any proxy voting instruction, whether provided online,
by post or via CREST, must be received by our Registrar,
Computershare Investor Services PLC, by no later than 11am
on Tuesday 21 May 2019. Further details can be found in the
shareholder information section of the Notice of AGM.
Articles of association
Unless expressly stated to the contrary in the Articles, the Company’s
Articles may only be amended by special resolution of the shareholders.
The Company’s current Articles were adopted on 10 May 2018.
Going concern
The Group’s business activities, together with the factors likely to
affect its future development, performance and position are set out
The Group has considerable financial resources together with a
diversified business model, with a spread of businesses and
geographical reach. The directors believe the Group is well placed
to manage its business risks successfully.
After making enquiries, the directors have a reasonable expectation
that the Company and the Group as a whole have adequate resources
to continue in operational existence for a period of at least 12 months
from the date of approval of the financial statements. For this reason,
they continue to adopt, and to consider appropriate, the going
concern basis in preparing the financial statements.
Longer-term viability statement
It is fundamental to the Group’s longer-term strategy that the
directors manage and monitor risk, taking into account all key risks
the Group faces, including longer-term insurance risks, so that it can
continue to meet its obligations to policyholders. The Group is also
subject to extensive regulation and supervision including Solvency II
from 1 January 2016, as a result of being designated a Global
Systemically Important Insurer by the Financial Stability Board.
Against this background, the directors have assessed the prospects
of the Group in accordance with provision C.2.2 of the 2016 Code,
with reference to the Group’s current position and prospects, its
strategy, risk appetite, and the potential impact of the principal
risks and how these are managed (as detailed in the ‘Risk and risk
management’ section of the Strategic report as well as note 59 of
the IFRS financial statements).
The assessment of the Group’s prospects by the directors covers the
three years to 2021 and is underpinned by management’s 2019-
2021 business plan which includes projections of the Group’s
capital, liquidity and solvency.
The Group’s stress and scenario testing considers the Group’s
capacity to respond to a series of relevant financial, insurance (e.g.,
catastrophe) or operational shocks should future circumstances or
events differ from these current assumptions. The Group addresses
the impacts of contingent management actions designed to maintain
or restore key capital, liquidity and solvency metrics to within the
Group’s approved risk appetites over the planning period.
Based on this assessment, the directors have a reasonable expectation
that the Group will be able to continue in operation and meet its
liabilities as they fall due over the three year assessment period.
Fair, balanced and understandable
To support the directors’ statement below that the annual report
and accounts, taken as a whole, is fair, balanced and
understandable, the Board considered the process followed to draft
the annual report and accounts:
• Each section of the annual report and accounts is prepared by a
member of management with appropriate knowledge, seniority
and experience. Each preparer receives guidance on the
requirement for content included in the annual report and
accounts to be fair, balanced and understandable
• The overall co-ordination of the production of the Annual report
and accounts is overseen by the Chief Accounting Officer to
ensure consistency across the document
• An extensive verification process is undertaken to ensure factual
accuracy
• Comprehensive reviews of drafts of the annual report and
accounts are undertaken by members of the Group Executive and
Aviva plc Annual report and accounts 2018
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Directors’ and Corporate Governance report
Continued
other members of senior management and, in relation to certain
parts of the report external legal advisers and the External Auditor
• An advanced draft is considered and reviewed by the Disclosure
Committee
Listing requirements
For the purposes of Listing Rule (LR) 9.8.4C R, the information
required to be disclosed by LR 9.8.4 R can be found in the following
locations:
• The final draft is reviewed by the Audit Committee prior to
consideration by the Board
• Board members receive drafts of the Annual report and accounts
for their review and input. This includes the opportunity to discuss
the drafts with both management and the External Auditor,
challenging the disclosures where appropriate.
Section in
LR 9.8.4C R
12
13
Topic
Shareholder waivers of dividends
Location in the Annual report and
accounts
IFRS Financial
Statements – note 34
Shareholder waivers of future dividends IFRS Financial
Statements – note 34
By order of the Board on 6 March 2019.
Tom Stoddard
Chief Financial Officer
Directors’ responsibilities
The directors are responsible for preparing the Annual report and
accounts, the directors’ remuneration report and the financial
statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements
for each financial year. Under that law the directors have prepared
the Group and parent company financial statements in accordance
with IFRS as adopted by the EU. Under company law the directors
must not approve the financial statements unless they are satisfied
that they give a true and fair view of the state of affairs of the Group
and Company and of the profit or loss for that period. In preparing
these financial statements, the directors are required to:
• select suitable accounting policies and apply them consistently
• make reasonable and prudent judgements and accounting
estimates
• state whether applicable IFRSs as adopted by the EU have been
followed, subject to any material departures disclosed and
explained in the financial statements
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company and
Group will continue in business.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and Group and enable them to
ensure that the financial statements and the Directors’
Remuneration Report comply with the Companies Act 2006 and, as
regards the Group financial statements, Article 4 of the IAS
Regulation. They are also responsible for safeguarding the assets of
the Company and Group and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
The directors are responsible for making, and continuing to make,
the Company’s Annual report and accounts available on the
Company’s website. Legislation in the United Kingdom governing
the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
The directors consider that the Annual report and accounts, taken
as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group’s and
the Company’s position and performance, business model and
strategy.
Each of the current Directors, whose names and functions are
detailed in the ‘Our Board of Directors’ section in the Directors’ and
Corporate Governance report confirm that, to the best of their
knowledge: the Group financial statements, which have been
prepared in accordance with IFRSs as adopted by the EU, give a true
and fair view of the assets, liabilities, financial position and profit of
the Group; and the Strategic report and the Directors’ and
Corporate Governance report in this Annual report include a fair
review of the development and performance of the business and
the position of the Group, together with a description of the
principal risks and uncertainties that it faces.
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Other information
Directors’ remuneration report
Remuneration
Committee report
On behalf of the Remuneration Committee (Committee), I am
pleased to present the Directors’ Remuneration Report (DRR), for
the year ended 31 December 2018.
Company performance during 2018
2018 has been a year of steady performance overall for Aviva. The
Group’s businesses have delivered broad-based growth, with six out
of our eight major markets increasing Group adjusted operating
profit1 in 2018, while continuing to invest in improving the
fundamentals of the business and maintaining a prudent approach
to pricing and risk management.
Aviva’s progress in recent years has positioned the Group well,
putting in place strong financial foundations from which to grow.
Solvency II capital surplus remained strong, with an increase in the
Group’s cover ratio during 2018, despite weaker investment markets
and the deployment of £1.5 billion to repay debt and repurchase
shares. Profitability has also continued to grow, with Group
adjusted operating profit1 before tax rising 2%, while operating
Earnings Per Share (EPS)2 increased 7%. Aviva’s continued financial
strength and satisfactory performance has contributed to the Board
proposing a 9% increase in the full-year dividend.
Externally, the Committee recognises that challenges remain.
Uncertainty in the political and economic backdrop persists, while
the regulatory environment also continues to evolve. Coupled with
competitive insurance and savings markets, this has provided a
challenging macro-environment for the Group.
There were certain challenges of our making during the year,
including our announcement in March 2018 that we were
“evaluating alternatives” for the Aviva plc and General Accident plc
preference shares. While we responded quickly to certain investor
concerns by confirming we would take no action, and put in place a
goodwill payments scheme for eligible preference shareholders
who incurred losses from selling these securities during this period,
it was a disappointing episode and lessons have been learned.
In addition, there were operational challenges in the UK savings
business, with UK platform migration issues adversely affecting
service standards for customers, although our team worked quickly
to resolve these challenges.
The Committee has carefully taken Group, business unit and the
individual performance of the Executive Directors (ED) into account
in reaching their decisions on remuneration for 2018. At all times we
have sought to ensure that executive pay is aligned with Aviva’s
overall performance during the year.
Remuneration decisions for 2018
2018 Annual Bonus
In considering outcomes under the annual bonus scorecard, the
Committee has reflected on the financial and strategic performance
of the Group during 2018, including:
• Operating EPS2, operating capital generation2 and cash
remittances2 performance were strong, with out-turns on all three
showing healthy year-on-year improvement.
• The Group continued its digital transformation in 2018. Growth of
47% in MyAviva active customers resulted in performance between
threshold and target. The number of customers with Multiple
Product Holdings (MPH) also grew, although performance was
below threshold on this element, falling short of the stretching
targets set by the Committee at the start of the year.
As a result of this performance, the formulaic outcome against the
2018 bonus scorecard prior to downward adjustments was 137.8%
(out of a maximum of 200%).
Separately, however, the Committee was mindful that when the
government announced its decision in February 2017 to reduce the
Ogden rate3, the degree of uncertainty around where the rate would
finally land meant that we delayed the impact on remuneration
outcomes. On 20 March 2018 the Government announced it will
introduce the Civil Liability Bill (Bill) which includes provisions to
amend the Ogden discount rate. In December 2018, the Bill became
an Act of Parliament, meaning that the new rate will be set by the
Lord Chancellor in 2019. While there is certainty that there will be a
change in the Ogden rate in 2019, uncertainty remains around the
amount and timing of the final rate. In the Group accounts the
claims reserves have been calculated using a discount rate of 0.0%,
though the rate to be announced by the Lord Chancellor later this
year may result in a different discount rate. The Committee is
satisfied that it is appropriate now to reflect this change in the
annual bonus pools for 2018.
Accordingly, the assumed discount rate of 0.0% in 2018 has reduced
the outcome under the operating EPS2 measure, resulting in a
reduction in the bonus scorecard outcome of 31.3% (to 106.5%).
Adjustments may be considered in future years should the final
Ogden rate be different from 0.0%.
Under our remuneration framework, the annual bonus scorecard
outcome is also subject to (i) a quality of earnings review, (ii)
performance against non-financial modifiers focused on employee
engagement, customer outcomes, and risk and controls, and (iii)
individual performance. The Committee was satisfied that the quality
of earnings assessment was appropriately robust, but determined
that a 5% downward adjustment should be applied to the scorecard
outcome (to 101.5%) under the Risk & Control modifier.
In its assessment of the individual performance of the EDs during
the year, while the Committee recognised that strong performance
was delivered in a number of areas with notable financial, strategic
and other achievements across their scorecards, the Group
experienced several events during 2018 which had an impact on our
customers, our shareholders, and our broader stakeholder
community. Firstly, we recognise the negative impact that our
March 2018 announcement on preference shares had on the Group.
Secondly, our UK savings business encountered disruption during
the migration of our independent financial advisor platform to a
new supplier, which adversely affected our service standards.
Thirdly, the Committee is conscious that our oversight in some
areas of the Canadian business fell below our high standards and
contributed to the issues in financial performance experienced.
Taking these issues into account, the Committee applied a
downward adjustment under the individual assessment of 17.5% of
the scorecard outcome for all EDs.
1 Group adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section and
‘Other Information’ within the Annual report and accounts for further information.
2 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APMs, including a reconciliation to the financial statements
(where possible), can be found in the ‘Other Information’ section of the Annual report and accounts.
3 The Ogden discount rate is set by the Lord Chancellor and is applied when calculating the present value of future care costs and loss of earnings for claims settlement purposes. In December 2018, the Civil Liability Bill became
an Act of Parliament, and it includes a change in the way the Ogden discount rate is set. Although the rate remains uncertain, it is anticipated that the Government will set a discount rate which is higher than the current -0.75%
rate. Aviva has adopted a rate of 0.0% within the full year 2018 reserves. For remuneration purposes, the net impact of the 2016 and 2018 rate changes are incorporated.
Aviva plc Annual report and accounts 2018
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Directors’ remuneration report
Continued
As a result, annual bonuses for the EDs were 84% of salary.
As a final check, the Committee reviewed whether the proposed
annual bonuses aligned with the wider circumstances and
performance context of the Group during 2018. The Committee
were satisfied that no further adjustments were required, noting
that there has been a 43% reduction in the overall annual bonus
amount paid to the EDs (when measured on a like-for-like basis to
reflect part-year service). The actions taken by the Committee to
address the events of 2018 provide us with a strong platform for
Maurice to take the Group forward in 2019.
Mark received an annual bonus in respect of 2018, pro-rated to
reflect the period prior to being placed on garden leave, for six
months, from 9 October 2018. His annual bonus was calculated in
the same manner as for the continuing EDs, as outlined above. Mark
is not eligible to receive an annual bonus in relation to 2019.
Upon appointment as Executive Chairman following the departure
of Mark, Sir Adrian Montague assumed executive responsibilities. No
changes were made to his existing remuneration arrangements or
conditions during this period, and as such he was not eligible for an
annual bonus or LTIP award in respect of 2018 or 2019.
2016-18 Long Term Incentive Plan (LTIP)
As a result of our three-year performance over the 2016-18 period,
the 2016 LTIP vested at 50% of maximum. This reflected strong
performance against the adjusted Return on Equity (RoE)1
performance condition, while the relative Total Shareholder Return
(TSR) condition lapsed. The outcome also reflects the impact of an
assumed Ogden rate of 0.0%, although this made no difference to
the final level of vesting.
Appointment of new Group Chief Executive Officer (CEO)
As announced on 4 March 2019, the Board appointed Maurice
Tulloch as our new Group CEO with immediate effect. The
Committee gave careful consideration to the remuneration package
for Maurice, in doing so taking into account the terms of our
Remuneration Policy (Policy), Maurice’s current remuneration
arrangements, shareholder expectations, and the provisions of the
2018 UK Corporate Governance Code (2018 Code).
Maurice’s remuneration consists of:
• A salary of £975,000 per annum
• Our standard benefits package for EDs, including private family
medical insurance, life insurance, and reasonable travel benefits
• Pension contributions of 14% of salary
• An annual bonus opportunity of 200% of salary, with one-third of
any bonus earned paid in cash after the year end, and two-thirds
deferred into shares which will vest in equal annual tranches over
three years
• For 2019, Maurice will be eligible for the grant of an award under
the LTIP of 300% of basic salary
• Assistance with relocation from Canada to the UK, of an amount
up to £250,000 exclusive of tax, payable against receipted costs
incurred within a period of 24 months from the date of
appointment
• Maurice is also subject to the Group CEO shareholding
requirement of 300% of salary
In approving these remuneration terms, the Committee has been
mindful of the views of shareholders. Maurice’s salary is below that
for Mark prior to his departure, reflecting that Maurice is new to the
role. We have also reduced Maurice’s pension provision to align
with the majority of our UK workforce, and he will not be eligible for
a car allowance. Finally, Maurice’s 2019 LTIP opportunity of 300% is
lower than that permitted under our Policy, but in line with awards
made in recent years.
Departure of Mark Wilson
On 9 October 2018, Mark stepped down as the Group CEO. The
Committee carefully considered the treatment to be applied to
Mark’s remuneration arrangements as a result of his departure.
As announced on 9 October 2018, the Committee, in its discretion,
determined that all of Mark’s outstanding LTIP awards should lapse
as at the date of departure. Mark retained his deferred bonus shares
under the Annual Bonus Plan (ABP) as the Committee’s view was
that these had been earned based on previous performance under
the ABP. All awards remain subject to malus and clawback.
Revised Corporate Governance Code
In July 2018, the Financial Reporting Council (FRC) published the
2018 Code. The Committee welcomes the 2018 Code and is pleased
that in several areas our practice is already aligned with the new
provisions. For example, approval of the remuneration for the
Group Executive (GE) already falls within our remit; our Policy
provides unfettered ability to apply discretion to incentive
outcomes and; our malus and clawback provisions are aligned with
those suggested under the 2018 Code.
Nevertheless, during the latter half of 2018, we discussed at length
how the remaining provisions of the 2018 Code could be
implemented in the most effective manner for the Company and all
our stakeholders. To this end, we have made several changes and
will continue to work towards identifying areas where our processes
could be improved during 2019, as set out below:
• Post-cessation shareholding guidelines: the Committee
recognises the importance of ensuring that our EDs are aligned
with long-term shareholder interests. Our existing shareholding
guidelines, which apply during employment, require EDs to build
up and maintain an appropriate level of shareholding in Aviva.
To complement these the Committee have reviewed a proposed
policy for post employment shareholdings. This will be
implemented during 2019 and align to developing market
practice. The current expectation is that EDs will be required to
hold shares for a further two years following their departure from
the Group and this will also apply to the GE. We have set the post-
cessation guideline at the same level as the current (within
employment) guideline.
• Wider workforce pay and conditions: the Committee currently
receives information from various sources in this area, but during
2019 we will work towards ensuring that we have access to a
broader and more detailed suite of data regarding remuneration-
related policies throughout the wider workforce, ensuring that
this is appropriately taken into account when considering
incentive outcomes for EDs. This is in addition to the various
workforce engagement mechanics currently in operation.
• Pensions: as outlined above the Committee took into account
the new guidance around pension provision in setting
arrangements for Maurice upon appointment in March 2019,
aligning his provisions with that for the majority of our UK
workforce. We will continue to keep the position under review for
our other EDs during 2019 and beyond.
CEO Pay Ratio
In addition to the changes introduced by the 2018 Code, last year
also saw the introduction of the Companies (Miscellaneous
Reporting) Regulations 2018, requiring UK companies to publish
information on the pay ratio of the Group CEO to UK employees
from 2019. We have chosen to voluntarily disclose this information
for 2018 and further details can be found on page 81.
Gender Pay Gap Report (GPGR)
Last year we outlined our commitment to increasing the focus on
our diversity agenda at Aviva and our ambition of achieving
1 Adjusted RoE relate to the 2016 LTIP award only and represent RoE calculated as IFRS profit after tax and non-controlling interest but excluding investment variances, economic assumption changes, pension scheme income/
charge over average IFRS equity (excluding pension scheme net surplus/ deficit).
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Continued
inclusivity across the Group. This continues to be central to our
values and critical to the success of our business. We welcomed the
introduction of gender pay gap reporting last year and released our
second GPGR in January 2019, along with details of actions we are
taking to drive change and close the gender pay gap. The report can
be found at www.aviva.com/gpgr.
Annual General Meeting (AGM). Nevertheless, we will take on board
the view of the new Group CEO on our current remuneration
framework and whether it supports Maurice’s vision for the next
stage of Aviva’s development. If, as a result of this, there is appetite
to make any changes a year early in 2020 we would of course
consult with shareholders on any proposals ahead of this.
I look forward to seeing shareholders at the 2019 AGM.
Patricia Cross
Chair of the Remuneration Committee
6 March 2019
Remuneration in 2019
Salary
Aside from Maurice, the other EDs received salary increases of 2%
for 2019, consistent with other Aviva employees in the UK.
Bonus
Customer and financial outcomes continue to be the focus for the
Company as critical drivers of our short and longer term success.
Consequently, 70% of the bonus will continue to be based on
financial performance, although we have changed the balance of
the relative weightings, increasing the emphasis on cash
remittances1.
30% will remain subject to customer-focused measures. For 2019,
we have revised these measures to align them with our current
areas of focus as follows:
• Growth in MPH is retained as 10% of the overall annual bonus, as
it is a key measure of our most valuable customers. Our research
demonstrates that customers with more than one product tend to
stay with us for longer.
• Relationship Net Promoter Score (RNPS) is introduced as the
second measure in place of MyAviva active customers, accounting
for 20% of the bonus. RNPS is an important measure of the quality
of our interactions with customers, reflecting the extent to which
our customers are willing to be an advocate for the Group and our
brand. Performance will be measured in each of our key markets.
The higher weighting of RNPS is to ensure that the primary driver
for understanding progress in customer outcomes is derived from
the views of our customers.
RNPS has been replaced within the Customer non-financial
modifier with a measure of brand trust. The employee engagement
and risk and control modifiers remain unchanged.
The Committee considers that these changes are important to
ensure that remuneration is aligned with and supports our strategic
focus on driving continuous improvement in our customer
performance.
2019 LTIP
Award levels under the LTIP for EDs in 2019 will be in line with those
in previous years. The Committee considers that the current
performance measures remain fit for purpose and no changes are
proposed for this year. As detailed in last year’s report, as we move
forward the Committee continues to keep under review the
potential to base a portion of the LTIP award on strategic measures,
with a view to supporting our focus in this area. Any change would
only be made following appropriate consultation with our
shareholders.
2019 focus areas
2019 promises to be another busy year for the Committee. We
continue to place a strong emphasis on ensuring that remuneration
at Aviva aligns with the overall performance of the Group and the
experience of our shareholders. In addition, we will continue to
develop our implementation of the 2018 Code, with a view to
ensuring that any changes we make are fully aligned with the spirit
of the Code’s provisions and are appropriate for Aviva.
In terms of the broader remuneration framework, the current
intention is to continue with our current Policy until the 2021
1 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APMs, including a reconciliation to the financial statements
(where possible), can be found in the ‘Other Information’ section of the Annual report and accounts.
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Directors’ remuneration report
Continued
Annual report on
remuneration
This section of the report sets out how Aviva has implemented its
Policy for EDs during the course of 2018. This is in accordance with
the requirements of the Large & Medium Sized Companies and
Groups (Accounts and Reports) Regulations 2008 (as amended).
The full terms of reference for the Committee can be found on the
Company’s website at www.aviva.com/remuneration-committee
and are also available from the Group General Counsel and
Company Secretary.
Committee membership
The members of the Committee are shown below. There have been
no changes during 2018.
Patricia Cross1
Michael Mire
Claudia Arney
Glyn Barker
1 Chair from 19 February 2014.
Member Since
01/12/2013
14/05/2015
01/06/2016
10/05/2017
Years on the
Committee
5
3
2
1
The Committee met seven times during 2018, of which four were
scheduled meetings and three were additional meetings outside of
the normal timetable. Details of attendance at Committee meetings
are shown on page 48.
The Group Chairman attended all meetings of the Committee. The
Group General Counsel and Company Secretary acted as secretary
to the Committee. The Chair of the Committee reported to
subsequent meetings of the Board on the Committee’s work and
the Board received a copy of the agenda and the minutes of each
meeting of the Committee.
During the year, the Committee received assistance in considering
executive remuneration from a number of senior managers, who
attended certain meetings (or parts thereof) by invitation during the
year, including:
• the former Group CEO;
• the Chief Financial Officer (CFO);
• the Chief People Officer;
• the Group Reward Director;
• the Chief Accounting Officer;
• the Chief Audit Officer;
• the Group Chief Risk Officer; and
• the Remuneration Committee Chair of Aviva Investors
No person was present during any discussion relating to their own
remuneration.
During the year, the Committee received advice on executive
remuneration matters from Deloitte LLP. Deloitte LLP were
approved as advisors to the Committee in 2012 following a
competitive tender process. The Committee regularly reviews and
satisfies itself that the advice received from Deloitte LLP is
independent and objective. The Committee notes they are a
member of the Remuneration Consultants Group and adhere to its
Code of Conduct. During the year, Deloitte LLP also provided advice
to the Group on taxation, financial due diligence, risk, compliance
and other consulting advisory services (including technology
transformation and cyber). Tapestry Compliance LLP, appointed by
the Company, provided advice on share incentive plan related
matters, including on senior executive remuneration matters and
views on shareholder perspectives.
During the year, Deloitte LLP were paid fees totalling £141,600 and
Tapestry Compliance LLP were paid fees totalling £60,630 for their
advice to the Committee on these matters. Fees were charged on a
time plus expenses basis.
The Committee reflects on the quality of the advice provided and
whether it properly addresses the issues under consideration as
part of its normal deliberations. The Committee is satisfied that the
advice received during the year was objective and independent.
The Committee’s decisions are taken in the context of the Reward
Governance Framework, which sets out the key policies, guidelines
and internal controls and is summarised on the next page.
Committee performance and effectiveness
During 2018, the Committee undertook an external evaluation of
its effectiveness, alongside the exercise undertaken by the Board.
Further details on how this has been carried out and the actions arising
are contained in the Directors and Corporate Governance report.
Committee activities during 2018
Governance, regulatory issues and reporting policy
• Formulated and delivered a proposed new Policy, approved by
shareholders at the 2018 AGM
• Focused on the alignment of the Policy with an appropriate risk
culture and to appropriate sustainability metrics
• Engaged external advisors to advise on changes in the regulatory
environment including the 2018 Code, and to benchmark the
Company’s remuneration policies and practices against industry
best practice
• Approved our approach to the new requirements for CEO pay ratio
reporting introduced by the Companies (Miscellaneous Reporting)
Regulations 2018, and to other changes to reporting in remuneration
• Regularly reviewed the results of engagements with key investors,
including discussions on the relationship between senior
management remuneration policies and the Group’s strategic
objectives
• Reviewed and approved the Remuneration Governance
Framework Policies
• Approved our 2018 GPGR and considered steps we could take to
seek to decrease the gap
• Considered and agreed the remuneration package for the
departing Group CEO and associated regulatory disclosures
Senior management objectives, bonus target setting and pay decisions
• Using external advisors, reviewed and benchmarked the EDs’
remuneration in relation to their performance in 2018 and against
both a FTSE 50 and a financial services peer group
• Reviewed and approved the individual remuneration for each
member of the GE for 2018 in relation to their performance
against personal targets
• Approved the Aviva Investors 2018 Bonus Deferral Plan and the
identification of the Financial Conduct Authority (FCA)
Remuneration Code Staff/Material Risk Takers
• Reviewed the Risk and Internal Audit 2018 Performance Opinion
in relation to remuneration
• Discussed and approved the overall maximum bonus pool available to
senior managers for the 2018 performance year, taking into account
metrics on culture and risk as well as on financial performance
• Discussed and approved the ABP targets for 2018 in relation to the
financial targets set in the 2018-2020 Group plan. Reviewed the
strategic ambition targets set for 2018 in relation to the
Company’s Digital First strategy including the number of active
digital registrations and the volume of sales made
Aviva plc Annual report and accounts 2018
71
Strategic report
Governance
IFRS financial statements
Other information
Directors’ remuneration report
Continued
Share plan operation and performance testing
• Reviewed performance testing of all existing LTIP awards, and
approved targets for the 2018 LTIP awards
• Approved vesting of the 2015 LTIP and noted the interim testing
for the 2016, 2017 and 2018 awards
• Reviewed the proposed changes to future LTIP grants
• Approved the terms of the Aviva Savings Related Share Option
Scheme 2018 (SAYE) and the Aviva Ireland Save as You Earn
Scheme, the Ireland Profit Share Scheme, and the invitation terms
for eligible employees
• Reviewed and approved the Aviva Investors Carried Interest Plan,
Deferred Plan rules and Code Staff list
• Reviewed and approved any application of malus/clawback
provisions under incentive plans
Reward governance framework
Terms of reference, policies and guidelines
Control and assurance
Terms of Reference
be delegated but which still retain Committee oversight
Sets out the Committee’s scope and responsibilities, including authorities which may
Remuneration Committee terms of reference
Overarching Policy
Subsidiary Board Remuneration Committee terms of reference
Sets out the Subsidiary Remuneration Committee’s scope and responsibilities
Global Remuneration Policy
Approved by the Remuneration
Committee, applies to all employees in
entities within Aviva Group
Directors’ Remuneration Policy
Approved by the shareholders,
applies to the Directors of Aviva plc
Supporting Policies
Identification of
Remuneration
Regulated Staff
Variable Pay and Risk
Adjustment
(includes bonus, LTIP, buy-out,
retention, recognition awards and
funding)
Malus and clawback
Internal Guidelines
and non-
Remuneration
Committee
approved policies
(examples)
New Hires & Buyouts
Terminations
Risk Adjustment
Retention plans
Recognition Awards
Global Mobility
Remuneration
Business
Standard
Reward
Approvals
Matrix
Assurance
framework to
attest Reward
operations are
conducted
within the
Global
Remuneration
Policy, Directors’
Remuneration
Policy and
supporting
policies
Approval
requirements
to ensure
Reward
operations are
conducted
within the
Global
Remuneration
Policy,
Directors’
Remuneration
Policy and
supporting
policies
Key
Element of the Reward Governance Framework managed
as part of the business of the Committee
Element of the Reward Governance Framework managed
mainly under delegated authority from the Committee
Aviva plc Annual report and accounts 2018
72
Strategic report
Governance
IFRS financial statements
Other information
Directors’ remuneration report
Continued
Single total figures of remuneration for 2018
The table below sets out the total remuneration for 2018 and 2017 for each of our EDs. Sir Adrian Montague remained on his Non-Executive
Chairman remuneration arrangements while acting as Executive Chairman for the period 9 October 2018 to 31 December 2018. Given that
he was not performing the role of Group CEO and did not receive a typical CEO remuneration package, he is not shown in this table, and is
instead shown in table 9.
1 Total 2018 remuneration – Executive Directors (audited information)
Basic Salary1
Benefits2
Annual Bonus3
LTIP4
Pension5
Total
Former Executive Director
Mark Wilson6
2018
£000
816
99
692
–
229
1,836
2017
£000
1,028
107
1,945
950
288
4,318
Tom Stoddard
Andy Briggs
Maurice Tulloch7
2018
£000
728
85
616
650
204
2017
£000
708
86
997
491
198
2018
£000
746
44
632
666
209
2,283
2,480
2,297
2017
£000
726
53
1,022
503
203
2,507
2018
£000
706
51
598
642
198
2017
£000
373
39
456
69
104
2,195
1,041
Total emoluments of
Executive Directors8
2018
£000
2,996
279
2,538
1,958
840
8,611
2017
£000
2,835
285
4,420
2,013
793
10,346
1 Basic salary received during 2018.
2 The benefits disclosure includes the cost, where relevant, of private medical insurance, life insurance, accommodation, travel and car benefits. In the case of Mark and Andy this also includes benefits resulting from the UK
HMRC tax-advantaged SAYE plan, and for Andy the UK HMRC tax-advantaged share incentive plan, the All Employee Share Ownership Plan (AESOP), in which they participate on the same basis as all eligible employees. All
numbers disclosed include the tax charged on the benefits, where applicable.
3 Bonus payable in respect of the financial year including any deferred element at the face value at the date of award. The deferred element is made under the ABP.
4 The value of the LTIP for 2018 relates to the 2016 award, which had a three-year performance period ending 31 December 2018. 50% of the award will vest in March 2019. An assumed share price of 415.20 pence has been used
to determine the value of the award based on the average share price over the final quarter of the 2018 financial year. In a similar manner, the LTIP amounts shown in last year’s report in respect of the LTIPs awarded in 2015
were calculated with an assumed share price of 502.19 pence. The actual share price at vesting was 493.78 pence, and the table has been updated to reflect this change. The estimated value of the awards for the EDs was
£2,046,000; the actual value was £2,013,000 (decrease of £33,000). Additional information on these awards can be found in Table 18.
5 Pension contributions consist of employer defined contribution benefits, excluding salary exchange contributions made by the employees, plus cash payments in lieu of pension. EDs are eligible to participate in a defined
contribution plan and receive pension contributions and/or a cash pension allowance from the Company in aggregate totaling 28% of basic salary (14% of salary for Maurice following appointment as Group CEO). No ED has
prospective entitlement to benefit in a defined benefit scheme.
6 Mark stepped down as Group CEO and left the Board on 9 October 2018; values for 2018 relate to the period whilst he was an ED. Details of Mark’s leaving arrangements are set out on page 79.
7 For Maurice, his 2017 values only relate to his qualifying services as a Director of Aviva from 20 June 2017, when he was appointed as an ED. His basic salary, bonus and benefits are set in Canadian dollars and have been
converted to sterling using an average exchange rate for 2018 of CAD 1.73.
8 Year on year decrease is primarily driven by the lower bonus outcomes and prorating of Mark and the lapse of his LTIP award.
Additional disclosures in respect of the single total figure of remuneration table
Malus and clawback
As part of the annual pay review process, the Committee has considered whether any recovery or withholding under the malus and
clawback provisions of Aviva’s incentive plans is required by any current circumstances. No incidents concerning the EDs are currently
subject to action under Aviva’s malus and clawback policy.
Other items of remuneration
The EDs have not received any items in the nature of remuneration other than those disclosed in table 1.
2018 annual bonus outcomes
The chart below summarises how our annual bonus operates.
Step I – Bonus scorecard
Step II – Non-financial performance modifiers
Employee
engagement
Customer
Risk & Controls
The bonus scorecard outcome as
determined under step 1 may be modified by
consideration of performance in these areas.
Typically, any adjustments would be in the
range of +/- 15%, but may be larger for major
customer and/or risk & controls issues.
Performance
against financial
measures subject
to a quality of
earnings
assessment.
Step III – Individual performance
The modified bonus scorecard outcome provides a pool for funding for
bonuses. Actual bonus decisions are made based on:
• Individual contribution and achievements;
• How the individual has assisted the Group achieve progress against its
strategic objectives;
• The leadership they have exhibited; and
• How the individual has demonstrated Aviva’s values.
The impact of individual performance is not determined in a formulaic
manner, with the Committee instead applying judgement as to whether
any adjustment is warranted. In recent years adjustments have been in the
region of +/-10%.
Performance is assessed against defined minimum, target
and maximum targets. The scorecard contains a business
unit modifier for EDs other than the Group CEO.
Discretion
The Committee retains overarching discretion to adjust outcomes upwards or downwards in order to align remuneration for the overall performance of
the Group and wider circumstances.
1 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APMs, including a reconciliation to the financial statements
(where possible), can be found in the ‘Other Information’ section of the Annual report and accounts.
Aviva plc Annual report and accounts 2018
73
30%
Operating
EPS1
25%
Operating capital
generation1
15%
Cash
remittances1
15%
Multiple product
holdings
15%
MyAviva active
customers
s
e
r
u
s
a
e
m
l
a
i
c
n
a
n
i
F
s
e
r
u
s
a
e
m
c
i
g
e
t
a
r
t
S
Strategic report
Governance
IFRS financial statements
Other information
Directors’ remuneration report
Continued
Step I – Bonus scorecard
The table below sets out performance against financial and non-financial targets under the bonus scorecard. The overall scorecard
outcome percentage applies to all of the EDs.
As outlined in the Chair’s letter on page 68, the Committee was mindful that when the Government announced its decision in February 2017
to reduce the Ogden rate, the degree of uncertainty around where the rate would finally land meant that we delayed the impact on
remuneration outcomes. On 20 March 2018 the Government announced it will introduce the Bill which includes provisions to amend the
Ogden discount rate. In December 2018, the Bill became an Act of Parliament, meaning that the new rate will be set by the Lord Chancellor
in 2019. While there is certainty that there will be a change in the Ogden rate in 2019, uncertainty remains around the amount and timing of
the final rate. In the Group accounts the claims reserves have been calculated using a discount rate of 0.0%, though the rate to be
announced by the Lord Chancellor later this year may result in a different discount rate. The Committee is satisfied that it is appropriate to
reflect this change in the annual bonus pools for 2018.
Accordingly, the assumed discount rate of 0.0% in 2018 has reduced the outcome, under the operating EPS1 measures, resulting in a
reduction in the bonus scorecard outcome of 31.3% (to 106.5%). The Committee would highlight that adjustments may be considered in
future years should the final Ogden rate be different from 0.0%.
2 2018 performance against bonus scorecard for Executive Directors’ bonuses
Measure
Financial measures (70% of total)
Operating EPS1
Cash remittances1
Operating capital generation1
Total financial measures
Strategic measures (30% of total)
MPH (% growth)
MyAviva active customers (m)
Total strategic measures
Scorecard outcome
Weighting
Minimum
Target
Maximum
Pre-Ogden
outcome
Post-Ogden
outcome
Outcome
30.0%
15.0%
25.0%
70.0%
15.0%
15.0%
30.0%
100.0%
51.2p
£2,753m
55.4p
£2,976m
59.6p
£3,199m
58.2p
£3,137m
52.5p
£3,137m
£1,848m
£2,048m
£2,248m
£3,200m
£3,200m
—
—
—
—
—
3.0%
4.9m
—
6.0%
5.7m
—
9.0%
6.5m
—
0.4%
5.3m
—
0.4%
5.3m
—
19.7%
50.0%
25.8%
95.5%
0.0%
11.0%
11.0%
106.5%
1 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APMs, including a reconciliation to the financial statements
(where possible), can be found in the ‘Other Information’ section of the Annual report and accounts.
1 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APMs, including a reconciliation to the financial statements
(where possible), can be found in the ‘Other Information’ section of the Annual report and accounts.
Aviva plc Annual report and accounts 2018
74
Strategic report
Governance
IFRS financial statements
Other information
Directors’ remuneration report
Continued
Step II – Non-financial performance modifiers
The Committee considered Group performance against the non-financial modifiers set out below, the outcome of which may result in an
adjustment to the bonus scorecard outcome if considered appropriate.
3 2018 non-financial modifiers relating to bonus scorecard
Modifier
Employee
Employee engagement.
Customer
Performance against our RNPS targets and our overall
focus on customer outcomes.
Risk & Controls
Aviva’s reward strategy includes specific risk and control
objectives for senior management and EDs. The aim is to
help drive and reward effective risk management and a
robust control environment across the Group.
The bonus scorecard outcome was revised to 101.5%.
Assessment
Employee engagement is up one percentage point to 76% with continued
notable improvements in UK Insurance (UKI), France and Finance, although
slightly down in Canada and Ireland after integration and restructuring in
those markets. There have been strong improvements in culture in many parts
of the business through initiatives taken to tackle complexity, simplify ways of
working and develop innovative solutions that improve the customer
experience.
Our RNPS survey shows three years of sustained high levels of customer
advocacy, with modest improvements in the last 12 months. We are working
hard to recognise customer loyalty by keeping things simple for customers
and putting them in control, for example, with the launch of AvivaPlus.
Most of our businesses/functions were rated as not falling short, against
their overall goal in relation to risk, conduct and control outcomes. The
assessments performed by our Risk and Internal Audit functions looked at the
effectiveness and robustness of the risk framework and control environment.
The outputs of the assessments were shared with the Risk and Audit
Committees ahead of decisions being made on impacts to bonus. It was
concluded that some specific business areas had been identified that would
warrant bonus pool adjustments as part of determining incentive awards for
2018. As a result, the Committee applied a downward adjustment of 5% to the
bonus scorecard outcome in respect of this modifier.
Aviva plc Annual report and accounts 2018
75
Strategic report
Governance
IFRS financial statements
Other information
Directors’ remuneration report
Continued
Step III – Individual performance
The Committee assessed EDs on their individual performance in the year. Details of each individual’s achievements are set out in the table
below.
Mark Wilson
Mark was Group CEO until 8 October 2018. Over this period Mark led
the organisation to deliver strong financial results, continued
progress on improving the culture and employee engagement, and
oversaw our IT roadmap. There were a number of notable milestones
in 2018:
• Achieved 9% Group adjusted operating profit1 growth in our
international markets, 7% in the UK, and 14% in Singapore
• Continued strong balance sheet management, with the Solvency II
shareholder cover ratio2 well above the working range at 204%
• Robust execution of key IT deliveries, including Cloud migrations
and IT service improvements
Tom Stoddard
Tom continued to provide strong leadership to the finance function
and was critical to many initiatives that supported delivery of the
Group’s strategy, including:
• Delivered growth in operating EPS2 and cash dividends consistent
with the Group’s targets, while increasing the Group’s overall
Solvency II shareholder cover ratio2 and returning £1.5 billion of
capital to investors
• Extended oversight of the finance function to coordinate improved
delivery of Operational Risk and Control Management (ORCM)
throughout the business
• Drove the implementation of Zero Based Budgeting concepts into
• Improved employee engagement and positive shift in our culture
• Continued progress towards our digital ambitions, including
AvivaPlus, providing a solution to the UK market practice of pricing
new business below that of renewing business and the launch of
Blue, our joint venture with Hillhouse and Tencent in Hong Kong
the organisation to benefit future results
• Executed capital management actions including completing the
share repurchase programme, completion of several M&A
transactions and a reduction in our debt profile
• Led the finance functional change programme in response to IFRS
• Completed the acquisition of Friends First in Ireland, and the
17 and the need to modernise finance IT systems
divestment of our businesses in Taiwan and Spain. In addition,
completed a £600 million share repurchase programme, the
redemption of €500 million Tier 2 debt instrument and redeemed
US$575 million Friends Life Holdings Plc subordinated notes
Andy Briggs
Andy is the CEO of Aviva UKI combining our UK based life, General
Insurance (GI) and health businesses. Andy provided strong
leadership in the UK throughout 2018 and key deliveries included:
• Strong financial performance in UKI with adjusted operating profit1
growth of 7% strong capital generation and cash remittances2 up
42% to £2.6 billion despite market headwinds in personal lines
• Improved employee engagement, empowering colleagues to
simplify and put the customer at the heart of decision-making
• Continued progress made via True Customer Composite (TCC)
among corporate customers. Strong growth in workplace pensions,
bulk annuities, with our largest ever schemes in both these, and in
commercial and corporate GI
• Launched AvivaPlus, which will provide a solution to the UK market
practice of pricing new business below that of renewing business
• Sponsored the new Aviva ‘Origins’ community to promote diversity
and inclusion in respect of race, ethnicity, religion, and social
mobility
Maurice Tulloch
As CEO International, Maurice provided strong leadership, with some
notable achievements:
• Achieved 9% adjusted operating profit1 growth across International
markets
• Appointed new CEOs and rolled out new strategies in Italy and
Canada resulting in strong net flows in Italy, and a positive shift in
business mix, diversified distribution and increased efficiency
• The recovery in the Canadian business is on track and accelerating
to deliver sub 96% target combined operating ratio2 by 2020
• Contined growth and execution of our strategy in France with a
significantly improved capital position and balance sheet, new
customer proposition (“Client Unique”), and a single customer
point serving all customer demands
• Growth continued in Ireland with the financial benefits of
• Strong balance sheet management
• Sponsored the ‘Generations’ community to promote a culture
integrating Friends First. The Brexit transformation is on track with
Part VII transfers underway
where age is not a barrier to achievement
• Achieved significant top and bottom line growth in Global
Corporate & Specialty and strong progress towards our strategic
aims
• Improved employee engagement and oversaw a positive shift in
our culture across European markets; France, Italy and Poland.
Maintained engagement through periods of change in other
markets
• Maurice is proactively involved in the Aviva ‘Carers’ Community and
is the sponsor for the Global Graduate Scheme
Notwithstanding these achievements, the Committee was conscious that the Group experienced several events during 2018 which had an
impact on our customers, our shareholders, and our broader stakeholder community. Firstly, we recognise the negative impact that our
March 2018 announcement on preference shares had on the Group. Secondly, it is recognised that our UK savings business encountered
disruption during the migration of our independent adviser platform to a new supplier, which adversely affected our service standards.
Thirdly, the Committee is conscious that our oversight in some areas of the Canadian business fell below our high standards and
contributed to the issues in the financial performance experienced.
These issues were all taken into account in the individual performance assessments for the EDs and reflected in their annual bonuses.
This resulted in a downward adjustment of 17.5% to the scorecard outcome for all EDs. As a result, annual bonuses for the EDs were 84%
of salary.
Table 4 provides further detail of how these adjustments have been applied.
1 Group adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section and
‘Other Information’ within the Annual report and accounts for further information.
2 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APMs, including a reconciliation to the financial statements
(where possible), can be found in the ‘Other Information’ section of the Annual report and accounts.
Aviva plc Annual report and accounts 2018
76
Strategic report
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IFRS financial statements
Other information
Directors’ remuneration report
Continued
4 2018 bonus outcomes for Executive Directors
Bonus scorecard (0% – 200%)
Pre-Ogden1
– Ogden
– Non-financial modifiers
– Individual adjustment
Final Outcome
Target opportunity
Maximum opportunity
Final bonus outcomes
– % of salary
– % of maximum
– £ amount
Mark Wilson
Tom Stoddard
Andy Briggs
Maurice Tulloch
137.8%
(31.3%)
(5.0%)
(17.5%)
84.0%
137.8%
(31.3%)
(5.0%)
(17.5%)
84.0%
137.8%
(31.3%)
(5.0%)
(17.5%)
84.0%
137.8%
(31.3%)
(5.0%)
(17.5%)
84.0%
100% of salary
200% of salary
100% of salary
150% of salary
100% of salary
100% of salary
150% of salary 150% of salary
84.0%
42.0%
£691,6082
84.0%
56.0%
£616,022
84.0%
56.0%
£631,596
84.0%
56.0%
£602,817
1 This outcome includes the financial impact of the goodwill payment scheme in relation to preference shareholders, which had the effect of reducing IFRS operating EPS by 0.2p and the overall bonus scorecard outcome by
0.7% (from 138.5% to 137.8%).
2 This outcome is pro-rated to reflect the time served in the Group CEO role.
Discretion
The Committee is conscious of the provisions of the 2018 Code, with remuneration committees being encouraged to review incentive
outcomes against individual and company performance, together with any wider circumstances, and to exercise independent judgement
and discretion in relation to remuneration outcomes. This reflects our current practice at Aviva. Taking into account the impact of the
assumed discount rate of 0.0%, the outcome of the quality of earnings assessment and the non-financial modifiers, and an assessment of
individual performance, the Committee is of the view that these outcomes appropriately reflect the overall performance of Aviva during the
year and are aligned with the experience of shareholders over this period. Compared to 2017, there has been a 43% reduction in the overall
annual bonus amount paid to the EDs (when measured on a like-for-like basis to reflect part-year service).
2016 LTIP vesting in respect of performance period 2016-2018
All references to adjusted RoE relate to the 2016 LTIP award only and represent RoE calculated as IFRS profit after tax and non-controlling
interest but excluding investment variances, economic assumption changes, pension scheme income/ charge over average IFRS equity
(excluding pension scheme net surplus/ deficit). The adjusted RoE1 and TSR2 outcome for the 2016 LTIP are detailed in the table below.
50% of the award will vest in March 2019.
5 2016 LTIP award – performance conditions
Adjusted RoE Performance
Relative TSR Performance
Weighting
Threshold
(20% vest)
Maximum
(100% vest)
50%
50%
24.5%
30%
Median Upper quintile and above
Vesting
(% of
maximum)
100%
0%
Outcome
31.8%
13/14
1 2016 adjusted RoE performance outcome excludes the positive impact of the £300m share buy-back, increasing shareholders’ equity, and further excludes the re-measurement loss on Friends Provident International which
will be recognised in 2019 upon completion of the sale.
2 TSR is a measure of share price growth, calculated as the difference between the share price at the vesting date and the 90 day average for the period immediately preceeding the start of the three year performance period.
Quality of earnings assessment – 2018 remuneration decisions
The Committee discussed those items that impacted the overall results in 2018 including foreign exchange, acquisitions and disposals, life
assumption and modelling changes, prior year reserve development, and other items that are non-recurring in nature. This process
provides the Committee with an understanding of the core profitability of the business taking these factors into account.
The 2016 LTIP vesting outcome also reflects the impact of an assumed Ogden rate of 0.0%, although it made no difference to the final level
of vesting.
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IFRS financial statements
Other information
Directors’ remuneration report
Continued
6 Awards granted during the year (audited information)
Share and option awards granted to EDs during the year are set out below.
Mark Wilson
Tom Stoddard
Andy Briggs
Maurice Tulloch
Date of Award
11 May 2018
26 Mar 2018
11 May 2018
26 Mar 2018
11 May 2018
26 Mar 2018
Award
Type1
LTIP3
ABP
LTIP
ABP
LTIP
ABP
Face Value
(% of basic
salary)2
300%
125%
225%
93%
225%
93%
£3,103,904
£1,296,742
£1,601,999
£664,529
£1,642,496
£681,332
14 Oct 2016
AESOP
0.39%
£3,005
11 May 2018
26 Mar 2018
LTIP
ABP
225%
80%
£1,556,750
£557,066
Threshold
Performance
(% of face
value)
Maximum
Performance
(% of face
value)
Face Value
(£)2
End of
performance period
End of vesting/
holding period
20%
N/A
20%
N/A
20%
N/A
N/A
20%
N/A
100%
31 Dec 2020
100%
31 Dec 2020
100%
31 Dec 2020
100%
31 Dec 2020
26 Mar 2023
26 Mar 2021
26 Mar 2023
26 Mar 2021
26 Mar 2023
26 Mar 2021
12 Dec 2021
27 Mar 2023
27 Mar 2021
1 ABP and LTIP awards have been granted as share awards. The LTIP is a conditional right to receive shares based on a three-year performance period, with an additional two-year holding period. ABP represents the portion of
the 2017 bonus deferred into shares for three years. Shares issued in lieu of dividends accrue on ABP and LTIP awards during the ABP deferral period and the LTIP performance period. AESOP includes partnership, matching
and dividend share awards which vest after three years. Further details are provided in Tables 16 and 18.
2 Face value for the awards granted on 26 March 2018 has been calculated using the average of the middle-market closing price of an Aviva ordinary share on the three consecutive business days immediately preceding the
main date of grant, on 26 March 2018 of 504.00 pence. AESOP has been calculated using the average price achieved at purchase of the partnership shares throughout 2018 of 483.00 pence.
3 Mark’s 2018 LTIP award ceased to be capable of vesting on 9 October 2018 when he stepped down as Group CEO and will lapse when he leaves the Company.
Operating EPS1 targets for awards made in 2018
Operating EPS1 performance determines the vesting of 50% of the LTIP award. Three-year targets are set annually within the context of the
Company’s strategic plan. The 2018 targets are provided below.
7 2018 LTIP operating EPS1 targets
Achievement of Operating EPS1 targets over the three-year performance period
Percentage of shares in award that vests based on achievement of Operating EPS1 targets
Less than 4% p.a.
4% p.a.
Between 4% p.a. and 10.0% p.a.
10% p.a. and above
0%
10%
Pro-rata between 10% and 50% on a straight line basis
50%
Any vesting of the operating EPS1 element of the LTIP is subject to two gateway hurdles – RoE1 and Solvency II shareholder cover ratio1. The
RoE1 hurdle is 12% p.a. and the Solvency II shareholder cover ratio1 is to meet or exceed the minimum of the stated working range (in 2018,
this was 150% to 180%).
TSR targets for awards made in 2018
Relative TSR performance determines the vesting of the other 50% of the LTIP award. For the 2018 grant, Aviva’s TSR performance will be
assessed against that of the following companies: Aegon, Allianz, Assicurazioni Generali, AXA, CNP Assurances, Direct Line Group, Legal &
General, Lloyds Banking Group, Old Mutual, Phoenix, Prudential, RSA, Standard Life Aberdeen and Zurich Insurance.
The performance period for the TSR performance condition is the three years beginning 1 January 2018. For the purposes of measuring the
TSR performance condition, the Company’s TSR and that of the comparator group will be based on the 90-day average TSR for the period
immediately preceding the start and end of the performance period. The vesting schedule is set out in the table below.
8 TSR vesting schedule for the 2018 LTIP award
TSR position over the three-year performance period
Below median
Median
Between median and upper quintile
Upper quintile and above
Percentage of shares in award that vest based on achievement of TSR targets
0%
10%
Pro-rata between 10% and 50% on a straight line basis
50%
New Group CEO appointment
As announced on 4 March 2019, the Board appointed Maurice Tulloch as our new Group CEO with immediate effect. Maurice’s
remuneration as Group CEO is in accordance with our Policy, as approved by shareholders at our 2018 AGM, and consists of:
• A salary of £975,000 per annum
• Our standard benefits package for executive directors, including private family medical insurance, life insurance, and reasonable travel benefits
• Pension contributions of 14% of salary, in line with the majority of our UK workforce
• An annual bonus opportunity of 200% of salary, with one-third of any bonus earned paid in cash after the year end, and two-thirds deferred
into shares which will vest in equal annual tranches over three years. His annual bonus opportunity for 2019 will be pro-rated to reflect the
time spent in each role.
• Maurice will be eligible for the grant of an award under the LTIP for 2019 of 300% of basic salary
• In taking on the role of Group CEO, Maurice is relocating from Canada to the UK. He will receive assistance with this relocation, of an
amount up to £250,000 exclusive of tax, payable against receipted costs incurred within a period of 24 months from the date of
appointment. Maurice is also subject to the Group CEO shareholding requirement of 300% of salary.
1 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APMs, including a reconciliation to the financial statements
(where possible), can be found in the ‘Other Information’ section fo the annual report and accounts.
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Other information
Directors’ remuneration report
Continued
Payments to past directors (audited information)
Russell Walls retired from the Board with effect from 8 May 2013.
• Russell was appointed as a Non-Executive Director (NED) of Aviva Italia Holdings S.p.A on 4 December 2014 and on 30 April 2015 was
appointed as Chair
• On 13 April 2015 Russell was appointed as a NED of Aviva Annuity UK Limited, Aviva Life Holdings UK Limited, Aviva Life & Pensions UK
Limited, Friends Life and Pensions Limited and Friends Life Limited each of which are subsidiary companies of Aviva plc. Russell
subsequently stepped down from all these boards on 28 February 2018
• On 31 October 2017 Russell was also appointed as a NED of Aviva Insurance Limited (AIL), also a subsidiary company of Aviva plc. Russell
subsequently stepped down from AIL on 28 February 2018
• The emoluments he received in respect of all these directorships for the 2018 financial year were £35,000 and €90,000 (as Chair of Aviva
Italia Holdings S.p.A)
Payments for loss of office (audited information)
We announced on 9 October 2018 that the Board had agreed with Mark that he would step down as Group CEO and as a Director of the
Company with immediate effect. Mark was placed on garden leave for six months with effect from 9 October 2018. During this period,
he continues to receive his salary and contractual benefits. For the remainder of 2018, these amounts totalled £319,866. At the end of his
garden leave period (9 April 2019), Mark’s employment will terminate and the Company, at its discretion, will make a payment in lieu of
notice of six months basic salary, pension entitlement and contractual benefits in monthly instalments, over the remainder of his
contractual 12-month notice period. We expect Mark to mitigate his loss during the last six months of this notice period, by seeking
alternative employment, or engagement. The total amount during 2019 in respect of the remainder of Mark’s garden leave and payment in
lieu of notice is expected to be £1,102,954. This includes the continued provision of Mark’s private medical insurance, on the same terms,
for the remainder of his contractual notice period. The total value of this benefit is anticipated to be in the region of £30,000.
Mark received a pro-rated bonus in respect of 2018, reflecting the portion of the year worked prior to going on garden leave. No bonus will
be payable in relation to 2019.
Mark’s unvested LTIP awards ceased to be capable of vesting on 9 October 2018 and no further LTIP awards will be made. Mark’s 2015 LTIP
award, which had already vested at the point of departure remains subject to the additional holding period. His outstanding deferred share
awards under the ABP will continue and will vest on the normal vesting dates. All awards will remain subject to malus and clawback.
In line with Policy, Mark will be entitled to a capped contribution of £10,000 (excluding VAT) towards legal fees incurred in connection with
his departure.
9 Total 2018 remuneration for Non-Executive Directors (audited information)
The table below sets out the total remuneration earned by each NED who served during 2018 for Group-related activities.
Chairman
Sir Adrian Montague
Non-Executive Directors
Claudia Arney2
Glyn Barker
Patricia Cross
Belén Romana García
Michael Hawker
Michael Mire
Keith Williams
Total emoluments of NEDs
2018
£000
550
155
168
128
105
138
118
150
Fees
2017
£000
550
140
164
128
105
138
117
124
2018
£000
88
2
3
—
10
—
1
2
1,512
1,466
106
Benefits1
2017
£000
67
1
3
—
8
—
1
3
83
Aviva plc total
Subsidiaries fees
Group total
2018
£000
638
157
171
128
115
138
119
152
2017
£000
617
141
167
128
113
138
118
127
2018
£000
2017
£000
—
78
—
60
40
—
—
—
—
40
—
53
1
15
—
—
2018
£000
638
235
171
188
155
138
119
152
2017
£000
617
181
167
181
114
153
118
127
1,618
1,549
178
109
1,796
1,658
1 Benefits include the gross taxable value of expenses relating to accommodation, travel and other expenses incurred on Company business in accordance with our expense policy and may vary year-on-year dependent on the
time required to be spent in the UK.
2 The 2018 Aviva plc fee payment includes £15,000 in arrears from Risk Committee fees which were omitted from payment in 2017 and paid in Q1 2018. The 2018 subsidiaries fees includes £7,345 in arrears from 2017 Chair fees
paid in 2018.
The Aviva plc total amount paid to NEDs in 2018 was £1,618,000 which is within the limits set in the Company’s Articles of Association, as
previously approved by shareholders.
Subsidiary company board memberships
During the year, the following NEDs were appointed as directors of subsidiary companies to support and further enhance the flow of
information between material subsidiaries and the Group. The additional emoluments received in respect of these roles are detailed below:
• Claudia Arney received an additional fee of £78,346 (2017: £40,000) in respect of her duties as Non-Executive Chairman and Conduct
Committee member of Aviva UK Digital Limited
• Patricia Cross received an additional fee of £60,000 (2017: £52,808) in respect of her duties as Senior Independent Director of Aviva
Investors Holdings Limited
• Belén Romana García received an additional fee of €44,712 (2017: €1,068) in respect of her duties as a Board member of Aviva Italia
Holding S.p.A., and as a committee member of the Audit and Risk Committees. Belén joined the Board on 19 December 2017
• Sir Adrian Montague became a director of Aviva Group Holdings Ltd on 9 October 2018. He received no fees in respect of this appointment
Aviva plc Annual report and accounts 2018
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Other information
Directors’ remuneration report
Continued
Percentage change in remuneration of the former Group CEO
The table below sets out the increase in the basic salary, bonus and benefits of the former Group CEO and that of the wider workforce. The
UK employee workforce was chosen as a suitable comparator group, as the former Group CEO and the majority of EDs are based in the UK
(albeit with global responsibilities), and pay changes across the Group vary widely depending on local market conditions. Given that he
served for a part-year only in 2018, the former Group CEO’s pay for the year has been annualised so as to provide an appropriate
comparison with 2017.
10 Percentage change in remuneration of former Group CEO
Former Group CEO1
All UK-based employees2
% change in basic salary 2017-2018
% change in bonus 2017-2018
% change in benefits 2017-2018
3.0%
6.1%
-53.8%
0.4%
13.5%
-5.2%
1 Salary, annual bonus and benefit amounts for 2018 for the former Group CEO have been pro-rated up to reflect what they would have been over a full 12-month period. This provides a comparable basis with 2017.
2
In terms of the UK based employee figures, the increase shown for salary and the decrease in benefits reflects that car allowances were rolled up into salaries during 2018.
Historical TSR performance and Group CEO remuneration outcomes
Table 11 compares the TSR performance of the Company over the past ten years against the TSR of the FTSE 100. This index has been
chosen because it is a recognised equity market index of which Aviva is a member. In addition, median TSR performance for the LTIP
comparator group has been shown. The companies which comprise the current LTIP comparator group for TSR purposes are listed above
Table 8.
11 Aviva plc ten-year TSR performance against the FTSE 100 and the median of the comparator group
Aviva
FTSE 100
Comparator group median
)
0
0
1
o
t
d
e
s
a
b
e
r
(
R
S
T
350
300
250
200
150
100
50
0
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
The table below summarises the historical Group CEO single figure for total remuneration, and annual bonus and LTIP oucomes as a
percentage of maximum over this period.
12 Historical Group CEO remuneration outcomes
Annual bonus payout (as a %
of maximum opportunity)
LTIP vesting (as a % of maximum
opportunity)
Group CEO single figure of
remuneration (£000)
Group CEO
Mark Wilson1
Andrew Moss2
Mark Wilson
Andrew Moss
Mark Wilson
Andrew Moss
2009
—
2010
—
2011
—
74.2%
74.3%
81%
—
—
—
50.0%
72.3%
81.7%
—
—
—
—
—
—
—
—
2012
2013
2014
2015
2016
2017
75.0%
86.7%
91.0%
91.0%
94.0%
—
—
—
—
—
—
—
—
—
53%
41.3%
36.9%
—
—
—
2018
42%
—
—
—
2,615
2,600
5,438
4,523
4,334
1,836
2,591
2,748
3,477
554
—
—
—
—
—
—
1 Mark joined the Board as an ED with effect from 1 December 2012 and became Group CEO on 1 January 2013. Mark stepped down as Group CEO and left the Board on 9 October 2018.
2 Andrew resigned from the Board with effect from 8 May 2012 and left the Company on 31 May 2012.
Sir Adrian Montague remained on his Non-Executive Chairman remuneration arrangements while acting as Executive Chairman for the
period 9 October 2018 to 31 December 2018. Given that he was not performing the role of Group CEO and did not receive a typical CEO
remuneration package, he is not shown in this table.
Pay ratio reporting
New UK legislation requires companies to publish information on the pay ratio of the Group CEO to UK employees. While formally taking
effect from our next reporting year, we have chosen to voluntarily disclose this information a year early as we recognise that it is important
to take a lead in this area and some shareholders may find the information to be a useful reference point. In line with the new regulatory
requirements, the table below sets out the ratio at median, 25th and 75th percentile of the total remuneration received by the Group CEO
compared to the total remuneration received by our UK employees. Total remuneration reflects all remuneration received by an individual
in respect of the relevant years, and includes salary, benefits, pension, and value received from incentive plans.
Aviva plc Annual report and accounts 2018
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Other information
Directors’ remuneration report
Continued
13 Pay ratio table
Year
2018
Method
Option A
P25 (lower quartile)
P50 (median)
P75 (upper quartile)
76:1
53:1
32:1
We would highlight the following in terms of the approach taken:
• In calculating the Group CEO data, we have used an aggregated figure which is the sum of the amount shown in the single figure table for
Mark (£1,835,716) in respect of his services from the start of the year to 8 October 2018, and the pro rata fees paid to Sir Adrian Montague
in his role as Executive Chairman for the period 9 October to 31 December 2018. This approach is consistent with legislative requirements
that will apply from next year. However, recognising that 2018 is an atypical year for Aviva, we have also provided an additional ratio
below, calculated on a full-year basis using total target remuneration for Mark
• The lower quartile, median and upper quartile employees were calculated based on full-time equivalent data as at 31 December 2018
• Out of the three alternatives available for calculating the ratio, we chose to use Option A as it is considered to be the most accurate way of
identifying employees at P25, P50 and P75, and is aligned with investor expectations. Under this approach we calculate total
remuneration on a full-time equivalent basis for all of our UK employees and rank them accordingly
The table below provides further information on the total remuneration figure used for each quartile employee, and the salary component
within this.
14 Salary and total remuneration used in the pay ratio calculations
Year
2018
Pay element
P25 (lower quartile)
P50 (median)
P75 (upper quartile)
Salary
Total remuneration
£21,309
£25,969
£30,404
£37,454
£51,769
£62,528
In reviewing the employee pay data, the Committee is comfortable that the P25, P50 and P75 individuals identified appropriately reflect the
employee pay profile at those quartiles, and that the overall picture presented by the ratios is consistent with our pay, reward and
progression policies for UK employees.
As referred to above, we recognise that 2018 is an unusual year for Aviva resulting in a Group CEO pay ratio which is likely to be lower than
we might typically expect. Shareholders may find it helpful to consider what the ratio might have been in a more normal year, recognising
that the ratio may well vary significantly from year-to-year. Specifically, we have considered the ratio if Mark had been employed for the full
year and had received an on-target annual bonus of 100% of salary (half of maximum) and LTIP vesting at 150% of salary (half of maximum).
These circumstances would lead to a total single figure for the Group CEO of £4,139,784 and the following Group CEO pay ratios.
Year
2018 (illustrative based on a notional ‘target’ package)
P25 (lower quartile)
P50 (median)
P75 (upper quartile)
159:1
111:1
66:1
At Aviva, we consider that we are equally focused on our colleagues as we are on our customers. We work hard to recognise the individual
needs of colleagues, in just the same manner as we do for our customers. In this context, we are proud of the reward, benefits and overall
career packages that we offer our colleagues:
• In the UK, we have been an accredited Living Wage employer since April 2014
• We have a structured salary progression scheme for our frontline colleagues, providing incremental salary increases over the first few
years in role as individuals develop and gain experience
• We conduct regular market reviews of our salary ranges in order to maintain competitiveness to market rates, and we move everyone
who is below a band to at least the minimum of that range each year
• We have a comprehensive flexible benefits offering, providing colleagues with the opportunity to select the benefits that matter most
to them
• Our competitive pension scheme provides a top rate employer contribution of 14% of salary (subject to the level of employee
contribution). Above this level, we share employer National Insurance savings with our colleagues
• Our broader Wellbeing offering aims to promote health and wellness among our colleagues. We listen to colleagues and focus in-depth
on a new area each year depending on the feedback we receive. During 2018, for example, our programme had a particular emphasis on
financial education
• UK colleagues are eligible to participate in our SAYE and AESOP offerings. These are tax-efficient share plans that allow our UK colleagues
to share in the success of Aviva. We also have similar plans operating for many of our overseas colleagues. We are proud of the
participation rates in these plans, with over 50% of UK employees participating in the SAYE and over 70% in the AESOP
Relative importance of spend on pay
Table 15 outlines Group adjusted operating profit1, dividends paid to shareholders and share buy-backs, compared to overall spend on pay
in total. This measure of profit has been chosen as it is used for decision-making and the internal performance management of the Group’s
operating segments.
1 Group adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section and
‘Other Information’ within the Annual report and accounts for further information.
Aviva plc Annual report and accounts 2018
81
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Other information
Directors’ remuneration report
Continued
15 Relative importance of spend on pay
Group adjusted operating profit1
Dividends paid2
Share buy-backs3
Total staff costs4
Year end
31 December
2016
£m
Year end
31 December
2017
£m
Year end
31 December
2018
£m
3,010
871
—
1,764
3,068
983
300
1,942
3,116
1,128
600
1,974
%
change
between
2017 & 2018
2%
15%
100%
1%
1 Group adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to accounting policy B in the ‘Accounting Policies’
section and to the ‘Other Information’ section within the Annual report and accounts for further information.
2 The total cost of ordinary dividends paid to shareholders.
3 A share buy-back of ordinary shares for an aggregate purchase price of £600 million was undertaken during the year, as described in more detail in note 32. A share buy-back of ordinary shares for an aggregate purchase price
of £300 million was undertaken during 2017.
4 Total staff costs from continuing operations includes wages and salaries, social security costs, post-retirement obligations, profit sharing and incentive plans, equity compensation plans and termination benefits. The average
number of employees in continuing operations was 31,232 (2018) and 30,332 (2017).
External board appointments
• Andy Briggs was appointed a Senior Independent Director of the Association of British Insurers on 7 June 2018, after having been
Chairman since 14 September 2011. He is Chairman of the NSPCC’s Fundraising Committee and on the Board of Trustees of the NSPCC,
and is the Government’s Business Champion for Older Workers. He received no fees in respect of these appointments
• Maurice Tulloch is a NED of Pool Reinsurance Company Limited. He received fees of £41,500 (2017: £41,500) in respect of this appointment
during 2018. He is also a member of the Insurance Development Forum
• Mark Wilson was a NED of BlackRock Inc. from 15 March 2018. He received cash and shares in the amount of US$223,814 in the period
15 March 2018 to 9 October 2018
Statement of directors’ shareholdings and share interests
EDs share ownership requirements
The Company requires the Group CEO to build a shareholding in the Company equivalent to 300% of basic salary and each ED to build
a shareholding in the Company equivalent to 200% of basic salary.
• The EDs are required to retain 50% of the net shares released from ABP and LTIP awards until the shareholding requirement is met
• The shareholding requirement needs to be built up over a five-year period
• Unvested share awards, including shares held in connection with bonus deferrals, are not taken into account in applying this test
• In response to the new provisions of the 2018 Code, during 2019 we will implement post-cessation shareholding guidelines for our EDs.
The current expectation is that EDs will be required to retain their full guideline holding for two years following cessation of employment
(or their holding on departure if lower). The Committee will retain the discretion to waive part or all of the guideline where considered
appropriate, for example in exceptional or compassionate circumstances.
16 Executive directors – share ownership requirement (audited information)
Executive Directors
Mark Wilson6
Tom Stoddard
Andy Briggs
Maurice Tulloch7
Owned
outright1
728,532
312,532
331,301
348,797
Unvested and
subject to
performance
conditions2
1,793,397
926,154
949,396
906,232
Shares held
Unvested and
subject to
continued
employment3
733,540
370,530
344,225
259,237
Options held
Unvested and
subject to continued
employment4
Vested but
not exercised
Shareholding
requirement
(% of salary)
Current
shareholding5
(% of salary)
Requirement
met
6,179
—
5,128
—
—
—
—
—
300
200
200
200
257
160
165
183
No
No
No
No
1 Directors’ beneficial holdings in the ordinary shares of the Company. This information includes holdings of any connected persons. For Andy Briggs it also includes partnership shares purchased under the AESOP, under which
participants can currently contribute up to £150 every month. Shares are purchased on a monthly basis, and have to be held in the AESOP trust for three years. These vest after three years providing the ED does not leave and
the related partnership shares are not withdrawn from the AESOP trust.
2 Awards granted under the Aviva LTIPs which vest only if the performance conditions are achieved.
3 Awards arising through the ABP. Under this plan, some of the earned bonuses are paid in the form of conditional shares and deferred for three years. The transfer of the shares to the director at the end of the period is not
subject to the attainment of performance conditions but the shares can be forfeited if the ED leaves service before the end of the period.
4 Savings-related options (without performance conditions) over shares granted under the SAYE plan.
5 Based on the closing middle-market price of an ordinary share of the Company on 31 December 2018 of 375.5 pence. The closing middle-market price of an ordinary share of the Company during the year ranged from
364.6 pence to 552.0 pence.
6 Mark’s outstanding LTIPs ceased to be capable of vesting on 9 October 2018 when he stepped down as Group CEO, and they will lapse upon leaving.
7 Maurice’s basic salary and benefits are set in Canadian dollars and have been converted to sterling using an average exchange rate for 2018 of CAD $1.73.
There were no changes to the EDs interests in Aviva shares during the period 1 January 2019 to 6 March 2019, with the exception of
Andy Briggs’ continued participation in the AESOP.
17 Non-Executive Directors’ shareholdings1 (audited information)
Sir Adrian Montague
Claudia Arney
Glyn Barker
Patricia Cross
Belén Romana García
Michael Hawker
Michael Mire
Keith Williams
1 This information includes holdings of any connected persons.
There were no changes to the NEDs interests in Aviva shares during the period 1 January 2019 to 6 March 2019.
Aviva plc Annual report and accounts 2018
82
1 January 2018
31 December 2018
42,385
14,000
22,700
12,383
790
20,000
50,000
10,000
58,553
14,000
22,700
25,112
4,475
20,000
50,000
10,000
Strategic report
Governance
IFRS financial statements
Other information
Directors’ remuneration report
Continued
Share awards and share options
Details of the EDs who were in office for any part of the 2018 financial year and hold or held outstanding share awards or options over
ordinary shares of the Company pursuant to the Company’s share based incentive plans are set out in table 18. EDs are eligible to
participate in the Company’s broad-based employee share plans on the same basis as other eligible employees. Details of awards and
options granted to EDs under these plans are also included in tables 1, 6 and 16 (and SAYE options are included in table 18). More
information around HMRC tax-advantaged plans can also be found in note 33.
18 LTIP, ABP and options over Aviva shares (audited information)
At 1January 2018
(number)
Options/
awards granted
during year1
(number)
Options/awards
exercised/vesting
during year
(number)
Options/awards
lapsing during year
(number)
At 31 December
2018
(number)
Market price
at date awards
granted2
(number)
Exercise price
(options)
(pence)
Market price at
date awards
vested/option
exercised
(pence)
Normal
vesting date/
exercise
period5
Tom Stoddard
LTIP3,4
2015
2016
2017
2018
ABP
2015
2016
2017
2018
Andy Briggs
LTIP3,4
2015
2016
2017
2018
ABP
2016
2017
2018
SAYE6
2016
Maurice Tulloch
LTIP3,4
2015
2016
2017
2018
ABP
2015
2016
2017
2018
Mark Wilson
LTIP3,4,5
2015
2016
2017
2018
ABP
2015
2016
2017
2018
SAYE6
2014
2016
269,281
313,144
295,153
—
62,228
120,618
118,061
—
276,014
320,972
302,532
—
92,510
116,530
—
—
—
—
317,857
—
—
—
131,851
—
—
—
325,892
—
—
135,185
5,128
—
212,765
309,278
286,091
—
43,439
63,144
85,564
—
521,276
606,185
571,538
—
150,591
245,168
231,082
—
3,615
2,564
—
—
—
310,863
—
—
—
110,529
—
—
—
615,854
—
—
—
257,290
—
—
112,2207
—
—
—
70,2807
—
—
—
169,918
—
—
—
—
—
—
—
115,0267
—
—
—
174,165
—
—
—
—
—
—
—
94,8407
—
—
—
50,2627
—
—
—
217,2397
—
—
—
170,0767
—
—
—
—
—
—
—
—
—
134,256
—
—
—
—
—
—
—
328,925
—
—
—
—
—
—
—
—
—
—
313,144
295,153
317,857
—
120,618
118,061
131,851
—
320,972
302,532
325,892
92,510
116,530
135,185
535.00
475.20
523.00
542.60
535.00
475.20
523.00
494.10
535.00
475.20
523.00
542.60
475.20
523.00
494.10
5,128
—
351.00
535.00
475.20
523.00
542.60
535.00
475.20
523.00
494.10
535.00
475.20
523.00
542.60
535.00
475.20
523.00
494.10
—
309,278
286,091
310,863
—
63,144
85,564
110,529
—
606,185
571,358
615,854
—
245,168
231,082
257,290
2,564
2,564
493.10
—
—
—
493.10
—
—
—
493.10
—
—
—
—
—
—
—
493.10
—
—
—
493.10
—
—
—
493.10
—
—
—
493.10
—
—
—
Mar-18
Mar-19
Mar-20
Mar-21
Mar-18
Mar-19
Mar-20
Mar-21
Mar-18
Mar-19
Mar-20
Mar-21
Mar-19
Mar-20
Mar-21
Dec 19 – May-20
Mar-18
Mar-19
Mar-20
Mar-21
Mar-18
Mar-19
Mar-20
Mar-21
Mar-18
Mar-19
Mar-20
Mar-21
Mar-18
Mar-19
Mar-20
Mar-21
—
—
419.00
351.00
—
—
Dec 19 – May 20
Dec 19 – May 20
1 The aggregate net value of share awards granted to the EDs in the period was £11.1 million (2017: £10.6 million). The net value has been calculated by reference to the closing middle-market price of an ordinary share of the
Company at the date of grant.
2 The actual price used to calculate the ABP and LTIP awards is based on a three-day average closing middle-market price of an ordinary share of the Company, prior to grant date. These were in 2015: 564 pence, 2016: 485
pence, 2017: 530 pence and 2018: 504 pence
3 For the 2015, 2016 and 2017 LTIP grant, the TSR comparator group consisted of the following companies: Aegon, Allianz, Assicurazioni Generali, Axa, CNP Assurances, Direct Line Group, Legal & General, MetLife, NN Group,
Old Mutual, Prudential, RSA Insurance Group, Standard Life and Zurich Financial. For the 2018 LTIP, the comparator group is: Aegon, Allianz, Assicurazioni Generali, Axa, CNP Assurances, Direct Line Group, Legal & General,
Lloyds Banking Group, Old Mutual, Phoenix, Prudential, RSA, Standard Life Aberdeen, Zurich Insurance.
4 The performance periods for these awards begin at the commencement of the financial year in which the award is granted and run for a three-year period.
5 Mark Wilson’s 2016, 2017 and 2018 LTIP awards ceased to be capable of vesting on 9 October 2018 when he stepped down as Group CEO and will lapse when he leaves the Company.
6 Any unexercised options will lapse at the end of the exercise period.
Options are not subject to performance conditions. The option price was fixed by reference to a three day average closing middle-market price of an ordinary share of the Company, prior to invitation date, with a discount
of 20% as permitted under the SAYE plan. Options granted under the SAYE are normally exercisable during the six-month period following the end of the relevant (3 or 5 year) savings contract.
7 The shares comprised in these vested awards include shares issued in lieu of dividends accrued during the deferral period.
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Continued
Dilution
Awards granted under Aviva employee share plans are generally met by issuing new shares as agreed by the Board. Shares are held in
employee trusts, details of which are set out in note 34.
The Company monitors the number of shares issued under the Aviva employee share plans and their impact on dilution limits. The
Company’s usage of shares compared to the relevant dilution limits set by the Investment Association in respect of all share plans
(10% in any rolling ten-year period) and executive share plans (5% in any rolling ten-year period) was 3.07% and 1.83% respectively
on 31 December 2018.
Governance Regulatory Remuneration Code
Aviva Investors and two small ‘firms’ (as defined by the FCA) within the UK Insurance business are subject to the Capital Requirements
Directive IV (CRD IV) and the FCA Remuneration Code (SYSC 19A). Additionally, there are two Aviva Investors ‘firms’ in the UK, Friends Life
Funds Limited and Aviva Investors UK Funds Services Ltd, subject to the Alternative Investment Fund Management Directive (AIFMD), the
Undertakings for Collective Investments in Transferrable Securities (UCITS V) directive and the Markets in Financial Instruments Directive II
(MiFID II). Remuneration Code requirements include an annual disclosure. For AIFMD and UCITS V the disclosure is part of the Financial
Statements and/or Annual accounts of the Alternative Investment Funds or UCITS V. For CRD IV requirements the most recent Aviva
Investors disclosure can be found in Section 5 of the Pillar 3 Disclosure available at www.aviva.com/pillar3 and a link to the disclosure for
the UK Insurance firms can be found at www.aviva.com/remuneration-committee.
Solvency II remuneration
Remuneration Requirements (PRA PS22/16 & SS10/16) apply to the Aviva Group. Our remuneration structures have been designed in a way
so that they are compliant with these requirements for all senior managers across the Group, not just those identified as being specifically
covered by the requirements of the regulation. Such employees at Aviva are termed ‘Covered Employees’. We are required to complete a
Remuneration Policy Statement, which outlines how we have complied with each of the requirements, this document was approved by the
Group Remuneration Committee and submitted to the Prudential Regulatory Authority (PRA).
The Solvency II reporting requirements for the year ended 31 December 2018 necessitate firms to produce the Solvency and Financial
Condition Report (SFCR) which contains remuneration information and is publicly available. Aviva’s reward principles and arrangements
are designed to incentivise and reward employees for achieving stated business goals in a manner that is consistent with the Company’s
approach to sound and effective risk management.
Statement of voting at AGM
The result of the shareholder vote at the Company’s 2018 AGM in respect of the 2018 Directors’ Remuneration Policy and the 2018 Directors’
Remuneration Report is set out in table 19. The Committee was pleased with the level of support received from shareholders for both
the resolutions.
19 Results of votes at 2018 AGM
Directors’ Remuneration Policy
Directors’ Remuneration Report
Percentage of votes cast
Number of votes cast
For
97.13%
97.13%
Against
2.87%
2.87%
For
Against
Votes withheld
2,809,661,298
2,808,999,968
83,164,398
83,109,802
3,970,718
4,671,678
Approach to NED fees for 2019
NED fees are reviewed annually. No changes were made to the current fee levels, as set out in the table below. As detailed elsewhere in this
report, Sir Adrian Montague did not receive any additional remuneration for assuming the role of Executive Chairman upon the departure of
Mark on 9 October 2018.
20 Non-Executive Directors’ fees
Role
Chairman of the Company1
Board membership fee
Additional fees are paid as follows:
Senior Independent Director
Committee Chair (inclusive of committee membership fee):
• Audit
• Governance
• Remuneration
• Risk
Committee membership:
• Audit
• Governance
• Nomination
• Remuneration
• Risk
1
Inclusive of Board membership fee and any committee membership fees, and committee chair of the Nomination Committee.
Fee from
1 April 2019
Fee from
1 April 2018
£550,000 £550,000
£70,000
£70,000
£35,000
£35,000
£45,000
£35,000
£35,000
£45,000
£15,000
£12,500
£7,500
£12,500
£15,000
£45,000
£35,000
£35,000
£45,000
£15,000
£12,500
£7,500
£12,500
£15,000
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Continued
21 Implementation of Policy in 2019
The implementation of the Policy will be consistent with that outlined in table 22.
2019
2020
2021
2022
2023
2024
Key Element
Phasing
Salary1
Bonus4
1/3rd
paid in
cash
2/3rds deferred into shares vesting in
three equal tranches over three years
Released
after 1 year
Released
after 2 years
Released
after 3 years
Implementation in 2019
• Group CEO – £975,000 per annum
• CFO – £748,027 per annum
• CEO UKI – £766,938 per annum
• One-year performance assessed against critical financial
and non-financial performance measures
• Measures largely unchanged from 2018, although customer
metrics were refined to ensure they are aligned with and
support our strategic focus on driving continuous
improvement in our customer performance
Financial measures (70% of total):
• 20% – Operating EPS2
• 25% – Cash remittances2
• 25% – Operating capital generation2
Customer-focused strategic measures (30% of total):
• 20% – RNPS
• 10% – MPH
• A quality of earnings assessment will be undertaken by the
Committee to provide assurance that bonus payouts
appropriately reflect underlying performance and the
shareholder experience
• Performance against a number of other non-financial
modifiers will be considered when determining bonus
payouts (employee engagement, customer and risk). Within
customer, RNPS has been replaced by a measure of brand
trust; employee engagement and risk modifiers remain
unchanged
• Personal performance during the year will be taken into
account
LTIP
2-year holding period
Award
released
• Group CEO – 300% of salary
• CFO and CEO – 225% of salary
Performance measures unchanged from 2018:
• 50% operating EPS2 growth subject to two gateway hurdles
– RoE2 and Solvency II shareholder cover ratio2
• 50% relative TSR against a comparator group3
TSR Ranking
Below median
Median
50% TSR target
Vesting level
0%
10%
Three-year Operating EPS2 growth
Vesting level
50% Operating EPS2 target
Less than 4.0% p.a.
4.0% p.a
Between 4.0% p.a.
and 10.0% p.a.
10.0% p.a and above
0%
10%
10-50% (straight line)
Between median and
upper quintile
Pro rata between 10% and 50%
on a straight line basis
50%
Upper quintile and above
50%
1 Salary for Group CEO will be effective from 4 March 2019, while for the CFO and CEO UKI,the change will be effective from 1 April 2019.
2 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APMs, including a reconciliation to the financial statements
(where possible), can be found in the ‘Other Information’ section of the Annual report and accounts.
3 2019 LTIP Comparator Group: Aegon, Allianz, Assicurazioni Generali, Axa, CNP Assurances, Direct Line Group, Legal & General, Lloyds Banking Group, Old Mutual, Phoenix, Prudential, RSA, Standard Life Aberdeen, Zurich
Insurance.
4 The target ranges are considered by the Board to be commercially sensitive, although will be disclosed in the 2019 DRR.
LTIP vesting – gateway hurdle conditions for the element linked to Operating EPS1
Any vesting of the operating EPS1 element of the LTIP is subject to two gateway hurdles – RoE1 and Solvency II shareholder cover ratio1. For
the 2019 awards, the RoE1 hurdle is 12% p.a. and the Solvency II shareholder cover ratio1 is to meet or exceed the minimum of the stated
working range (currently 160% to 180%).
Approval by the Board
This Directors’ Remuneration Report was reviewed and approved by the Board on 6 March 2019.
Patricia Cross
Chair, Remuneration Committee
1 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APMs, including a reconciliation to the financial statements
(where possible), can be found in the ‘Other Information’ section of the Annual report and accounts.
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Continued
Directors’ Remuneration Policy
Our Remuneration Policy was approved by shareholders at our AGM on 10 May 2018 and will apply for a period of up to three years. The full
and definitive Policy is therefore set out in our 2017 Annual Report, which can be found on our website at
https://www.aviva.com/investors/annual-report-2017/
The following section reproduces the Policy for convenience, although the original Policy referred to above remains our formally approved
Policy and should be consulted where this is required. In addition, we have taken the opportunity to update the scenario charts to reflect
2019 remuneration arrangements for our EDs, as well as appointment end dates for NEDs.
Alignment of Group strategy with executive remuneration
The Committee considers that alignment between Group strategy and the remuneration of its EDs is critical. Our Remuneration Policy
provides market competitive remuneration, and incentivises EDs to achieve both the annual business plan and the longer-term strategic
objectives of the Group. Significant levels of deferral and an aggregate shareholding requirement align EDs’ interests with those of
shareholders and aid retention of key personnel. As well as rewarding the achievement of objectives, variable remuneration can be zero
if performance thresholds are not met.
Table 22 below provides an overview of the Policy for EDs. For an overview of the Policy for NEDs, see table 24.
22 Key aspects of the Remuneration Policy for Executive Directors
Element
Basic salary
Purpose
To provide core market related pay to attract and retain the required level
of talent.
Operation
Annual review, with changes normally taking effect from – 1 April each
year. The review is informed by:
• Individual and business performance
• Levels of increase for the broader employee population
• Relevant pay data including market practice among relevant FTSE listed
companies of comparable size to Aviva in terms of market
capitalisation, large European and global insurers, and UK financial
services companies
Maximum opportunity
There is no maximum increase within the Policy.
However, basic salary increases take account of the
average basic salary increase awarded to the broader
employee population. Different levels of increase may be
agreed in certain circumstances at the Committee’s
discretion, such as:
• An increase in job scope and responsibility
• Development of the individual in the role
• A significant increase in the size, value or complexity of
the Group
Assessment of performance
Any movement in basic salary takes account of the
performance of the individual and the Group.
Annual bonus
Purpose
To reward EDs for achievement against the Company’s strategic
objectives and for demonstrating the Aviva values and behaviours.
Maximum opportunity
200% of basic salary for Group CEO
150% of basic salary for other EDs
Deferral provides alignment with shareholder interests and aids retention
of key personnel.
Operation
Awards are based on performance in the year. Targets are set annually
and pay-out levels are determined by the Committee based on
performance against those targets and a quality of earnings assessment
and risk review.
Form & timing of payment
• One-third of any bonus is payable in cash at the end of the year
• Two-thirds of any bonus awarded is deferred into shares which vest in
three equal annual tranches
Additional shares are awarded at vesting in lieu of dividends paid on the
deferred shares.
Malus and clawback
Cash and deferred awards are subject to malus and clawback. Details of
when these may be applied are set out in the notes below.
Outcome at threshold and on target
Performance is assessed against multiple metrics.
Threshold performance against a single metric would
result in a bonus payment of no more than 25% of basic
salary.
100% of basic salary is payable for on target
performance.
Assessment of performance
Performance is assessed against a range of relevant
financial, employee, customer and risk targets designed
to incentivise the achievement of our strategy, as well as
individual strategic objectives as set by the Committee.
Although financial performance is the major factor in
considering overall expenditure on bonuses,
performance against non-financial measures including
progress towards our strategic priorities and behaviours
in line with our values will also be taken into
consideration.
Discretion
The Committee has discretion to amend vesting levels to
prevent unreasonable outcomes, which it may use
taking into account a range of factors, including the
management of risk and good governance and, in all
cases, the experience of shareholders.
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Continued
Element
Long-term
incentive plan
Purpose
To reward EDs for achievement against the Company’s longer-term
objectives; to align EDs’ interests with those of shareholders and to aid the
retention of key personnel and to encourage focus on long-term growth in
enterprise value.
Operation
Shares are awarded annually which vest dependent on the achievement
of performance conditions. Vesting is subject to an assessment of quality
of earnings, the stewardship of capital and risk review.
Performance period
Three years. Additional shares are awarded at vesting in lieu of dividends
on any shares which vest.
Additional holding period
Two years.
Malus and clawback
Awards are subject to malus and clawback. Details of when these may be
applied are set out in the notes below.
Pension
Purpose
To give a market competitive level of provision for post retirement
income.
Operation
EDs are eligible to participate in a defined contribution plan up to the
annual limit.
Any amounts above annual or lifetime limits are paid in cash.
Maximum opportunity
350% of basic salary.
Performance measures
Awards will vest based on a combination of financial,
strategic and TSR performance metrics. For the 2018 awards
the measures and weightings will be:
• 50% Operating EPS1 growth subject to two gateway
hurdles – RoE1 and Solvency II shareholder cover ratio1
• 50% TSR against a comparator group
The financial metric combined with TSR will be a
minimum of 80% of the total LTIP award. If, in
subsequent years, shareholders indicate support for
strategic measures, the Policy will allow for up to 20% of
the LTIP to be awarded on the basis of strategic
measures and this will be fully disclosed in the DRR.
Vesting at threshold
20% of award for each performance measure.
Discretion
The Committee has discretion to amend vesting levels to
prevent unreasonable outcomes, which it may use
taking into account a range of factors, including the
management of risk and good governance and, in all
cases, the experience of shareholders.
Maximum opportunity
If suitable employee contributions are made, the
Company contributes:
• 20% of basic salary for new ED appointments
• 28% of basic salary for existing EDs (into pension or
paid as cash as applicable)
Benefits
Purpose
To provide EDs with a suitable but reasonable package of benefits as part of a
competitive remuneration package. This involves both core executive benefits,
and the opportunity to participate in flexible benefits programmes offered by
the Company (via salary sacrifice).
Maximum opportunity
Set at a level which the Committee considers
appropriate against comparable roles in companies of a
similar size and complexity to provide a reasonable level
of benefit.
This enables us to attract and retain the right level of talent necessary to
deliver the Company’s strategy.
Operation
Benefits are provided on a market related basis. The Company reserves
the right to deliver benefits to EDs depending on their individual
circumstances, which may include a cash car allowance, life insurance,
private medical insurance and access to a company car and driver for
business use. In the case of non-UK executives, the Committee may
consider additional allowances in line with standard relevant market
practice.
EDs are eligible to participate in the Company’s broad based employee share
plans on the same basis as other eligible employees.
Costs would normally be limited to providing a cash car
allowance, private medical insurance, life insurance, and
reasonable travel benefits (including the tax cost where
applicable). In addition, there may be one-off or
exceptional items on a case by case basis, which would
be disclosed in the DRR.
Relocation and
mobility
Purpose
To assist with mobility across the Group to ensure the appropriate talent
is available to execute strategy locally.
Operation
Employees who are relocated or reassigned from one location to another
receive relevant benefits to assist them and their dependants in moving
home and settling in-to the new location.
Maximum opportunity
Dependent on location and family size, benefits are
market related and time bound. They are not
compensation for performing the role but to defray costs
of a relocation or residence outside the home country.
The Committee would reward no more than it judged
reasonably necessary, in the light of all applicable
circumstances.
Shareholding
requirements
Purpose
To align EDs’ interests with those of shareholders.
Operation
A requirement to build a shareholding in the Company equivalent to 300%
of basic salary for the Group CEO and 200% of basic salary for other EDs.
This shareholding is normally to be built up over a period not exceeding
5 years (subject to the Committee’s discretion where personal
circumstances dictate).
1 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APMs, including a reconciliation to the financial statements
(where possible), can be found in the ‘Other information’ section of the annual report and accounts.
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Continued
Notes to the table:
Performance measures
For the annual bonus, performance measures are chosen to align to some of the Group’s KPIs and include financial, strategic, risk,
employee and customer measures. Achievement against individual strategic objectives is also taken into account.
LTIP performance measures are chosen to provide an indication of both absolute and relative return generated for shareholders. In terms
of target setting, a number of reference points are taken into account each year including, but not limited to, the Group’s business plan and
external market expectations of the Company. Maximum payouts require performance that significantly exceeds expected performance
under both the annual bonus and the LTIP.
Quality of Earnings assessments
Throughout the year, the Committee engages in a regular quality of earnings assessment. A quality of earnings assessment sign-off is the
final step in determining annual bonus scorecard outcomes, and in making decisions on LTIP vesting. This sign-off is undertaken before
decisions are made on the modifiers for risk, customer and employee engagement under the annual bonus, and before vesting is
determined against financial metrics under the LTIP.
As a minimum, at any Committee meeting where LTIP vesting or annual bonus scorecard decisions are considered, the Chief Accounting
Officer prepares a report to the Committee on the quality of earnings reflected in the results being assessed, against performance targets.
Extensive information from the audited accounts is used to explain the vesting and scorecard outcomes – ranging from movements in
reserves, capital management decisions, consistency of accounting treatment and period to period comparability. The Chief Accounting
Officer attends the Committee meeting to answer any questions that any member of the Committee may choose to ask. Any vesting
decision or confirmation of awards is made after this process has been undertaken.
Malus and Clawback
The circumstances when malus (the forfeiture or reduction of unvested shares awarded under the Annual Bonus Plan (ABP) and LTIP) and
clawback (the recovery of cash and share awards after release) may apply include (but are not limited to) where the Committee considers
that the employee concerned has been involved in or partially/wholly responsible for:
• A materially adverse misstatement of the Company’s financial statements, or a misleading representation of performance;
• A significant failure of risk management and/or controls;
• A scenario or event which causes material reputational damage to the Company;
• Misconduct which, in the opinion of the Committee, ought to result in the complete or partial lapse of an award;
• Conduct which resulted in significant loss(es);
• Failure to meet appropriate standards of fitness and propriety;
• Any other circumstance required by local regulatory obligations.
The clawback period runs for two years from the date of payment in the case of the cash element of any annual bonus award.
For deferred bonus elements and LTIP awards, the overall malus and clawback period is five years from the date of grant.
Discretions
The discretions the Committee has in relation to the operation of the ABP and LTIP are set out in the plan rules. These include (but are not
limited to) the ability to set additional conditions (and the discretion to change or waive those conditions). In relation to the LTIP and in
accordance with its terms, the Committee has discretion in relation to vesting and to waive or change a performance condition if anything
happens which causes the Committee reasonably to consider it appropriate to do so. Such discretions would only be applied in
exceptional circumstances, to ensure that awards properly reflect underlying business performance. Any use of the discretions and how
they were exercised will be disclosed, where relevant, in the DRR and, where appropriate, be subject to consultation with Aviva’s
shareholders.
Change in control
In the event of a change in control, unless a new award is granted in exchange for an existing award, or if there is a significant corporate
event like a demerger, awards under the LTIP would normally vest to the extent that the performance conditions have been satisfied as at
the date of the change in control, and unless the Committee decides otherwise, would be pro-rated to reflect the time between the start of
the performance period and the change in control event. Awards under the ABP would normally vest on the date of the change in control
and may vest if there is a significant corporate event.
Consistency of executive Policy across the Group
The Policy for our EDs is designed as part of the remuneration philosophy and principles that underpin remuneration for the wider Group.
Remuneration arrangements for employees below the EDs take account of the seniority and nature of the role, individual performance and
local market practice. The components and levels of remuneration for different employees may therefore differ from the Policy for EDs. Any
such elements are reviewed against market practice and approved in line with internal guidelines and frameworks.
Differentiation in reward outcomes based on performance and behaviour that is consistent with the Aviva values is a feature of how Aviva
operates its annual bonus plan for its senior leaders and managers globally. A disciplined approach is taken to moderation across the
Company in order to recognise and reward the key contributors. The allocation of LTIP awards also involves strong differentiation, with
expected contribution and ability to collaborate effectively in implementation of the strategy driving award levels.
Legacy payments
The Committee reserves the right to make any remuneration payments and payments for loss of office (including exercising any discretions
available to it in connection with such payments) notwithstanding that they are not in line with the Policy set out above, where the terms of
the payment were agreed (i) before May 2014 (the date the Company’s first Policy came into effect), (ii) before the Policy set out above came
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Continued
into effect, provided that the terms of the payment were consistent with the Policy in force at the time they were agreed, or (iii) at a time
when the relevant individual was not a director of the Company and, in the opinion of the Committee, the payment was not in
consideration for the individual becoming a director of the Company. For these purposes, ‘payments’ includes the Committee satisfying
awards of variable remuneration and, in relation to an award over shares, the terms of the payment are ‘agreed’ at the time the award is
granted.
Approach to recruitment remuneration
On hiring a new ED, the Committee would align the proposed remuneration package with the Policy in place for EDs at the time of the
appointment.
In determining the actual remuneration for a new ED, the Committee would consider the package in totality, taking into account elements
such as the skills and experience of the individual, local market benchmarks, remuneration practice, and the existing remuneration of other
senior executives. The Committee would ensure any arrangements agreed would be in the best interests of Aviva and its shareholders. It
would seek not to pay more than necessary to secure the right candidate.
Where considered appropriate the Committee may make awards on hiring an external candidate to ‘buyout’ remuneration arrangements
forfeited on leaving a previous employer. In doing so, the Committee would take account of relevant factors including any performance
conditions attached to these awards, the form in which it was paid (e.g. cash or shares) and the timeframe of awards. Buyout awards would
be awarded on a ‘like for like’ basis compared to remuneration being forfeited, and would be capped to reflect the value being forfeited.
The Committee considers that a buyout award is a significant investment in human capital by Aviva, and any buyout decision will involve
careful consideration of the contribution that is expected from the individual.
The maximum level of variable pay which could be awarded to a new ED, excluding any buyouts, would be in line with the Policy set out
above and would therefore be no more than 550% of basic salary for the Group CEO (200% of basic salary annual bonus opportunity and
350% of basic salary as the face value of a LTIP grant) and 500% of basic salary for other EDs (150% of basic salary annual bonus
opportunity and 350% of basic salary as the face value of a LTIP grant).
All other elements of remuneration will also be in line with the Policy set out above.
Should the Company have any prior commitments outside of this Policy in respect of an employee promoted internally to an ED position,
the Committee may continue to honour these for a period of time. Where an ED is appointed from within the organisation, the normal
policy of the Company is that any legacy arrangements would be honoured in line with the original terms and conditions. Similarly, if an ED
is appointed following Aviva’s acquisition of, or merger with, another company, legacy terms and conditions may be honoured.
On appointing a new NED, the Committee would align the remuneration package with the Policy for NEDs, outlined in table 24, including
fees and travel benefits.
Illustration of the Policy
The charts below illustrate how much EDs could earn under different performance scenarios in one financial year:
• Minimum – basic salary, pension or cash in lieu of pension and benefits, no bonus and no vesting of the LTIP
• Target – basic salary, pension or cash in lieu of pension, benefits, and:
– A bonus of 100% and an LTIP of 300% of basic salary (with notional LTIP vesting at 50% of maximum) for the Group CEO; and
– A bonus of 100% and an LTIP of 225% of basic salary (with notional LTIP vesting at 50% of maximum) for the CFO and CEO UKI.
• Maximum – basic salary, pension or cash in lieu of pension, benefits, and:
– A bonus of 200% and an LTIP of 300% of basic salary (with notional LTIP vesting at maximum) for the Group CEO; and
– A bonus of 150% and an LTIP of 225% of basic salary (with notional LTIP vesting at maximum) for the CFO and CEO UKI.
Maurice Tulloch
Potential earnings
by pay element
Tom Stoddard
Potential earnings
by pay element
Andy Briggs
Potential earnings
by pay element
£m
7
6
5
4
3
2
1
0
£6.0
48%
32%
20%
£3.6
41%
27%
32%
£1.2
100%
£2.6
32%
28%
40%
£1.0
100%
£3.8
44%
29%
27%
£2.7
32%
29%
39%
£1.0
100%
£3.9
44%
29%
27%
2019
Minimum
2019
Target
2019
Maximum
2019
Minimum
2019
Target
2019
Maximum
2019
Minimum
2019
Target
2019
Maximum
Fixed
Annual Bonus
LTIP
Fixed
Annual Bonus
LTIP
Fixed
Annual Bonus
LTIP
Notes to the charts
Fixed pay consists of basic salary, pension as described in Table 22, and estimated value of benefits provided under the Remuneration Policy, excluding any one offs. Actual figures may vary in future years.
The value of the LTIP and deferred element of the annual bonus assumes a constant share price and does not include additional shares awarded in lieu of dividends that may have been accrued during the vesting period.
LTIP as awarded in 2019.
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Directors’ remuneration report
Continued
Employment contracts and letters of appointment
ED employment contracts and NED letters of appointment are available for inspection at the Company’s registered office during normal
hours of business, and at the place of the Company’s 2019 AGM on 23 May from 10.45am until the close of the meeting.
The key employment terms and conditions of the current EDs, and those who served during the year, as stipulated in their employment
contracts, are set out in the table below.
23 Executive Directors’ key conditions of employment
Provision
Notice period
By the ED
By the Company
Termination Payment
Policy
6 months.
12 months, rolling. No notice or payment in lieu of notice to be paid where the Company terminates for
cause.
Pay in lieu of notice up to a maximum of 12 months’ basic salary.
Any payment is subject to phasing and mitigation requirements. An ED would be expected to mitigate the
loss of office by seeking alternative employment. Any payments in lieu of notice would be reduced,
potentially to zero, by any salary received from such employment.
Remuneration and Benefits
The operation of the annual bonus and LTIP is at the Company’s discretion.
Expenses
Car Allowance
Reimbursement of expenses reasonably incurred in accordance with their duties.
In the case of Tom and Andy, a cash car allowance is received, as varied from time to time.
Holiday entitlement
30 working days plus public holidays.
Private medical insurance
Private medical insurance is provided for the ED and their family. The ED can choose to opt out of this
benefit or take a lower level of cover. However, no payments are made in lieu of reduced or no cover.
Other benefits
Sickness
Non-compete
Contract dates
Other benefits include participation in the Company’s staff pension scheme, life insurance and, where
applicable, access to a Company car and driver for business related use.
In the case of Tom and Andy, 100% of basic salary for 52 weeks, and 75% thereafter for a further 52 weeks.
In the case of Maurice, 100% of salary for the first 52 weeks, and 50% thereafter for a further five years.
During employment and for six months after leaving (less any period of garden leave) without the prior
written consent of the Company.
Director
Maurice Tulloch
Tom Stoddard
Andy Briggs
Date current contract commenced
4 March 2019
28 April 2014
13 April 2015
Policy on payment for loss of office
There are no pre-determined ED special provisions for compensation for loss of office. The Committee has the ability to exercise its
discretion on the final amount actually paid. Any compensation would be based on basic salary, pension entitlement and other contractual
benefits during the notice period, or a payment made in lieu of notice, depending on whether the notice is worked.
Where notice of termination of a contract is given, payments to the ED would continue for the period worked during the notice period.
Alternatively, the contract may be terminated and phased monthly payments made in lieu of notice for, or for the balance of, the 12
months’ notice period. During this period, EDs would be expected to mitigate their loss by seeking alternative employment. Payments in
lieu of notice would be reduced by the salary received from any alternative employment, potentially to zero. The Company would typically
make a reasonable contribution towards an ED’s legal fees in connection with advice on the terms of their departure.
There is no automatic entitlement to an annual bonus for the year in which loss of office occurs. The Committee may determine that an ED
may receive a pro-rata bonus in respect of the period of employment during the year loss of office occurs based on an assessment of
performance. Where an ED leaves the Company by reason of death, disability or ill health, or any other reason determined by the
Committee, there may be a payment of a pro rata bonus for the relevant year at the discretion of the Committee.
The treatment of leavers under the ABP and LTIP is determined by the rules of the relevant plans. Good leaver status under these plans
would be granted in the event of, for example, the death of an ED. Good leaver status for other leaving reasons is at the discretion of the
Committee, taking into account the circumstances of the individual’s departure, but would typically include planned retirement, or their
departure on ill health grounds. In circumstances where good leaver status has been granted, awards may still be subject to malus and
clawback in the event that inappropriate conduct of the ED is subsequently discovered post departure. If good leaver status is not granted,
all outstanding awards will lapse.
In the case of LTIPs, where the Committee determines EDs to be good leavers, vesting is normally based on the extent to which
performance conditions have been met at the end of the relevant performance period, and the proportion of the award that vests is pro-
rated for the time from the date of grant to final date of service (unless the Committee decides otherwise). Any decision not to apply this
would only be made in exceptional circumstances, and would be fully disclosed. It is not the practice to allow such treatment.
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Continued
Consideration of wider employee pay and shareholder views
When determining the Policy and arrangements for our EDs, the Committee considers:
• Pay and employment conditions elsewhere in the Group to ensure that pay structures are suitably aligned and that levels of
remuneration remain appropriate. The Committee reviews levels of basic salary increases for other employees and executives based in
their respective locations. It reviews changes in overall bonus pool funding and long-term incentive grants. The Committee considers
feedback on pay matters from sources including the employee opinion survey and employee forums. The Committee also takes into
account information provided by the people function and external advisers and the Committee Chair has in place a programme of
consultation and meetings with employee forums including the Evolution Council and Your Forum to discuss remuneration.
• In its ongoing dialogue with shareholders, the Committee seeks shareholder views and takes them into account when any significant
changes are being proposed to remuneration arrangements and when formulating and implementing the Policy.
Non-Executive Directors
The table below, sets out details of our Policy for NEDs.
24 Key aspects of the Policy for Non-Executive Directors
Element
Chairman and NEDs’ fees
Chairman’s Travel
Benefits
NED Travel and
Accommodation
Purpose
To attract individuals with the required range of skills
and experience to serve as a Chairman or as a NED.
Operation
NEDs receive a basic annual fee in respect of their
Board duties. Further fees are paid for membership
and, where appropriate, chairing Board committees.
The Chairman receives a fixed annual fee. Fees are
reviewed annually taking into account market data
and trends and the scope of specific Board duties.
NEDs are able to use up to 100 percent of their post-
tax base fees to acquire shares in Aviva plc.
The Chairman and NEDs do not participate in any
incentive or performance plans or pension
arrangements and do not receive an expense
allowance.
NEDs are reimbursed for reasonable expenses, and
any tax arising on those expenses is settled directly by
Aviva. To the extent that these are deemed taxable
benefits, they will be included in the DRR, as required.
Purpose
To provide the Chairman with suitable travel
arrangements for him to discharge his duties
effectively.
Purpose
To reimburse NEDs for appropriate business travel
and accommodation, including attending Board and
committee meetings.
Maximum opportunity
The Company’s Articles of Association provide that
the total aggregate remuneration paid to the
Chairman of the Company and NEDs will be
determined by the Board within the limits set by
shareholders and detailed in the Company’s Articles
of Association.
The Chairman has access to a company car and driver
for business use. Where these are deemed a taxable
benefit, the tax is paid by the Company.
Operation
Reasonable costs of travel and accommodation for
business purposes are reimbursed to NEDs. On the
limited occasions when it is appropriate for a NED’s
spouse or partner to attend, such as to a business
event, the Company will meet these costs. The
Company will meet any tax liabilities that may arise
on such expenses.
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Continued
The NEDs, including the Chairman of the Company, have letters of appointment which set out their duties and responsibilities. The key
terms of the appointments are set out in table below.
25 Non-Executive Directors’ key terms of appointment
Provision
Period
Termination
Fees
Expenses
Policy
In line with the requirement of the Code, all NEDs, including the Chairman, are subject to annual
re-election by shareholders at each AGM.
By the director or the Company at their discretion without compensation upon giving one month’s
written notice for NEDs and three months written notice for the Chairman of the Company.
As set out in table 20.
Reimbursement of travel and other expenses reasonably incurred in the performance of their duties.
Time commitment
Each director must be able to devote sufficient time to the role in order to discharge his or her
responsibilities effectively.
Committee appointments
Appointment date1
Appointment end date2
Director
Nomination
Audit
Governance
Remuneration
Sir Adrian Montague
Claudia Arney
Glyn Barker
Patricia Cross
Belén Romana García
Michael Hawker
Michael Mire
Keith Williams
C
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
C
C
✓
✓
✓
✓
✓
✓
C
✓
Risk
✓
✓
14 January 2013
8 February 2016
27 February 2012
1 December 2013
26 June 2015
✓
C
1 January 2010
✓ 12 September 2013
✓
1 August 2016
AGM 2019
AGM 2019
AGM 2019
AGM 2019
AGM 2019
31 March 2019
AGM 2019
AGM 2019
Key
C Chair of Committee
✓ Committee
1 The dates shown above reflect the date the individual was appointed to the Aviva plc Board.
2 Appointment end dates are in accordance with letters of appointment, with the exception of Michael Hawker who is retiring from the board on 31 March 2019.
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IFRS financial
statements
In this section
Independent auditors’ report to the members of Aviva plc
Accounting policies
Consolidated financial statements
Consolidated income statement
Consolidated statement of comprehensive income
Reconciliation of Group adjusted operating profit to profit
for the year
Consolidated statement of changes in equity
Consolidated statement of financial position
Consolidated statement of cash flows
Notes to the consolidated financial statements
1
2
3
Presentation changes
Exchange rates
Subsidiaries, joint ventures and associates –
acquisitions
Subsidiaries, joint ventures and associates –
disposals and held for sale
Segmental information
Details of income
Details of expenses
Finance costs
Life business investment variances and economic
assumption changes
Non-life business: short-term fluctuations in return
on investments
Employee information
Directors
Auditors’ remuneration
Tax
Earnings per share
Dividends and appropriations
Goodwill
Acquired value of in-force business (AVIF) and
intangible assets
Interests in, and loans to, joint ventures
Interests in, and loans to, associates
Property and equipment
Investment property
Fair value methodology
Loans
Securitised mortgages and related assets
Interest in structured entities
Financial investments
Receivables
Deferred acquisition costs
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
94
102
116
117
118
120
121
122
123
123
124
125
127
134
135
136
136
138
140
140
141
142
144
145
146
148
149
150
152
153
153
160
161
162
164
168
168
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
Pension surpluses, other assets, prepayments and
accrued income
Assets held to cover linked liabilities
Ordinary share capital
Group’s share plans
Treasury shares
Preference share capital
Direct capital instrument and tier 1 notes
Merger reserve
Currency translation and other reserves
Retained earnings
Non-controlling interests
Contract liabilities and associated reinsurance
Insurance liabilities
Insurance liabilities methodology and assumptions
Liability for investment contracts
Financial guarantees and options
Reinsurance assets
Effect of changes in assumptions and estimates
during the year
Unallocated divisible surplus
Tax assets and liabilities
Pension deficits and other provisions
Pension obligations
Borrowings
Payables and other financial liabilities
Other liabilities
Contingent liabilities and other risk factors
Commitments
Group capital management
Statement of cash flows
Risk management
Derivative financial instruments and hedging
Financial assets and liabilities subject to offsetting,
enforceable master netting arrangements and
similar agreements
Related party transactions
Organisational structure
Related undertakings
Subsequent events
Financial statements of the Company
Income statement
Statement of comprehensive income
Statement of changes in equity
Statement of financial position
Statement of cash flows
Notes to the Company’s financial statements
169
169
170
171
174
174
175
175
176
176
177
177
179
184
188
189
191
194
195
195
197
198
203
206
207
207
208
209
212
213
226
228
230
231
233
241
242
242
243
244
245
246
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Independent auditors’ report to the members of Aviva plc
Report on the audit of the financial statements
Opinion
In our opinion, Aviva plc’s Group financial statements and Company financial statements (the ‘financial statements’):
• give a true and fair view of the state of the Group’s and of the Company’s affairs as at 31 December 2018 and of the Group’s and the
Company’s profit and cash flows for the year then ended;
• have been properly prepared in accordance with International Financial Reporting Standards (‘IFRS’) as adopted by the European Union;
and
• have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements,
Article 4 of the IAS Regulation.
We have audited the financial statements, included within the Annual report and accounts (the ‘Annual report’) which comprise:
• the Consolidated and Company statements of financial position as at 31 December 2018;
• the Consolidated and Company income statements and statements of comprehensive income for the year then ended;
• the Reconciliation of Group adjusted operating profit to profit for the year then ended;
• the Consolidated and Company statements of changes in equity for the year then ended;
• the Consolidated and Company statements of cash flows for the year then ended;
• the principal accounting policies adopted in the preparation of the financial statements; and
• the notes to the financial statements, which include other explanatory information.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our responsibilities
under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our
other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided to
the Group or the Company.
Other than those disclosed in Note 13 to the consolidated financial statements, we have provided no non-audit services to the Group or the
Company in the period from 1 January 2018 to 31 December 2018.
Our audit approach
Overview
• Overall Group materiality: £156.0 million (2017: £147.0 million), based on 5% of Group adjusted operating profit before tax attributable to
shareholders’ profits after the deduction of integration and restructuring costs.
• Overall Company materiality: £105.0 million (2017: £55.5 million), based on 5% of IFRS profit before tax.
• Based on the output of our risk assessment, along with our understanding of the Aviva Group structure, we performed full scope audits
over the following components; UK Life, UK General Insurance, Canada and France Life.
• We identified a further two components, Aviva Investors and Italy Life, where specific account balances were considered to be significant
in size in relation to the Group, and scoped our audit to include detailed testing of those account balances.
• We completed review procedures over other components not subject to full scope audits, including the remaining components that
make up Aviva’s eight major markets.
• We also performed audit procedures over the head office operations and the consolidation process, as well as over certain other group
activities, including specific account balances in the Aviva Employment Services and Aviva Group Holdings components.
• Our risk assessment analysis identified the following as areas of focus for the financial statements:
– Valuation of life insurance contract liabilities
– Valuation of non-life insurance contract liabilities
– Valuation of hard to value investments
– Valuation of a specific UK Life provision
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In
particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that
involved making assumptions and considering future events that are inherently uncertain.
Capability of the audit in detecting irregularities, including fraud
Based on our understanding of the Group, Company and its industry, we identified that the principal risks of non-compliance with laws and
regulations related to breaches of UK and European regulatory principles, such as those governed by the Prudential Regulation Authority
and the Financial Conduct Authority, and we considered the extent to which non-compliance might have a material effect on the financial
statements of the Group and Company. We also considered those laws and regulations that have a direct impact on the financial
statements of the Group and Company such as the Companies Act 2006, the Listing Rules, the Prudential Regulation Authority’s
regulations, the Pensions Regulator legislation, the UK tax legislation and equivalent local laws and regulations applicable to in scope
components.
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Continued
We have also evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk
of override of controls) and determined that the principal risks were related to management bias in accounting estimates and judgmental areas
of the financial statements as shown in our “Key Audit Matters”. Audit procedures performed by the engagement team included:
Discussions with the Board, management, internal audit, senior management involved in the Risk and Compliance functions and the Group and
Company’s legal function, including consideration of known or suspected instances of non-compliance with laws and regulation and fraud;
• Evaluation and testing of the operating effectiveness of management’s controls designed to prevent and detect irregularities;
• Assessment of matters reported on the Group and Company’s whistleblowing helpline and fraud register and the results of
management’s investigation of such matters;
• Reading key correspondence with the Prudential Regulation Authority and the Financial Conduct Authority in relation to compliance with
laws and regulations;
• Reviewing relevant meeting minutes including those of the Risk Committee and Audit Committee;
• Making enquiries of the Group Investigations team who are responsible for independently reviewing fraudulent activity across the group,
utilising activities including, but not limited to, whistle blowing hotlines and data analytics;
• Identifying and testing journal entries, in particular any journal entries posted with unusual account combinations or posted by senior
management;
• Designing audit procedures to incorporate unpredictability around the nature, timing or extent of our testing; and
• Testing transactions entered into outside of the normal course of the Group and Company’s business specifically in respect of the
acquisitions and disposals
There are inherent limitations in the audit procedures described above and, the further removed non-compliance with laws and regulations
is from the events and transactions reflected in the financial statements, the less likely we would become aware of it. Also, the risk of not
detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve
deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the
audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures
thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.
Key audit matter
How our audit addressed the key audit matter
Valuation of life insurance contract liabilities (Group)
Refer to the Audit Committees’ Report, Accounting policy (L) Insurance and participating investment contract liabilities – Long-term business provisions and note 42 Insurance liabilities (b) Long-term business liabilities.
For UK Life insurance contract liabilities, the Directors’ valuation
of the provisions for the settlement of future claims, involves
complex and subjective judgements about future events, both
internal and external to the business, for which small changes in
assumptions can result in material impacts to the valuation of
these liabilities.
The work to address the valuation of the UK Life insurance contract
liabilities included the following procedures:
• We understood the governance process in place to determine the
insurance contract liabilities, including testing the associated
financial reporting control framework.
• We tested the design and operating effectiveness of controls over
the accuracy and completeness of the data used.
• Using our actuarial specialist team members, we applied our
industry knowledge and experience and we compared the
methodology, models and assumptions used against recognised
actuarial practices.
• We tested the key judgements and controls over the preparation of
the liability, including manually calculated components. We focused
on the consistency in treatment and methodology period-on-period
and with reference to recognised actuarial practice.
• We used the results of an independent PwC annual benchmarking
survey of assumptions to further challenge the assumption setting
process by comparing certain assumptions used relative to the
Group’s industry peers.
• We assessed the disclosures in the financial statements.
As part of our consideration of the entire set of assumptions, we focused
particularly on the annuitant mortality, credit default and expense
assumptions for the UK Life component given their significance to the
Group’s result and the level of judgement involved. We have also
evaluated the implementation of a new actuarial model used to calculate
certain life insurance contract liabilities for the UK Life component. These
aspects of our work have been considered in greater detail below.
Based on the work performed and the evidence obtained, we consider
the assumptions used and the output from the new actuarial model to
be appropriate.
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Continued
Key audit matter
Annuitant mortality assumptions (Group)
Refer to the Audit Committees’ Report, Accounting policy (L) Insurance and participating investment contract liabilities – Long-term business provisions and note 43 Insurance liabilities methodology and assumptions (a) Long-term
business.
How our audit addressed the key audit matter
Annuitant mortality assumptions require a high degree of
judgement due to the number of factors which may influence
mortality experience. The differing factors which affect the
assumptions are underlying mortality experience (in the portfolio),
industry and management views on the future rate of mortality
improvements and external factors arising from developments in
the annuity market.
There are two main components to the annuitant mortality
assumptions:
• Mortality base assumption: this component is typically less
subjective as it is derived using external Continuous Mortality
Investigation (CMI) tables or an equivalent, adjusted for internal
experience. However, judgement is required in choosing the
appropriate table and fitting internal experience to this table.
• Rate of mortality improvements: this component is more
subjective given the lack of data and the uncertainty over how life
expectancy will change in the future. Management has adopted
the most recent CMI 2017 model and dataset in setting this
assumption with specific parameters for the long term rate of
improvement and tapering at older ages and adjustments to
reflect the profile of their portfolio. This reflects their views on the
rate of mortality improvement.
In addition, a margin for prudence is applied to the annuitant
mortality assumptions.
In respect of the annuitant mortality assumptions, we performed the
following:
• We tested the methodology used by management to derive the
assumptions with reference to relevant rules and actuarial
guidance and by applying our industry knowledge and experience.
This included evaluating management’s choice of, and fitting to,
the CMI or equivalent base tables and the adoption of the CMI 2017
model and dataset for improvements, together with associated
parameters and the margin for prudence.
• We assessed the results of the experience investigations carried out
by UK Life management for the annuity business to determine
whether they provided support for the assumptions used by
management.
• We compared the mortality assumptions selected by UK Life
against those used by their peers.
Based on the work performed and the evidence obtained, we consider
the assumptions used for annuitant mortality to be appropriate.
Credit default assumptions for illiquid assets, specifically: Commercial mortgages and equity release mortgages (Group)
Refer to the Audit Committees’ Report, Accounting policy (L) Insurance and participating investment contract liabilities – Long-term business provisions and note 43 Insurance liabilities methodology and assumptions (a) Long-term
business.
UK Life has substantial holdings in illiquid asset classes with
significant credit risk, notably commercial mortgages and equity
release mortgages.
In addition to the procedures above, in respect of the credit default
assumptions, we performed the following:
• We tested the methodology and credit risk pricing models used by
Management use an active approach to setting the assumptions.
A long term deduction for credit default is made from the current
market yields and a supplementary allowance is also held to cover
the risk of higher short term default rates along with a margin for
prudence.
management for commercial and equity release mortgages to derive
the assumptions with reference to relevant rules and actuarial
guidance, including the adoption of an appropriate prudence margin
and by applying our industry knowledge and experience.
• We validated significant assumptions used by management by
ensuring consistency with the assumptions used for the valuation
of the assets, and against market observable data (to the extent
available and relevant) and our experience of market practices.
Based on the work performed and the evidence obtained, we consider
the allowance for credit default risk to be appropriate.
Expense assumptions (Group)
Refer to the Audit Committees’ Report, Accounting policy (L) Insurance and participating investment contract liabilities – Long-term business provisions and note 43 Insurance liabilities methodology and assumptions (a) Long-term
business.
Future maintenance expenses and expense inflation assumptions
are used in the measurement of life insurance contract liabilities.
The assumptions reflect the expected future expenses that will be
required to maintain the in-force policies at the balance sheet
date, including an allowance for project costs and a margin for
prudence. The assumptions used require significant judgement.
In addition to the procedures above, in respect of the expense
assumptions, we performed the following:
• We tested the methodology used by management to derive the
assumptions with reference to relevant rules and actuarial
guidance and by applying our industry knowledge and experience.
This included testing the split of expenses between acquisition and
maintenance by agreeing a sample to supporting evidence.
• We validated significant assumptions used by management,
including the margin for prudence and the rate of inflation against
past experience, market observable data (to the extent available
and relevant) and our experience of market practices.
• We tested that the assumptions appropriately reflect the expected
future expenses for maintaining policies in force at the balance
sheet date, which includes consideration of the allowance for
project costs.
Based on the work performed and the evidence obtained, we consider
the expense assumptions to be appropriate.
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Continued
Key audit matter
How our audit addressed the key audit matter
Implementation of new actuarial modelling system (Group)
Refer to the Audit Committees’ Report and note 59 Risk management (e) Life and health insurance risk.
UK Life has implemented a new actuarial modelling system for
non-profit business. During the year ended 31 December 2018,
annuities and certain protection products were transferred onto
this new modelling system.
There is a risk that the new model may not measure the insurance
liabilities appropriately due to, for example, the methodology not
following relevant rules and actuarial guidance, calculation errors
or the incorrect application of policyholder data and actuarial
assumptions.
We performed the following:
• We assessed the changes to the methodology as a result of
adopting the new model relative to relevant rules and actuarial
guidance, including understanding the rationale for any differences
identified in the liabilities between the new and existing models.
• We examined the testing performed by management to check the
appropriateness of the liabilities generated by the new model and
the comparison to the liabilities from the existing model.
• We performed independent testing of the new model by developing
our own independent model and recalculating the insurance
liabilities for a proportion of the transferred liabilities.
Based on the work performed and the evidence obtained, we consider
the output from the new actuarial model to be appropriate in
measuring the relevant insurance contract liabilities.
Valuation of non-life insurance contract liabilities (Group)
Refer to the Audit Committees’ Report, Accounting policy (L) Insurance and participating investment contract liabilities – General insurance and health provisions and note 43 Insurance liabilities methodology and assumptions (b) General
insurance and health.
The estimation of non-life insurance contract liabilities involves a
significant degree of judgement. The liabilities are based on the
estimated ultimate cost of all claims incurred but not settled at
31 December 2018, whether reported or not, together with the
related claims handling costs.
A range of methods, including stochastic projections, may be used
to determine these provisions. Underlying these methods are a
number of explicit or implicit assumptions relating to the expected
settlement amount and settlement patterns of claims. This
includes assumptions relating to the settlement of personal injury
lump sum compensation amounts.
Given their size in relation to the consolidated Group and the
complexity of the judgements involved, our work focused on the
liabilities in the UK General Insurance and Canada General
Insurance components.
In the UK General Insurance and Canada markets, we assessed the
Directors’ calculation of the non-life insurance liabilities by
performing the following procedures:
• We tested the underlying data to source documentation on a
sample basis.
• Using our actuarial specialist team members, we applied our
industry knowledge and experience and we compared the
methodology, models and assumptions used against recognised
actuarial practices.
• We understood and tested the governance process in place to
determine the insurance contract liabilities, including testing the
associated financial reporting control framework.
• Using our actuarial specialist team members, we independently
estimated the reserves on selected classes of business, particularly
focusing on the largest and most uncertain reserves. For these
classes we compared our estimated reserves to those booked by
management, and sought to understand any significant differences.
• For the remaining classes we evaluated the methodology and
assumptions, or performed a diagnostic check to identify and
investigate any anomalies.
• We assessed the disclosures in the financial statements.
Based on the work performed and evidence obtained, we consider the
methodology and assumptions used to value the non-life insurance
contract liabilities to be appropriate.
Valuation for hard to value investments (Group)
Refer to Audit Committees’ Report, Accounting policies (F), (T) and (U) and note 23 Fair Value methodology, note 25 Securitised mortgages and related assets and note 27 Financial Investments.
The valuation of the investment portfolio involves judgement and
continues to be an area of inherent risk. The risk is not uniform for
all investment types and is greatest for the following, where the
investments are hard to value because quoted prices are not
readily available:
• Commercial mortgage loans (UK Life).
• Equity release and UK securitised mortgage loans (UK Life).
• Structured bond-type investments (France Life).
• Collateralised loan obligations and non-recourse loans (UK Life).
We assessed the Directors’ approach to valuation for these hard to
value investments by performing the following procedures:
• We agreed data inputs used in the valuation models to underlying
documentation on a sample basis.
• We evaluated the methodology and assumptions used by
management, including yield curves, discounted cash flows,
property growth rates, longevity and liquidity premiums as relevant
to each asset class.
• We tested the operation of data integrity and change management
controls for the models, which we baseline every three years.
• Using our valuation experts, we performed independent valuations
for a sample of collateralised loans, non-recourse loans and
structured bonds.
• We assessed the disclosures in the financial statements.
Based on the work performed and the evidence obtained, we consider
the methodology and assumptions used by management to be
appropriate.
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Continued
Key audit matter
How our audit addressed the key audit matter
Valuation of a specific UK Life provision (Group)
Refer to Audit Committees’ Report, Accounting policies (AA) and note 50 Pension deficits and other provisions (b) Movements on restructuring and other provisions.
UK Life hold a provision relating to a historical issue over pension
arrangement advice given by Friends Provident.
The valuation of this provision involves a high degree of
judgement and estimation uncertainty due to the time that has
elapsed since the advice was given. This increases the potential
for the valuation to change as investigations continue.
We assessed the Directors’ approach to valuation for this provision by
performing the following procedures:
• We agreed data inputs to underlying documentation on a sample
basis.
• We evaluated the methodology and key assumptions used by
management, including populations of policies impacted.
• We tested the calculation of the provision based on the
assumptions applied.
• We assessed the disclosures in the financial statements.
Based on the work performed and the evidence obtained, we consider
the assumptions used by management to be appropriate.
We determined that there were no key audit matters applicable to the Company to communicate in our report.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed sufficient work to be able to give an opinion on the financial statements as a
whole, taking into account the structure of the Group and the Company, the financial reporting process and controls, and the industry in
which they operate.
Using the outputs of our risk assessment, along with our understanding of Aviva, we scoped our audit based on the significance of the
results and financial position of individual components relative to the Group result and financial position. In doing so, we also considered
qualitative factors and ensured we had obtained sufficient coverage across all financial statement line items in the consolidated financial
statements. Our scoping provided us with audit coverage of over 80% for both IFRS profit before tax and Group adjusted operating profit
before tax and after the deduction of integration and restructuring costs (2017: 80%). We also obtained audit coverage of 83% for Gross
Written Premiums (2017: 80%) and 82% for Total Assets (2017: 84%).
The Group’s primary reporting format aggregates individual operating segments into market reporting lines with supplementary
information being given by business activity. The operating segments or ‘markets’ of the Group are ‘United Kingdom’ (Life and General
Insurance), France, Poland, ‘Italy, Ireland, Spain and Other’, Canada, Asia, Aviva Investors and ‘Other group activities’. Individual
components that are used in our risk assessment are a more granular subset of the Group’s operating segments. In establishing the overall
approach to the Group audit, we determined the type of work that needed to be performed at each of the components by us, as the Group
audit team, or auditors of the components within PwC UK or from other PwC network firms operating under our instructions.
As the Group audit team, we determined the level of involvement required at those components to be able to conclude whether sufficient
and appropriate audit evidence had been obtained as a basis for our opinion on the financial statements as a whole. In our role as Group
auditors, we exercised oversight over the work performed by auditors of the components including performing the following procedures:
• Maintained an active dialogue with reporting component audit teams throughout the year, including holding a workshop for those teams
in London during the planning phase of the audit;
• Visited all in-scope components and undertook a detailed review of audit working papers;
• Attended meetings with local management; and
• Attended certain component Audit Committee meetings
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Continued
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These,
together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit
procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually
and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall materiality
How we determined it
Rationale for benchmark applied
Group financial statements
Company financial statements
£156.0 million (2017: £147.0 million).
£105.0 million (2017: £55.5 million).
5% of Group adjusted operating profit
before tax attributable to shareholders’
profits after the deduction of integration and
restructuring costs (rounded up to the
nearest £’million).
In determining our materiality, we
considered financial metrics which we
believed to be relevant, and concluded,
consistent with last year that Group adjusted
operating profit before tax and after the
deduction of integration and restructuring
costs was the most relevant benchmark.
Group adjusted operating profit presents a
longer-term assessment of the performance
of the entity which is more in line with the
operations and time horizons of an insurer
where insurance contracts and customer
relationships span over multiple years.
5% of IFRS profit before tax.
In determining our materiality, we
considered financial metrics which we
believed to be relevant, and concluded,
consistent with last year that profit before
tax was the most relevant benchmark as the
Company is profit-orientated and users of
the financial statements will be focused on
this benchmark.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of
materiality allocated across components was between £20 million and £120 million. Certain components were audited to a local statutory
audit materiality that was also less than our overall Group materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £7 million (Group
audit) (2017: £5 million) and £5.2 million (Company audit) (2017: £2.8 million) as well as misstatements below those amounts that, in our
view, warranted reporting for qualitative reasons.
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
We are required to report if we have anything material to add or
draw attention to in respect of the directors’ statement in the
financial statements about whether the directors considered it
appropriate to adopt the going concern basis of accounting in
preparing the financial statements and the directors’ identification
of any material uncertainties to the Group’s and the Company’s
ability to continue as a going concern over a period of at least
twelve months from the date of approval of the financial
statements.
Outcome
We have nothing material to add or to draw attention to. However,
because not all future events or conditions can be predicted, this
statement is not a guarantee as to the Group’s and Company’s ability
to continue as a going concern. For example, the terms on which the
United Kingdom may withdraw from the European Union, which is
currently due to occur on 29 March 2019, are not clear, and, in
common with other companies, it is difficult to evaluate all of the
potential implications on the Group and Company’s business,
customers, suppliers and the wider economy.
We are required to report if the directors’ statement relating to
Going Concern in accordance with Listing Rule 9.8.6R(3) is
materially inconsistent with our knowledge obtained in the audit.
We have nothing to report.
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Continued
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report
thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other
information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form
of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise
appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform
procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other
information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report based on these responsibilities.
With respect to the Strategic Report and Directors’ and Corporate Governance Report, we also considered whether the disclosures required
by the UK Companies Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006, (CA06), ISAs
(UK) and the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions and matters as described
below (required by ISAs (UK) unless otherwise stated).
Strategic report and Directors’ and corporate governance report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and Directors’ and
Corporate Governance Report for the year ended 31 December 2018 is consistent with the financial statements and has been prepared in
accordance with applicable legal requirements. (CA06)
In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we did
not identify any material misstatements in the Strategic report and Directors’ and Corporate Governance Report. (CA06)
The directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency or liquidity of the
Group
We have nothing material to add or draw attention to regarding:
• The directors’ confirmation on page 51 of the Annual Report that they have carried out a robust assessment of the principal risks facing
the Group, including those that would threaten its business model, future performance, solvency or liquidity.
• The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
• The directors’ explanation on page 66 of the Annual Report as to how they have assessed the prospects of the Group, over what period
they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable
expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their
assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.
We have nothing to report having performed a review of the directors’ statement that they have carried out a robust assessment of the
principal risks facing the Group and statement in relation to the longer-term viability of the Group. Our review was substantially less in
scope than an audit and only consisted of making inquiries and considering the directors’ process supporting their statements; checking
that the statements are in alignment with the relevant provisions of the UK Corporate Governance Code (the ‘Code’); and considering
whether the statements are consistent with the knowledge and understanding of the Group and Company and their environment obtained
in the course of the audit. (Listing Rules)
Other Code Provisions
We have nothing to report in respect of our responsibility to report when:
• The statement given by the directors, on page 66, that they consider the Annual report taken as a whole to be fair, balanced and
understandable, and provides the information necessary for the members to assess the Group’s and the Company’s position and
performance, business model and strategy is materially inconsistent with our knowledge of the Group and the Company obtained in
the course of performing our audit.
• The section of the Annual report on page 59 describing the work of the Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.
• The directors’ statement relating to the Company’s compliance with the Code does not properly disclose a departure from a relevant
provision of the Code specified, under the Listing Rules, for review by the auditors.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies
Act 2006. (CA06)
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Continued
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Directors’ Responsibilities Statement set out on page 67, the directors are responsible for the preparation
of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The
directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the Company’s ability to continue as a
going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of
Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from
branches not visited by us; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• the Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the
accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the audit committee, we were appointed by the members on 3 May 2012 to audit the financial
statements for the year ended 31 December 2012 and subsequent financial periods. The period of total uninterrupted engagement is seven
years, covering the years ended 31 December 2012 to 31 December 2018.
Marcus Hine (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
6 March 2019
1 The maintenance and integrity of the Aviva plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly the auditors accept no
responsibility for any changes that may have occurred to the full annual financial statements since they were initially presented on the website.
2 Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
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Accounting policies
Aviva plc (the ‘Company’), a public limited company incorporated
and domiciled in the United Kingdom (UK), together with its
subsidiaries (collectively, the ‘Group’ or ‘Aviva’) transacts life
assurance and long-term savings business, fund management and
most classes of general insurance and health business through its
subsidiaries, joint ventures, associates and branches in the UK,
Ireland, continental Europe, Canada and Asia.
The principal accounting policies adopted in the preparation of
these financial statements are set out below. These policies have
been consistently applied to all years presented, unless otherwise
stated.
(A) Basis of preparation
The consolidated financial statements and those of the Company
have been prepared and approved by the Directors in accordance
with International Financial Reporting Standards (IFRS) as endorsed
by the European Union (EU), and those parts of the Companies Act
2006 applicable to those reporting under IFRS. The consolidated
financial statements have been prepared under the historical cost
convention, as modified by the revaluation of land and buildings,
investment property, available-for-sale financial assets, and
financial assets and financial liabilities (including derivative
instruments) at fair value through profit or loss.
In accordance with IFRS 4 Insurance Contracts, the Group has
applied existing accounting practices for insurance and
participating investment contracts, modified as appropriate to
comply with the IFRS framework and applicable standards. Further
details are given in accounting policy L.
Items included in the financial statements of each of the Group’s
entities are measured in the currency of the primary economic
environment in which that entity operates (the functional currency).
The consolidated financial statements are stated in pounds sterling,
which is the Company’s functional and presentational currency.
Unless otherwise noted, the amounts shown in these financial
statements are in millions of pounds sterling (£m). The separate
financial statements of the Company are on pages 242 to 252.
Comparative figures have been restated for adjustments as detailed
in note 1.
New standards, interpretations and amendments to published
standards that have been adopted by the Group
The Group and/or the Company has adopted the following
amendments to standards which became effective for the annual
reporting period beginning on 1 January 2018:
(i)
Amendments to IFRS 4, Insurance Contracts
In September 2016, the IASB published amendments to IFRS 4
Insurance Contracts that address the accounting
consequences of the application of IFRS 9 to insurers prior to
implementing the new accounting standard for insurance
contracts, IFRS 17, which replaces IFRS 4. The amendments
introduce two options for insurers: the deferral approach and
the overlay approach. The deferral approach provides an
entity, if eligible, with a temporary exemption from applying
IFRS 9. The overlay approach allows an entity to remove from
profit or loss the effects of some of the accounting
mismatches that may occur before the new insurance
contracts standard is applied. In November 2018 the IASB
recommended an amendment to IFRS 17 to defer the effective
date to 1 January 2022. At the same time, they recommended
an extension to the fixed expiry date for the temporary
exemption for insurers from applying IFRS 9 until 1 January
2022. These amendments are subject to IASB’s due process
and will be included in an exposure draft expected to be
published later in 2019.
(ii)
The carrying amount of the Group’s liabilities connected with
insurance exceeded 90% of the carrying amount of the
Group’s total liabilities as at 31 December 2015, when the
assessment was performed in accordance with the date
specified in the amendments to IFRS 4. As such, the Group is
eligible to apply the deferral approach, as defined by the
amendments to IFRS 4. The Group has opted to apply this
deferral from 2018. At 31 December 2015 the Group’s total
liabilities were £369,642 million and liabilities connected with
insurance in the statement of financial position at this date
primarily included insurance and participating investment
contracts within the scope of IFRS 4 (£218,604 million), non-
participating investment contract liabilities (£103,125 million),
unallocated divisible surplus (£8,811 million), borrowings
(£8,770 million), and certain amounts within payables and
other financial liabilities which arise in the course of writing
insurance business (£10,285 million).
IFRS 9 information relating to entities within the Group which
have applied the standard from 1 January 2018 can be found
in the entities’ publicly available individual financial
statements.
IFRS 9, Financial Instruments (Company only)
In July 2014, the IASB published IFRS 9, Financial Instruments
which replaced IAS 39 Financial Instruments: Recognition and
Measurement. The standard incorporates new classification
and measurement requirements for financial assets, the
introduction of an expected credit loss impairment model
which will replace the incurred loss model of IAS 39, and new
hedge accounting requirements. Under IFRS 9, all financial
assets will be measured at either amortised cost or fair value.
The basis of classification will depend on the business model
and the contractual cash flow characteristics of the financial
assets. The standard retains most of IAS 39’s requirements for
financial liabilities except for those designated at fair value
through profit or loss whereby that part of the fair value
changes attributable to own credit is to be recognised in other
comprehensive income instead of the income statement. The
hedge accounting requirements are more closely aligned with
risk management practices and follow a more principle based
approach.
The Group has opted to defer the adoption of IFRS 9 from
2018. The impact of the adoption of IFRS 9 on the Group’s
consolidated financial statements will be largely dependent
on the interaction with the new insurance contracts standard
IFRS 17. As such, it is not possible to fully assess the effect of
the adoption of IFRS 9. IFRS 9 has been endorsed by the EU.
The Group has however been required to apply the additional
disclosure requirements of IFRS 9 which are set out in note 53
and note 59.
Although the Group has opted to defer adoption of IFRS 9 as
its activities are predominantly related to insurance, the
Company is not eligible to apply this deferral option and IFRS
9 was effective for the Company from 1 January 2019. The
adoption of IFRS 9 has not had a significant impact on the
Company.
(iii)
IFRS 15, Revenue from Contracts with Customers
In May 2014, the IASB issued IFRS 15 Revenue from Contracts
with Customers. This standard applies to annual reporting
periods beginning on or after 1 January 2018 and has been
endorsed by the EU. This standard replaces IAS 18 Revenue.
The scope of IFRS 15 includes all contracts where an Aviva
company has agreed to provide goods or services to a
customer, except for the following:
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Accounting policies
Continued
• Insurance contracts (IFRS 4)
• Financial instruments (IAS 39/IFRS 9)
• Leases (IAS 17)
The adoption of this standard has resulted in the following
minor amendments to the Group accounting policies:
• (I) Other investment contract fee revenue – updated to
clarify that fees related to investment management services
are recognised as revenue over time, as performance
obligations are satisfied. Variable consideration, such as
performance fees and commission subject to clawback
arrangements, are only recorded as revenue to the extent it
is highly probable that it will not be subject to significant
reversal.
• (J) Other fee and commission income – updated to clarify
that all other fee and commission income is recognised over
time as the services are provided.
The retrospective impact of the adoption of IFRS 15 on prior
reporting periods is not material to the Group, and prior
period comparative figures have not been restated as a result.
The adoption of IFRS 15 does not have a significant impact on
the Group’s consolidated financial statements.
The following amendments to existing standards and IFRIC
interpretations have been issued, and are effective from 1
January 2018 or earlier, and do not have an impact on the
Group’s consolidated financial statements as the clarifications
are consistent with our existing interpretation.
(iv) Amendments to IFRS 2: Classification and Measurement of
Share-based Payment Transactions
In June 2016, the IASB issued amendments to IFRS 2 Share-
based Payment. The amendments were endorsed by the EU in
February 2018 and are effective from 1 January 2018.
(v)
Annual Improvements to IFRSs 2014-2016
These improvements consist of amendments to three IFRSs
including IFRS 1 First-time Adoption of International Financial
Reporting Standards, IFRS 12 Disclosure of Interests in Other
Entities and IAS 28 Investments in Associates. The amendment
to IFRS 12 was effective for annual reporting periods beginning
on or after 1 January 2017. The amendments to IFRS 1 and IAS
28 are effective for annual reporting periods beginning on or
after 1 January 2018. The amendments were endorsed by the
EU in February 2018.
(ii)
(vi) Amendments to IAS 40 – Transfers of Investment Property
In December 2016, the IASB published amendments to IAS 40
Investment Property. The amendments are effective from
1 January 2018 and have been endorsed by the EU.
(vii)
IFRIC 22, Foreign Currency Transactions and Advance
Consideration
In December 2016, the IASB published IFRIC 22 Foreign
Currency Transactions and Advance Consideration. The
standard is effective for annual reporting beginning on or
after 1 January 2018 and has been endorsed by the EU.
Standards, interpretations and amendments to published
standards that are not yet effective and have not been adopted
early by the Group or the Company
The following new standards and amendments to existing standards
have been issued, are not yet effective and have not been adopted
early by the Group:
contracts covering recognition and measurement,
presentation and disclosure. Once effective, IFRS 17 will
replace IFRS 4 that was issued in 2005. IFRS 17 applies to all
types of insurance contracts as well as to certain guarantees
and financial instruments with discretionary participation
features. In contrast to the requirements in IFRS 4, which are
largely based on grandfathering of previous local accounting
policies, IFRS 17 provides a comprehensive and consistent
approach to insurance contracts. The core of IFRS 17 is the
general model, supplemented by a specific adaption for
contracts with direct participation features (the variable fee
approach) and a simplified approach (the premium allocation
approach) mainly for short-duration contracts.
The main features of the new accounting model for insurance
contracts are, as follows: the measurement of the present
value of future cash flows incorporating an explicit risk
adjustment and remeasured at each reporting period (the
fulfilment cash flows); a contractual service margin that is
equal and opposite to any day one gain in the fulfilment cash
flows of a group of contracts, representing the unearned profit
of the insurance contracts to be recognised in profit or loss
over the service period (coverage period); the presentation of
insurance revenue and insurance service expenses in the
statement of comprehensive income based on the concept of
insurance services provided during the period; and extensive
disclosures to provide information on the recognised amounts
from insurance contracts and the nature and extent of risks
arising from these contracts.
The impact of the adoption of IFRS 17 has yet to be fully
assessed by the Group but it is expected there will be
significant impacts relating to the measurement and
presentation of the contracts in scope of the standard. It is
expected that the standard will apply to annual reporting
periods beginning on or after 1 January 2022 and this
standard has not yet been endorsed by the EU.
IFRS 16, Leases
In January 2016, the IASB published IFRS 16 Leases which will
replace IAS 17 Leases. IFRS 16 introduces a definition of a
lease with a single lessee accounting model eliminating the
classification of either operating or finance leases. Lessees will
be required to account for all leases in a similar manner to the
current finance lease accounting recognising lease assets and
liabilities on the statement of financial position. Lessor
accounting remains similar to current practice.
The impact of the adoption of IFRS 16 on the Group has been
assessed. The Group has chosen to adopt the modified
retrospective approach on transition permitted by IFRS 16. It is
expected that the adoption of the standard will result in a
reduction of retained earnings of between £120m and £140m
at 1 January 2019. This arises from the value of right of use
assets brought onto the balance sheet being lower than the
value of lease liabilities due to the different rates of run-off.
The gross impact on assets/liabilities is expected to be less
than £500m. The impact on profit before tax and group
adjusted operating profit is not expected to be material. This
standard is applied to annual reporting periods beginning on
or after 1 January 2019 and has been endorsed by the EU.
The following new standards and amendments to existing standards
have been issued, are not yet effective and are not expected to have
a significant impact on the Group’s consolidated financial
statements:
(i)
IFRS 17, Insurance Contracts
In May 2017, the IASB published IFRS 17 Insurance Contracts,
a comprehensive new accounting standard for insurance
(iii)
IFRIC 23, Uncertainty over Income Tax Treatments
In June 2017, the IASB published IFRIC 23 Uncertainty over
Income Tax Treatments. The standard is effective for annual
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Accounting policies
Continued
(iv)
(v)
(vi)
reporting beginning on or after 1 January 2019 and has been
endorsed by the EU.
Amendments to IAS 19 – Plan Amendment, Curtailment or
Settlement
In February 2018, the IASB published Plan Amendment,
Curtailment or Settlement (Amendments to IAS 19). The
amendments are effective for annual reporting beginning
on or after 1 January 2019 and have not yet been endorsed
by the EU.
Amendments to IAS 28: Long-term Interests in Associates and
Joint Ventures
In October 2017, the IASB published Long-term Interests in
Associates and Joint Ventures (Amendments to IAS 28). The
amendments are effective for annual reporting beginning on
or after 1 January 2019 and have been endorsed by the EU.
Annual Improvements to IFRS Standards 2015-2017 Cycle
These improvements consist of amendments to four IFRSs
including IFRS 3 Business Combinations, IFRS 11 Joint
Arrangements, IAS 12 Income taxes and IAS 23 Borrowing Costs.
The amendments are effective for annual reporting beginning
on or after 1 January 2019 and have not yet been endorsed by
the EU.
(vii) Amendments to References to the Conceptual Framework in
IFRS Standards
Published by the IASB in March 2018. The amendments are
effective for annual reporting beginning on or after 1 January
2020 and have not yet been endorsed by the EU.
(viii) Amendment to IFRS 3, Business Combinations, IAS 1 and IAS 8:
Definition of material
Published by the IASB in October 2018. The amendments are
effective for annual reporting beginning on or after 1 January
2020 and have not yet been endorsed by the EU.
(B) Group adjusted operating profit
The long-term nature of much of the Group’s operations means
that, for management’s decision-making and internal performance
management of our operating segments, the Group focuses on
Group adjusted operating profit, a non-GAAP alternative
performance measure (APM) which is not bound by IFRS. The APM
incorporates the expected return on investments which supports its
long-term and non-long-term businesses.
Group adjusted operating profit for long-term business is based on
expected investment returns on financial investments backing
shareholder and policyholder funds over the reporting period, with
allowance for the corresponding expected movements in liabilities.
Variances between actual and expected investment returns, and the
impact of changes in economic assumptions on liabilities, are
disclosed separately outside Group adjusted operating profit. For
non-long-term business, the total investment income, including
realised and unrealised gains, is analysed between that calculated
using a longer-term return and short-term fluctuations from that
level. The exclusion of short-term realised and unrealised
investment gains and losses from the Group adjusted operating
profit APM reflects the long-term nature of much of our business and
presents separately the operating profit APM which is used in
managing the performance of our operating segments from the
impact of economic factors. Further details of this analysis and the
assumptions used are given in notes 9 and 10.
Group adjusted operating profit is presented before and after
integration and restructuring costs. These costs are only reported to
the extent that they are significant, and not otherwise absorbed
within operating costs.
Group adjusted operating profit also excludes impairment of
goodwill, associates and joint ventures; amortisation and
impairment of other intangibles; amortisation and impairment of
acquired value of in-force business; and the profit or loss on
disposal and remeasurement of subsidiaries, joint ventures and
associates. These items principally relate to mergers and acquisition
activity which we view as strategic in nature, hence they are
excluded from the operating profit APM as this is principally used to
manage the performance of our operating segments when reporting
to the Group’s chief operating decision maker. Other items are those
items that, in the Directors’ view, are required to be separately
disclosed by virtue of their nature or incidence to enable a full
understanding of the Group’s financial performance. Details of these
items, including an explanation of the rationale for their exclusion,
are provided in the Alternative Performance Measures section within
‘Other information’.
The Group adjusted operating profit APM should be viewed as
complementary to IFRS GAAP measures. It is important to consider
Group adjusted operating profit and profit before tax together to
understand the performance of the business in the period.
(C) Critical accounting policies and the use of
estimates
Critical accounting policies
The preparation of financial statements requires the Group to select
accounting policies and make estimates and assumptions that
affect items reported in the consolidated income statement,
consolidated statement of financial position, other primary
statements and notes to the consolidated financial statements.
The Audit Committee reviews the reasonableness of judgements
and assumptions applied and the appropriateness of significant
accounting policies. The significant issues considered by the
Committee in the year are included within the Audit Committee
Report on page 58.
The following accounting policies are those that have the most
significant impact on the amounts recognised in the financial
statements, with those judgements involving estimation
summarised thereafter.
Item
Critical accounting judgement
Accounting policy
Consolidation
Assessment of whether the Group
controls the underlying entities including
consideration of its decision making
authority and rights to the variable
returns from the entity
Insurance and
participating
investment
contract
liabilities
Assessment of the significance of
insurance risk transferred to the Group in
determining whether a contract should
be accounted for as insurance or
investment contract
Financial
investments
Classification of investments including
the application of the fair value option
D
G
T
All estimates are based on management’s knowledge of current
facts and circumstances, assumptions based on that knowledge and
their predictions of future events and actions. Actual results may
differ from those estimates, possibly significantly.
The table below sets out those items considered particularly
susceptible to changes in estimates and assumptions, and the
relevant accounting policy and note disclosures.
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IFRS financial statements
Other information
Accounting policies
Continued
Item
Critical accounting estimates
Measurement of
insurance and
participating
investment
contract
liabilities
Acquired value
of in-force
business (AVIF)
and intangible
assets
Fair value of
financial
instruments and
investment
property
Deferred
acquisition
costs
Valuation of a
specific UK Life
provision
Principal assumptions used in
the calculation of life insurance
and participating investment
contract liabilities include those
in respect of annuitant
mortality, expenses, valuation
interest rates and credit default
allowances on corporate bonds
and other non-sovereign
credit assets.
Principal assumptions used in the
calculation of general insurance and
health liabilities include the discount
rates used in determining our latent
claim and structured settlements
liabilities, and the assumption that
past claims experience can be used
as a basis to project future claims
(estimated using a range of standard
actuarial claims projection
techniques).
AVIF is recognised, amortised and
tested for impairment by reference to
the present value of estimated future
profits.
Other intangible assets are
recognised and tested for impairment
using an income approach method.
Significant estimates include forecast
cash flows, discount rates and
determination of useful lives.
Where quoted market prices are not
available, valuation techniques are
used to value financial instruments
and investment property. These
include broker quotes and models
using both observable and
unobservable market inputs. The
valuation techniques involve
judgement with regard to the
valuation models used and the inputs
to these models can lead to a range
of plausible valuation for financial
investments.
Management use estimation
techniques to determine the
amortisation profile and impairment
test by reference to the present value
of estimated future profits. These
tests are sensitive to expense and
lapse assumptions.
UK Life hold a product governance
provision relating to a historical issue
over pension arrangement advised
sales by Friends Provident.
The amount of provision is
determined based on the Group’s
estimation of the expenditure
required to settle the obligation at
the statement of financial position
date.
The valuation of the provision
involves a high degree of judgement
and estimation uncertainty due to the
time that has elapsed since the
advice was given.
Accounting
policy
L
Note
43(a)
(D) Consolidation principles
Subsidiaries
Subsidiaries are those entities over which the Group has control.
The Group controls an investee if and only if the Group has all of the
following:
• power over the investee,
• exposure, or rights, to variable returns from its involvement with
the investee, and
• the ability to use its power over the investee to affect its returns.
43(b)
The Group considers all relevant facts and circumstances in
assessing whether it has power over an investee, including: the
purpose and design of an investee, relevant activities, substantive
and protective rights, and voting rights and potential voting rights.
O
18(a)
18(b)
F,T,U
23(g)
X
29(b)
AA
50
The Group reassesses whether or not it controls an investee if facts
and circumstances indicate that there are changes to one or more of
the three elements of control. Subsidiaries are consolidated from
the date the Group obtains control and are excluded from
consolidation from the date the Group loses control. All
intercompany transactions, balances and unrealised surpluses and
deficits on transactions between Group companies have been
eliminated. Accounting policies of subsidiaries are aligned on
acquisition to ensure consistency with Group policies.
The Group is required to use the acquisition method of accounting for
business combinations. Under this method, the Group recognises
identifiable assets, liabilities and contingent liabilities at fair value, and
any non-controlling interest in the acquiree. For each business
combination, the Group has the option to measure the non-controlling
interest in the acquiree either at fair value or at the proportionate share
of the acquiree’s identifiable net assets. The excess of the consideration
transferred over the fair value of the net assets of the subsidiary acquired
is recorded as goodwill (see accounting policy O below). Acquisition-
related costs are expensed as incurred.
Transactions with non-controlling interests that lead to changes in
the ownership interests in a subsidiary but do not result in a loss of
control are treated as equity transactions.
Merger accounting and the merger reserve
Prior to 1 January 2004, the date of first time adoption of IFRS,
certain significant business combinations were accounted for using
the ‘pooling of interests method’ (or merger accounting), which
treats the merged groups as if they had been combined throughout
the current and comparative accounting periods. Merger accounting
principles for these combinations gave rise to a merger reserve in
the consolidated statement of financial position, being the
difference between the nominal value of new shares issued by the
Parent Company for the acquisition of the shares of the subsidiary
and the subsidiary’s own share capital and share premium account.
These transactions have not been restated, as permitted by the
IFRS 1 transitional arrangements.
The merger reserve is also used where more than 90% of the shares
in a subsidiary are acquired and the consideration includes the issue
of new shares by the Company, thereby attracting merger relief
under the Companies Act 1985 and, from 1 October 2009, the
Companies Act 2006.
Investment vehicles
In several countries, the Group has invested in a number of
specialised investment vehicles such as Open-ended Investment
Companies (OEICs) and unit trusts. These invest mainly in equities,
bonds, cash and cash equivalents, and properties, and distribute
most of their income. The Group’s percentage ownership in these
vehicles can fluctuate from day to day according to the Group’s and
third-party participation in them. When assessing control over
investment vehicles, along with the factors determining control
During the year management reassessed the critical estimates
previously provided and, based on their assessment of qualitative
and quantitative risk factors, resolved that an additional critical
estimate should be added to cover the valuation of a specific UK Life
provision.
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Governance
IFRS financial statements
Other information
Accounting policies
Continued
outlined above, the Group considers the scope of its decision-
making authority including its ability to direct the relevant activities
of the fund and exposure to variability of returns from the
perspective of an investor in the fund and of the asset manager. In
addition, the Group assesses rights held by other parties including
substantive removal rights that may affect the Group’s ability to
direct the relevant activities and indicate that the Group does not
have power. Where the Group is deemed to control such vehicles,
they are consolidated, with the interests of parties other than Aviva
being classified as liabilities. These appear as ‘Net asset value
attributable to unitholders’ in the consolidated statement of
financial position.
Where the Group does not control such vehicles, and these
investments are held by its insurance or investment funds, they are
carried at fair value through profit or loss within financial
investments in the consolidated statement of financial position, in
accordance with IAS 39 Financial Instruments: Recognition and
Measurement.
As part of their investment strategy, long-term business policyholder
funds have invested in a number of property limited partnerships
(PLPs), either directly or via property unit trusts (PUTs), through a
mix of capital and loans. The PLPs are managed by general partners
(GPs), in which the long-term business shareholder companies hold
equity stakes and which themselves hold nominal stakes in the
PLPs. The PUTs are managed by a Group subsidiary.
Accounting for the PUTs and PLPs as subsidiaries, joint ventures,
associates or other financial investments depends on whether the
Group is deemed to have control or joint control over the PUTs and
PLPs’ shareholdings in the GPs and the terms of each partnership
agreement are considered along with other factors that determine
control, as outlined above. Where the Group exerts control over a
PUT or a PLP, it has been treated as a subsidiary and its results,
assets and liabilities have been consolidated. Where the partnership
is managed by an agreement such that there is joint control
between the parties, notwithstanding that the Group’s partnership
share in the PLP (including its indirect stake via the relevant PUT and
GP) may be lower or higher than 50%, such PUTs and PLPs have
been classified as joint ventures (see below). Where the Group has
significant influence over the PUT or PLP, as defined in the following
section, the PUT or PLP is classified as an associate. Where the
Group holds non-controlling interests in PLPs, with no significant
influence or control over their associated GPs, the relevant
investments are carried at fair value through profit or loss within
financial investments.
Associates and joint ventures
Associates are entities over which the Group has significant
influence. Significant influence is the power to participate in the
financial and operating policy decisions of the investee, but is not
control or joint control. Generally, it is presumed that the Group has
significant influence if it has between 20% and 50% of voting rights.
Joint ventures are joint arrangements whereby the Group and other
parties that have joint control of the arrangement have rights to the
net assets of the joint venture. Joint control is the contractually
agreed sharing of control of an arrangement, which exists only when
decisions about the relevant activities require unanimous consent of
the parties sharing control. In a number of these, the Group’s share
of the underlying assets and liabilities may be greater or less than
50% but the terms of the relevant agreements make it clear that
control is not exercised. Such jointly controlled entities are referred
to as joint ventures in these financial statements.
Gains on transactions between the Group and its associates and
joint ventures are eliminated to the extent of the Group’s interest in
the associates and joint ventures. Losses are also eliminated, unless
the transaction provides evidence of an impairment of the asset
transferred between entities.
Other than investments in investment vehicles which are carried at
fair value through profit or loss, investments in associates and joint
ventures are accounted for using the equity method of accounting.
Under this method, the cost of the investment in a given associate
or joint venture, together with the Group’s share of that entity’s
post-acquisition changes to shareholders’ funds, is included as an
asset in the consolidated statement of financial position. As
explained in accounting policy O, the cost includes goodwill
recognised on acquisition. The Group’s share of their post-
acquisition profit or losses is recognised in the income statement
and its share of post-acquisition movements in reserves is
recognised in reserves. Equity accounting is discontinued when the
Group no longer has significant influence or joint control over the
investment.
If the Group’s share of losses in an associate or joint venture equals
or exceeds its interest in the undertaking, the Group does not
recognise further losses unless it has incurred obligations or made
payments on behalf of the entity.
The Company’s investments
In the Company’s statement of financial position, subsidiaries,
associates and joint ventures are stated at cost less impairment.
Investments are reviewed annually to test whether any indicators of
impairment exist. Where there is objective evidence of such an asset
being impaired the investment is impaired to its recoverable value
and any unrealised loss is recorded in the income statement.
(E) Foreign currency translation
Income statements and cash flows of foreign entities are translated
into the Group’s presentation currency at average exchange rates for
the year while their statements of financial position are translated at
the year-end exchange rates. Exchange differences arising from the
translation of the net investment in foreign subsidiaries, associates
and joint ventures, and of borrowings and other currency
instruments designated as hedges of such investments, are
recognised in other comprehensive income and taken to the
currency translation reserve within equity. On disposal of a foreign
entity, such exchange differences are transferred out of this reserve
and are recognised in the income statement as part of the gain or
loss on sale. The cumulative translation differences were deemed to
be zero at the transition date to IFRS.
Foreign currency transactions are accounted for at the exchange
rates prevailing at the date of the transactions. Gains and losses
resulting from the settlement of such transactions, and from the
translation of monetary assets and liabilities denominated in foreign
currencies, are recognised in the income statement.
Translation differences on debt securities and other monetary
financial assets measured at fair value and designated as held at fair
value through profit or loss (FVTPL) (see accounting policy T) are
included in foreign exchange gains and losses in the income
statement. For monetary financial assets designated as available for
sale (AFS), translation differences are calculated as if they were
carried at amortised cost and so are recognised in the income
statement, while foreign exchange differences arising from fair value
gains and losses are recognised in other comprehensive income and
included in the investment valuation reserve within equity.
Translation differences on non-monetary items, such as equities
which are designated as FVTPL, are reported as part of the fair value
gain or loss, whereas such differences on AFS equities are included
in the investment valuation reserve.
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Other information
Accounting policies
Continued
(F) Fair value measurement
Fair value is the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market
participants at the measurement date, regardless of whether that
price is directly observable or estimated using another valuation
technique. This presumes that the transaction takes place in the
principal (or most advantageous) market under current market
conditions. Fair value is a market-based measure and in the absence
of observable market prices in an active market, it is measured using
the assumptions that market participants would use when pricing
the asset or liability.
The fair value of a non-financial asset is determined based on its
highest and best use from a market participant’s perspective. When
using this approach, the Group takes into account the asset’s use that
is physically possible, legally permissible and financially feasible.
The best evidence of the fair value of a financial instrument at initial
recognition is normally the transaction price i.e. the fair value of the
consideration given or received. In certain circumstances, the fair
value at initial recognition may differ from the transaction price. If
the fair value is evidenced by comparison with other observable
current market transactions in the same instrument (i.e. without
modification or repackaging), or is based on a valuation technique
whose variables include only data from observable markets, then
the difference between the fair value at initial recognition and the
transaction price is recognised as a gain or loss in the income
statement. When unobservable market data has a significant impact
on the valuation of financial instruments, the difference between the
fair value at initial recognition and the transaction price is not
recognised immediately in the income statement, but deferred and
recognised in the income statement on an appropriate basis over
the life of the instrument but no later than when the valuation is
supported wholly by observable market data or the transaction is
closed out or otherwise matured.
If an asset or a liability measured at fair value has a bid price and an
ask price, the price within the bid-ask spread that is most
representative of fair value in the circumstances is used to measure
fair value.
(G) Product classification
Insurance contracts are defined as those containing significant
insurance risk if, and only if, an insured event could cause an insurer
to make significant additional payments in any scenario, excluding
scenarios that lack commercial substance, at the inception of the
contract. Such contracts remain insurance contracts until all rights
and obligations are extinguished or expire. Contracts can be
reclassified as insurance contracts after inception if insurance risk
becomes significant. Any contracts not considered to be insurance
contracts under IFRS are classified as investment contracts. Some
insurance and investment contracts contain a discretionary
participation feature, which is a contractual right to receive
additional benefits as a supplement to guaranteed benefits. These
are referred to as participating contracts.
As noted in accounting policy A, insurance contracts and
participating investment contracts in general continue to be
measured and accounted for under existing accounting practices at
the later of the date of transition to IFRS (‘grandfathered’) or the
date of the acquisition of the entity, in accordance with IFRS 4. IFRS
accounting for insurance contracts in UK companies was
grandfathered at the date of transition to IFRS and determined in
accordance with the Statement of Recommended Practice issued by
the Association of British Insurers (subsequently withdrawn by the
ABI in 2015).
In certain businesses, the accounting policies or accounting
estimates have been changed, as permitted by IFRS 4 and IAS 8
respectively, to remeasure designated insurance liabilities to reflect
current market interest rates and changes to regulatory capital
requirements. When accounting policies or accounting estimates
have been changed, and adjustments to the measurement basis
have occurred, the financial statements of that year will have
disclosed the impacts accordingly. One such example is our
adoption of Financial Reporting Standard 27 Life Assurance (FRS 27)
which was issued by the UK’s Accounting Standards Board (ASB) in
December 2004 (subsequently withdrawn by the ASB in 2015).
(H) Premiums earned
Premiums on long-term insurance contracts and participating
investment contracts are recognised as income when receivable,
except for investment-linked premiums which are accounted for
when the corresponding liabilities are recognised. For single
premium business, this is the date from which the policy is effective.
For regular premium contracts, receivables are recognised at the
date when payments are due. Premiums are shown before
deduction of commission and before any sales-based taxes or
duties. Where policies lapse due to non-receipt of premiums, then
all the related premium income accrued but not received from the
date they are deemed to have lapsed is offset against premiums.
General insurance and health premiums written reflect business
incepted during the year, and exclude any sales-based taxes or
duties. Unearned premiums are those proportions of the premiums
written in a year that relate to periods of risk after the statement of
financial position date. Unearned premiums are calculated on either
a daily or monthly pro rata basis. Premiums collected by
intermediaries, but not yet received, are assessed based on
estimates from underwriting or past experience, and are included in
premiums written.
Deposits collected under investment contracts without a
discretionary participation feature (non-participating contracts) are
not accounted for through the income statement, except for the fee
income (covered in accounting policy I) and the investment income
attributable to those contracts, but are accounted for directly
through the statement of financial position as an adjustment to the
investment contract liability.
(I) Other investment contract fee revenue
Investment contract policyholders are charged fees for policy
administration, investment management, surrenders or other
contract services. The fees may be for fixed amounts or vary with the
amounts being managed, and will generally be charged as an
adjustment to the policyholder’s balance. Fees related to
investment management services are recognised as revenue over
time, as performance obligations are satisfied. In most cases this
revenue is recognised in the same period in which the fees are
charged to the policyholder. Fees that are related to services to be
provided in future periods are deferred and recognised when the
performance obligation is fulfilled. Variable consideration, such as
performance fees and commission subject to clawback
arrangements, is not recognised as revenue until it is reasonably
certain that no significant reversal of amounts recognised would
occur.
Initiation and other ‘front-end’ fees (fees that are assessed against
the policyholder balance as consideration for origination of the
contract) are charged on some non-participating investment and
investment fund management contracts. Where the investment
contract is recorded at amortised cost, these fees are deferred and
recognised over the expected term of the policy by an adjustment to
the effective yield. Where the investment contract is measured at fair
value, the front-end fees that relate to the provision of investment
management services are deferred and recognised as the services
are provided. Origination fees are recognised immediately where the
sale of fund interests represent a separate performance obligation.
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Other information
Accounting policies
Continued
(J) Other fee and commission income
Other fee and commission income consists primarily of fund
management fees, distribution fees from mutual funds,
commissions on reinsurance ceded, commission revenue from the
sale of mutual fund shares and transfer agent fees for shareholder
record keeping. Reinsurance commissions receivable are deferred in
the same way as acquisition costs, as described in accounting policy
X. All other fee and commission income is recognised over time as
the services are provided.
(K) Net investment income
Investment income consists of dividends, interest and rents
receivable for the year, movements in amortised cost on debt
securities, realised gains and losses, and unrealised gains and losses
on FVTPL investments (as defined in accounting policy T). Dividends
on equity securities are recorded as revenue on the ex-dividend
date. Interest income is recognised as it accrues, taking into account
the effective yield on the investment. It includes the interest rate
differential on forward foreign exchange contracts. Rental income is
recognised on an accruals basis, and is recognised on a straight line
basis unless there is compelling evidence that benefits do not
accrue evenly over the period of the lease.
A gain or loss on a financial investment is only realised on disposal
or transfer, and is the difference between the proceeds received, net
of transaction costs, and its original cost or amortised cost, as
appropriate.
Unrealised gains and losses, arising on investments which have not
been derecognised as a result of disposal or transfer, represent the
difference between the carrying value at the year end and the
carrying value at the previous year end or purchase value during the
year, less the reversal of previously recognised unrealised gains and
losses in respect of disposals made during the year. Realised gains
or losses on investment property represent the difference between
the net disposal proceeds and the carrying amount of the property.
(L) Insurance and participating investment contract
liabilities
Claims
Long-term business claims reflect the cost of all claims arising
during the year, including claims handling costs, as well as
policyholder bonuses accrued in anticipation of bonus declarations.
General insurance and health claims incurred include all losses
occurring during the year, whether reported or not, related handling
costs, a reduction for the value of salvage and other recoveries, and
any adjustments to claims outstanding from previous years.
Claims handling costs include internal and external costs incurred in
connection with the negotiation and settlement of claims. Internal
costs include all direct expenses of the claims department and any
part of the general administrative costs directly attributable to the
claims function.
represents a determination within a range of possible outcomes,
where the assumptions used in the calculations depend on the
circumstances prevailing in each life operation. The principal
assumptions are disclosed in note 43(a). For the UK with-profits
funds, FRS 27 required liabilities to be calculated on the realistic
basis adjusted to remove the shareholders’ share of future bonuses.
FRS 27 was grandfathered from UK regulatory requirements prior to
the adoption of Solvency II. For UK non-profit insurance contracts,
the liabilities are calculated using the gross premium valuation
method. This method uses the amount of contractual premiums
payable and includes explicit assumptions for interest and discount
rates, mortality and morbidity, persistency and future expenses.
These assumptions are set on a prudent basis and can vary by
contract type and reflect current and expected future experience.
These estimates depend upon the outcome of future events and
may need to be revised as circumstances change. The liabilities are
based on the UK regulatory requirements prior to the adoption of
Solvency II, adjusted to remove certain regulatory reserves and
margins in assumptions, notably for annuity business.
Unallocated divisible surplus
In certain participating long-term insurance and investment
business, the nature of the policy benefits is such that the division
between shareholder reserves and policyholder liabilities is
uncertain. Amounts whose allocation to either policyholders or
shareholders has not been determined by the end of the financial
year are held within liabilities as an unallocated divisible surplus.
If the aggregate carrying value of liabilities for a particular
participating business fund is in excess of the aggregate carrying
value of its assets, then the difference is held as a negative
unallocated divisible surplus balance, subject to recoverability from
margins in that fund’s participating business. Any excess of this
difference over the recoverable amount is charged to net income in
the reporting period.
Embedded derivatives
Embedded derivatives that meet the definition of an insurance
contract or correspond to options to surrender insurance contracts
for a set amount (or based on a fixed amount and an interest rate)
are not separately measured. All other embedded derivatives are
separated and measured at fair value if they are not considered
closely related to the host insurance contract or do not meet the
definition of an insurance contract. Fair value reflects own credit risk
to the extent the embedded derivative is not fully collateralised.
Liability adequacy
At each reporting date, an assessment is made of whether the
recognised long-term business provisions are adequate, using
current estimates of future cash flows. If that assessment shows that
the carrying amount of the liabilities (less related assets) is
insufficient in light of the estimated future cash flows, the deficiency
is recognised in the income statement by setting up an additional
provision in the statement of financial position.
Long-term business provisions
Under current IFRS requirements, insurance and participating
investment contract liabilities are measured using accounting
policies consistent with those adopted previously under existing
accounting practices, with the exception of liabilities remeasured to
reflect current market interest rates to be consistent with the value
of the backing assets, and those relating to UK with-profits and non-
profit contracts.
The long-term business provisions are calculated separately for
each life operation, based either on local regulatory requirements or
existing local GAAP (at the later of the date of transition to IFRS or
the date of the acquisition of the entity); and actuarial principles
consistent with those applied in each local market. Each calculation
General insurance and health provisions
Outstanding claims provisions
General insurance and health outstanding claims provisions are
based on the estimated ultimate cost of all claims incurred but not
settled at the statement of financial position date, whether reported
or not, together with related claims handling costs. Significant
delays are experienced in the notification and settlement of certain
types of general insurance claims, particularly in respect of liability
business, including environmental and pollution exposures, the
ultimate cost of which cannot be known with certainty at the
statement of financial position date. As such, booked claim
provisions for general insurance and health insurance are based on
the best estimate of the cost of future claim payments plus an
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explicit allowance for risk and uncertainty. Any estimate represents a
determination within a range of possible outcomes. Further details
of estimation techniques are given in note 43(b).
Provisions for latent claims and claims that are settled on an annuity
type basis such as structured settlements are discounted, in the
relevant currency at the reporting date, having regard to the expected
settlement dates of the claims and the nature of the liabilities. The
discount rate is set at the start of the accounting period with any
change in rates between the start and end of the accounting period
being reflected below operating profit as an economic assumption
change. The range of discount rates used is described in note 43(b).
Outstanding claims provisions are valued net of an allowance for
expected future recoveries. Recoveries include non-insurance assets
that have been acquired by exercising rights to salvage and
subrogation under the terms of insurance contracts. Where material,
anticipated recoveries are disclosed under receivables and not
deducted from outstanding claims provisions.
Provision for unearned premiums
The proportion of written premiums, gross of commission payable
to intermediaries, attributable to subsequent periods is deferred as
a provision for unearned premiums. The change in this provision is
taken to the income statement as recognition of revenue over the
period of risk.
Liability adequacy
At each reporting date, the Group reviews its unexpired risks and
carries out a liability adequacy test for any overall excess of
expected claims and deferred acquisition costs over unearned
premiums, using the current estimates of future cash flows under its
contracts after taking account of the investment return expected to
arise on assets relating to the relevant general business provisions. If
these estimates show that the carrying amount of its insurance
liabilities (less related deferred acquisition costs) is insufficient in
light of the estimated future cash flows, the deficiency is recognised
in the income statement by setting up a provision in the statement
of financial position.
Other assessments and levies
The Group is subject to various periodic insurance-related
assessments or guarantee fund levies. Related provisions are
established where there is a present obligation (legal or
constructive) as a result of a past event. Such amounts are not
included in insurance liabilities but are included under ‘Pension
deficits and other provisions’ in the statement of financial position.
(M) Non-participating investment contract liabilities
Claims
For non-participating investment contracts with an account
balance, claims reflect the excess of amounts paid over the account
balance released.
Contract liabilities
Deposits collected under non-participating investment contracts are
not accounted for through the income statement, except for the
investment income attributable to those contracts, but are
accounted for directly through the statement of financial position as
an adjustment to the investment contract liability.
The majority of the Group’s contracts classified as non-participating
investment contracts are unit-linked contracts and are measured at
fair value. Certain liabilities for non-linked non-participating
contracts are measured at amortised cost.
to the surrender value. For unit-linked contracts, the fair value
liability is equal to the current unit fund value, including any
unfunded units. In addition, if required, non-unit reserves are held
based on a discounted cash flow analysis. For non-linked contracts,
the fair value liability is based on a discounted cash flow analysis,
with allowance for risk calibrated to match the market price for risk.
Amortised cost is calculated as the fair value of consideration
received at the date of initial recognition, less the net effect of
payments such as transaction costs and front-end fees, plus or
minus the cumulative amortisation (using the effective interest rate
method) of any difference between that initial amount and the
maturity value, and less any write-down for surrender payments.
The effective interest rate is the one that equates the discounted
cash payments to the initial amount. At each reporting date, the
amortised cost liability is determined as the value of future best
estimate cash flows discounted at the effective interest rate.
(N) Reinsurance
The Group assumes and cedes reinsurance in the normal course of
business, with retention limits varying by line of business. Premiums
on reinsurance assumed are recognised as revenue in the same
manner as they would be if the reinsurance were considered direct
business, taking into account the product classification of the
reinsured business. The cost of reinsurance related to long-duration
contracts is accounted for over the life of the underlying reinsured
policies, using assumptions consistent with those used to account
for these policies.
Where general insurance liabilities are discounted, any
corresponding reinsurance assets are also discounted using
consistent assumptions.
Gains or losses on buying retroactive reinsurance are recognised in
the income statement immediately at the date of purchase and are
not amortised. Premiums ceded and claims reimbursed are
presented on a gross basis in the consolidated income statement
and statement of financial position as appropriate.
Reinsurance assets primarily include balances due from both
insurance and reinsurance companies for ceded insurance and
investment contract liabilities. This includes balances in respect of
investment contracts which are legally reinsurance contracts but do
not meet the definition of a reinsurance contract under IFRS.
Amounts recoverable from reinsurers are estimated in a manner
consistent with the underlying contract liabilities, outstanding
claims provisions or settled claims associated with the reinsured
policies and in accordance with the relevant reinsurance contract.
Reinsurance of non-participating investment contracts and reinsurance
contracts that principally transfer financial risk are accounted for directly
through the statement of financial position. A deposit asset or liability is
recognised, based on the consideration paid or received less any
explicitly identified premiums or fees to be retained by the reinsured.
These deposit assets or liabilities are shown within reinsurance assets in
the consolidated statement of financial position.
If a reinsurance asset is impaired, the Group reduces the carrying
amount accordingly and recognises that impairment loss in the
income statement. A reinsurance asset is impaired if there is
objective evidence, as a result of an event that occurred after initial
recognition of the reinsurance asset, that the Group may not receive
all amounts due to it under the terms of the contract, and the event
has a reliably measurable impact on the amounts that the Group
will receive from the reinsurer.
The liability’s fair value is determined using a valuation technique to
provide a reliable estimate of the amount for which the liability
could be transferred in an orderly transaction between market
participants at the measurement date, subject to a minimum equal
(O) Goodwill, AVIF and intangible assets
Goodwill
Goodwill represents the excess of the cost of an acquisition over the
fair value of the Group’s share of the net assets of the acquired
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subsidiary, associate or joint venture at the date of acquisition.
Goodwill arising on the Group’s investments in subsidiaries is shown
as a separate asset, while that on associates and joint ventures is
included within the carrying value of those investments.
Goodwill on acquisitions prior to 1 January 2004 (the date of
transition to IFRS) is carried at its book value (original cost less
cumulative amortisation) on that date, less any impairment
subsequently incurred. Goodwill arising before 1 January 1998 was
eliminated against reserves and has not been reinstated.
Where negative goodwill arises on an acquisition, this is recognised
immediately in the consolidated income statement.
Acquired value of in-force business (AVIF)
The present value of future profits on a portfolio of long-term
insurance and investment contracts, acquired either directly or
through the purchase of a subsidiary, is recognised as an asset.
If the AVIF results from the acquisition of an investment in a joint
venture or an associate, it is held within the carrying amount of that
investment. In all cases, the AVIF is amortised over the useful lifetime
of the related contracts in the portfolio on a systematic basis. The
rate of amortisation is chosen by considering the profile of the
additional value of in-force business acquired and the expected
depletion in its value.
Non-participating investment contract AVIF is reviewed for evidence
of impairment, consistent with reviews conducted for other finite life
intangible assets. Insurance and participating investment contract
AVIF is reviewed for impairment at each reporting date as part of the
liability adequacy requirements of IFRS 4 (see accounting policy L).
AVIF is reviewed for evidence of impairment and impairment tested
at product portfolio level by reference to a projection of future
profits arising from the portfolio.
Intangible assets
Intangible assets consist primarily of contractual relationships such
as access to distribution networks, customer lists and software. The
economic lives of these are determined by considering relevant
factors such as usage of the asset, typical product life cycles,
potential obsolescence, maintenance costs, the stability of the
industry, competitive position and the period of control over the
assets. These intangibles are amortised over their useful lives, which
range from three to 30 years, using the straight-line method.
The amortisation charge for the year is included in the income
statement under ‘Other expenses’. For intangibles with finite lives,
impairment charges will be recognised in the income statement
where evidence of such impairment is observed. Intangibles with
indefinite lives are subject to regular impairment testing, as
described below.
Impairment testing
For impairment testing, goodwill and intangible assets with
indefinite useful lives have been allocated to cash-generating units.
The carrying amount of goodwill and intangible assets with
indefinite useful lives is reviewed at least annually or when
circumstances or events indicate there may be uncertainty over this
value. Goodwill and indefinite life intangibles are written down for
impairment where the recoverable amount is insufficient to support
its carrying value. Further details on goodwill allocation and
impairment testing are given in note 17. Any impairments are
charged as expenses in the income statement.
(P) Property and equipment
Owner-occupied properties are carried at their revalued amounts,
and movements are recognised in other comprehensive income and
taken to a separate reserve within equity. When such properties are
sold, the accumulated revaluation surpluses are transferred from
this reserve to retained earnings. These properties are depreciated
down to their estimated residual values over their useful lives. All
other items classed as property and equipment within the
statement of financial position are carried at historical cost less
accumulated depreciation.
Investment properties under construction are included within
property and equipment until completion, and are stated at cost
less any provision for impairment in their values until construction is
completed or fair value becomes reliably measurable.
Depreciation is calculated on the straight-line method to write down
the cost of other assets to their residual values over their estimated
useful lives as follows:
• Properties under construction
• Owner-occupied properties, and
related mechanical and electrical
equipment
• Motor vehicles
No depreciation
25 years
Three years, or lease term
(up to useful life) if longer
Three to five years
Three to five years
• Computer equipment
• Other assets
The assets’ residual values, useful lives and method of depreciation
are reviewed regularly, and at least at each financial year end, and
adjusted if appropriate. Where the carrying amount of an asset is
greater than its estimated recoverable amount, it is written down
immediately to its recoverable amount. Gains and losses on
disposal of property and equipment are determined by reference to
their carrying amount.
Borrowing costs directly attributable to the acquisition and
construction of property and equipment are capitalised. All repair
and maintenance costs are charged to the income statement during
the financial period in which they are incurred. The cost of major
renovations is included in the carrying amount of the asset when it is
probable that future economic benefits in excess of the most
recently assessed standard of performance of the existing asset will
flow to the Group and the renovation replaces an identifiable part of
the asset. Major renovations are depreciated over the remaining
useful life of the related asset.
(Q) Investment property
Investment property is held for long-term rental yields and is not
occupied by the Group. Completed investment property is stated at
its fair value, as assessed by qualified external valuers or by qualified
staff of the Group. Changes in fair values are recorded in the income
statement in net investment income.
As described in accounting policy P above, investment properties
under construction are included within property and equipment, and
are stated at cost less any impairment in their values until
construction is completed or fair value becomes reliably measurable.
(R) Impairment of non-financial assets
Property and equipment and other non-financial assets are
reviewed for impairment losses whenever events or changes in
circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognised in the income
statement for the amount by which the carrying amount of the asset
exceeds its recoverable amount, which is the higher of an asset’s fair
value less costs of disposal and value in use. For the purposes of
assessing impairment, assets are grouped at the lowest level for
which there are separately identifiable cash flows. Non-financial
assets, except goodwill which have suffered an impairment, are
reviewed for possible reversal of the impairment at each reporting
date.
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(S) Derecognition and offset of financial assets and
financial liabilities
A financial asset (or, where applicable, a part of a financial asset or
part of a group of similar financial assets) is derecognised where:
• The rights to receive cash flows from the asset have expired;
• The Group retains the right to receive cash flows from the asset,
but has assumed an obligation to pay them in full without
material delay to a third party under a ‘pass-through’
arrangement; or
• The Group has transferred its rights to receive cash flows from the
asset and has either transferred substantially all the risks and
rewards of the asset, or has neither transferred nor retained
substantially all the risks and rewards of the asset, but has
transferred control of the asset.
A financial liability is derecognised when the obligation under the
liability is discharged or cancelled or expires.
Financial assets and liabilities are offset and the net amount
reported in the statement of financial position when there is a
currently enforceable legal right to set off the recognised amounts
and there is the ability and intention to settle on a net basis, or
realise the asset and settle the liability simultaneously.
(T) Financial investments
The Group classifies its investments as either FVTPL or AFS. The
classification depends on the purpose for which the investments
were acquired, and is determined by local management at initial
recognition. The FVTPL category has two subcategories – those that
meet the definition as being held for trading and those the Group
chooses to designate as FVTPL (referred to in this accounting policy
as ‘other than trading’) upon initial recognition.
In general, the other than trading category is used as, in most cases,
the Group’s investment or risk management strategy is to manage
its financial investments on a fair value basis. Debt securities and
equity securities, which the Group acquires with the intention to
resell in the short term, are classified as trading, as are non-hedge
derivatives (see accounting policy U below). The AFS category is
used where the relevant long-term business liability (including
shareholders’ funds) is passively managed, as well as in certain fund
management and non-insurance operations.
Purchases and sales of investments are recognised on the trade
date, which is the date that the Group commits to purchase or sell
the assets, at their fair values. Debt securities are initially recorded at
their fair value, which is taken to be amortised cost, with
amortisation credited or charged to the income statement.
Investments classified as trading, other than trading and AFS, are
subsequently carried at fair value. Changes in the fair value of
trading and other than trading investments are included in the
income statement in the period in which they arise.
Changes in the fair value of securities classified as AFS are
recognised in other comprehensive income and recorded in a
separate investment valuation reserve within equity. When
securities classified as AFS are sold or impaired, the accumulated
fair value adjustments are transferred out of the investment
valuation reserve to the income statement with a corresponding
movement through other comprehensive income.
Impairment
The Group reviews the carrying value of its AFS investments on a
regular basis. If the carrying value of an AFS investment is greater
than the recoverable amount, the carrying value is reduced through
a charge to the income statement in the period of impairment. The
following policies are used to determine the level of any
impairment, some of which involve considerable judgement.
AFS debt securities
An AFS debt security is impaired if there is objective evidence that a
loss event has occurred which has impaired the expected cash
flows, i.e. where all amounts due according to the contractual terms
of the security are not considered collectible. An impairment charge,
measured as the difference between the security’s fair value and
amortised cost, is recognised when the issuer is known to be either
in default or in financial difficulty. Determining when an issuer is in
financial difficulty requires the use of judgement, and we consider a
number of factors including industry risk factors, financial condition,
liquidity position and near-term prospects of the issuer, credit rating
declines and a breach of contract. A decline in fair value below
amortised cost due to changes in risk-free interest rates does not
necessarily represent objective evidence of a loss event.
For securities identified as being impaired, the cumulative
unrealised loss previously recognised within the investment
valuation reserve is transferred to realised losses for the year, with a
corresponding movement through other comprehensive income.
Any subsequent increase in fair value of these impaired securities is
recognised in other comprehensive income and recorded in the
investment valuation reserve unless this increase represents a
decrease in the impairment loss that can be objectively related to an
event occurring after the impairment loss was recognised in the
income statement. In such an event, the reversal of the impairment
loss is recognised as a gain in the income statement.
AFS equity securities
An AFS equity security is considered impaired if there is objective
evidence that the cost may not be recovered. In addition to
qualitative impairment criteria, such evidence includes a significant
or prolonged decline in fair value below cost. Unless there is
evidence to the contrary, an equity security is considered impaired if
the decline in fair value relative to cost has been either at least 20%
for a continuous six-month period or more than 40% at the end of
the reporting period, or been in an unrealised loss position for a
continuous period of more than 12 months at the end of the
reporting period. We also review our largest equity holdings for
evidence of impairment, as well as individual equity holdings in
industry sectors known to be in difficulty. Where there is objective
evidence that impairment exists, the security is written down
regardless of the size of the unrealised loss.
For securities identified as being impaired, the cumulative
unrealised loss previously recognised within the investment
valuation reserve is transferred to realised losses for the year with a
corresponding movement through other comprehensive income.
Any subsequent increase in fair value of these impaired securities is
recognised in other comprehensive income and recorded in the
investment valuation reserve.
Reversals of impairments on any of these assets are only recognised
where the decrease in the impairment can be objectively related to
an event occurring after the write-down (such as an improvement in
the debtor’s credit rating), and are not recognised in respect of
equity instruments.
(U) Derivative financial instruments and hedging
Derivative financial instruments include foreign exchange contracts,
interest rate futures, currency and interest rate swaps, currency and
interest rate options (both written and purchased) and other
financial instruments that derive their value mainly from underlying
interest rates, foreign exchange rates, credit or equity indices,
commodity values or equity instruments.
All derivatives are initially recognised in the statement of financial
position at their fair value, which usually represents their cost. They
are subsequently remeasured at their fair value, with the method of
recognising movements in this value depending on whether they are
designated as hedging instruments and, if so, the nature of the item
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being hedged. Fair values are obtained from quoted market prices or,
if these are not available, by using valuation techniques such as
discounted cash flow models or option pricing models. All derivatives
are carried as assets when the fair values are positive and as liabilities
when the fair values are negative. Premiums paid for derivatives are
recorded as an asset on the statement of financial position at the date
of purchase, representing their fair value at that date.
Derivative contracts may be traded on an exchange or over-the-
counter (OTC). Exchange-traded derivatives are standardised and
include certain futures and option contracts. OTC derivative
contracts are individually negotiated between contracting parties
and include forwards, swaps, caps and floors. Derivatives are subject
to various risks including market, liquidity and credit risk, similar to
those related to the underlying financial instruments. Many OTC
transactions are contracted and documented under International
Swaps and Derivatives Association master agreements or their
equivalent, which are designed to provide legally enforceable set-off
in the event of default, reducing the Group’s exposure to credit risk.
The notional or contractual amounts associated with derivative
financial instruments are not recorded as assets or liabilities on the
statement of financial position as they do not represent the fair value
of these transactions. These amounts are disclosed in note 60(b).
The Group has collateral agreements in place between the
individual Group entities and relevant counterparties. Accounting
policy W covers collateral, both received and pledged, in respect of
these derivatives.
Interest rate and currency swaps
Interest rate swaps are contractual agreements between two parties to
exchange fixed rate and floating rate interest by means of periodic
payments, calculated on a specified notional amount and defined
interest rates. Most interest rate swap payments are netted against each
other, with the difference between the fixed and floating rate interest
payments paid by one party. Currency swaps, in their simplest form, are
contractual agreements that involve the exchange of both periodic and
final amounts in two different currencies. Both types of swap contracts
may include the net exchange of principal. Exposure to gain or loss on
these contracts will increase or decrease over their respective lives as a
function of maturity dates, interest and foreign exchange rates, and the
timing of payments.
Interest rate futures, forwards and options contracts
Interest rate futures are exchange-traded instruments and represent
commitments to purchase or sell a designated security or money
market instrument at a specified future date and price. Interest rate
forward agreements are OTC contracts in which two parties agree
on an interest rate and other terms that will become a reference
point in determining, in concert with an agreed notional principal
amount, a net payment to be made by one party to the other,
depending upon what rate prevails at a future point in time. Interest
rate options, which consist primarily of caps and floors, are interest
rate protection instruments that involve the potential obligation of
the seller to pay the buyer an interest rate differential in exchange
for a premium paid by the buyer. This differential represents the
difference between current rate and an agreed rate applied to a
notional amount. Exposure to gain or loss on all interest rate
contracts will increase or decrease over their respective lives as
interest rates fluctuate. Certain contracts, known as swaptions,
contain features which can act as swaps or options.
Foreign exchange contracts
Foreign exchange contracts, which include spot, forward and futures
contracts, represent agreements to exchange the currency of one
country for the currency of another country at an agreed price and
settlement date. Foreign exchange option contracts are similar to
interest rate option contracts, except that they are based on
currencies, rather than interest rates.
Derivative instruments for hedging
On the date a derivative contract is entered into, the Group
designates certain derivatives as either:
(i) a hedge of the fair value of a recognised asset or liability (fair
value hedge);
(ii) a hedge of a future cash flow attributable to a recognised asset
or liability, a highly probable forecast transaction or a firm
commitment (cash flow hedge); or
(iii) a hedge of a net investment in a foreign operation (net
investment hedge).
Hedge accounting is used for derivatives designated in this way,
provided certain criteria are met. At the inception of the transaction,
the Group documents the relationship between the hedging
instrument and the hedged item, as well as the risk management
objective and the strategy for undertaking the hedge transaction.
The Group also documents its assessment of whether the hedge is
expected to be, and has been, highly effective in offsetting the risk in
the hedged item, both at inception and on an ongoing basis.
Changes in the fair value of derivatives that are designated and
qualify as net investment or cash flow hedges, and that prove to be
highly effective in relation to the hedged risk, are recognised in other
comprehensive income and a separate reserve within equity. Gains
and losses accumulated in this reserve are included in the income
statement on disposal of the relevant investment or occurrence of
the cash flow as appropriate.
Changes in the fair value of derivatives that are designated and
qualify as fair value hedges are recognised in the income statement.
The gain or loss on the hedged item that is attributable to the
hedged risk is recognised in the income statement. This applies
even if the hedged item is an available for sale financial asset or is
measured at amortised cost. If a hedging relationship no longer
meets the criteria for hedge accounting, the cumulative adjustment
made to the carrying amount of the hedged item is amortised to the
income statement, based on a recalculated effective interest rate
over the residual period to maturity. In cases where the hedged item
has been derecognised, the cumulative adjustment is released to
the income statement immediately.
For a variety of reasons, certain derivative transactions, while
providing effective economic hedges under the Group’s risk
management positions, do not qualify for hedge accounting under
the specific IFRS rules and are therefore treated as derivatives held
for trading. Their fair value gains and losses are recognised
immediately in net investment income.
(V) Loans
Loans with fixed maturities, including policyholder loans, mortgage
loans on investment property, securitised mortgages and collateral
loans, are recognised when cash is advanced to borrowers. Certain
loans are carried at their unpaid principal balances and adjusted for
amortisation of premium or discount, non-refundable loan fees and
related direct costs. These amounts are deferred and amortised over
the life of the loan as an adjustment to loan yield using the effective
interest rate method.
However, for the majority of mortgage loans, the Group has taken
advantage of the fair value option under IAS 39 to present the
mortgages, associated borrowings and derivative financial
instruments at fair value, since they are managed as a portfolio on a
fair value basis. This presentation provides more relevant
information and eliminates any accounting mismatch that would
otherwise arise from using different measurement bases for these
three items. The fair values of these mortgages are estimated using
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discounted cash flow models, based on a risk-adjusted discount
rate which reflects the risks associated with these products. They are
revalued at each period end, with movements in their fair values
being taken to the income statement.
accounting policy L). For non-participating investment and
investment fund management contracts, incremental acquisition
costs and sales enhancements that are directly attributable to
securing an investment management service are also deferred.
At each reporting date, we review loans carried at amortised cost for
objective evidence that they are impaired and uncollectable, either at
the level of an individual security or collectively within a group of loans
with similar credit risk characteristics. To the extent that a loan is
uncollectable, it is written down as impaired to its recoverable amount,
measured as the present value of expected future cash flows discounted
at the original effective interest rate of the loan, taking into account the
fair value of the underlying collateral through an impairment provision
account. Subsequent recoveries in excess of the loan’s written-down
carrying value are credited to the income statement.
The Company classifies and measures loans at either amortised
cost, fair value through other comprehensive income, or fair value
through profit or loss based on the outcome of an assessment of the
Company’s business model for managing financial assets and the
extent to which the financial assets’ contractual cash flows are
solely payment of principal and interest.
The Company calculates expected credit losses for all financial
assets held at either amortised cost or fair value through other
comprehensive income. Expected credit losses are calculated on
either a 12-month or lifetime basis depending on the extent to which
credit risk has increased significantly since initial recognition.
Long-term business deferred acquisition costs are amortised
systematically over a period no longer than that in which they are
expected to be recoverable out of these future margins. Deferred
acquisition costs for non-participating investment and investment
fund management contracts are amortised over the period in which
the service is provided. General insurance and health deferred
acquisition costs are amortised over the period in which the related
revenues are earned. The reinsurers’ share of deferred acquisition
costs is amortised in the same manner as the underlying asset.
Deferred acquisition costs are reviewed by category of business at
the end of each reporting period and are written-off where they are
no longer considered to be recoverable.
Where such business is reinsured, an appropriate proportion of the
deferred acquisition costs is attributed to the reinsurer.
Recoverability is assessed net of reinsurance, and may result in
deferred acquisition costs being written-off if any liability recognised
for the reinsurer’s share is insufficient.
Other receivables and payables are initially recognised at cost, being
fair value. Subsequent to initial measurement they are measured at
amortised cost.
(W) Collateral
The Group receives and pledges collateral in the form of cash or
non-cash assets in respect of stock lending transactions, certain
derivative contracts and loans, in order to reduce the credit risk of
these transactions. Collateral is also pledged as security for bank
letters of credit. The amount and type of collateral required depends
on an assessment of the credit risk of the counterparty.
Collateral received in the form of cash, which is not legally segregated
from the Group, is recognised as an asset in the statement of financial
position with a corresponding liability for the repayment in financial
liabilities (note 61). However, where the Group has a currently
enforceable legal right of set-off and the ability and intent to net settle,
the collateral liability and associated derivative balances are shown net.
Non-cash collateral received is not recognised in the statement of
financial position unless the transfer of the collateral meets the
derecognition criteria from the perspective of the transferor. Such
collateral is typically recognised when the Group either (a) sells or
repledges these assets in the absence of default, at which point the
obligation to return this collateral is recognised as a liability; or (b) the
counterparty to the arrangement defaults, at which point the collateral
is seized and recognised as an asset.
Collateral pledged in the form of cash, which is legally segregated
from the Group, is derecognised from the statement of financial
position with a corresponding receivable recognised for its return.
Non-cash collateral pledged is not derecognised from the statement
of financial position unless the Group defaults on its obligations
under the relevant agreement, and therefore continues to be
recognised in the statement of financial position within the
appropriate asset classification.
(X) Deferred acquisition costs and other assets
Costs relating to the acquisition of new business for insurance and
participating investment contracts are deferred in line with existing
local accounting practices, to the extent that they are expected to be
recovered out of future margins in revenues on these contracts. For
participating contracts written in the UK, acquisition costs are
generally not deferred as the liability for these contracts is
calculated on a realistic basis which was grandfathered from UK
regulatory requirements prior to the adoption of Solvency II (see
(Y) Statement of cash flows
Cash and cash equivalents
Cash and cash equivalents consist of cash at bank and in hand, deposits
held at call with banks, treasury bills and other short-term highly liquid
investments that are readily convertible to known amounts of cash and
which are subject to an insignificant risk of change in value. Such
investments are those with less than three months’ maturity from the
date of acquisition, or which are redeemable on demand with only an
insignificant change in their fair values.
For the purposes of the statement of cash flows, cash and cash
equivalents also include bank overdrafts, which are included in payables
and other financial liabilities on the statement of financial position.
Operating cash flows
Purchases and sales of investment property, loans and financial
investments are included within operating cash flows as the
purchases are funded from cash flows associated with the
origination of insurance and investment contracts, net of payments
of related benefits and claims.
(Z) Leases
Leases, where a significant portion of the risks and rewards of
ownership is retained by the lessor, are classified as operating
leases. Where the Group is the lessee, payments made under
operating leases (net of any incentives received from the lessor) are
charged to the income statement on a straight-line basis over the
term of the relevant leases.
Where the Group is the lessor, lease income from operating leases is
recognised in the income statement on a straight-line basis over the
lease term.
When assets are subject to finance leases, the present value of the
lease payments, together with any unguaranteed residual value, is
recognised as a receivable. The Group has not entered into any
material finance lease arrangements either as lessor or lessee.
(AA) Provisions and contingent liabilities
Provisions are recognised when the Group has a present legal or
constructive obligation as a result of past events, it is more probable
than not that an outflow of resources embodying economic benefits
Aviva plc Annual report and accounts 2018
113
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IFRS financial statements
Other information
Accounting policies
Continued
will be required to settle the obligation, and a reliable estimate of the
amount of the obligation can be made. Restructuring provisions
include lease termination penalties and employee termination
payments. They comprise only the direct expenditures arising from
the restructuring, which are those that are necessarily entailed by the
restructuring; and not associated with the ongoing activities of the
entity. The amount recorded as a provision is the best estimate of the
expenditure required to settle the present obligation at the balance
sheet date. Where the effect of the time value of money is material, the
provision is the present value of the expected expenditure. Provisions
are not recognised for future operating losses.
Where the Group expects a provision to be reimbursed, for example
under an insurance contract, the reimbursement is recognised as a
separate asset but only when the reimbursement is virtually certain.
The Group recognises a provision for onerous contracts when the
expected benefits to be derived from a contract are less than the
unavoidable costs of meeting the obligations under the contract.
Contingent liabilities are disclosed if there is a possible future
obligation as a result of a past event, or if there is a present
obligation as a result of a past event but either a payment is not
probable or the amount cannot be reasonably estimated.
(AB) Employee benefits
Pension obligations
The Group operates a number of pension schemes, whose members
receive benefits on either a defined benefit or defined contribution
basis. Under a defined contribution plan, the Group’s legal or
constructive obligation is limited to the amount it agrees to contribute
to a fund and there is no obligation to pay further contributions if the
fund does not hold sufficient assets to pay benefits. A defined benefit
pension plan is a pension plan that is not a defined contribution plan
and typically defines the amount of pension benefit that an employee
will receive on retirement.
The defined benefit obligation is calculated by independent actuaries
using the projected unit credit method. The pension obligation is
measured as the present value of the estimated future cash outflows,
using a discount rate based on market yields for high-quality corporate
bonds that are denominated in the currency in which the benefits will be
paid and that have terms to maturity approximating to the terms of the
related pension liability. The resultant net surplus or deficit recognised
as an asset or liability on the statement of financial position is the
present value of the defined benefit obligation at the end of the
reporting period less the fair value of plan assets.
Plan assets exclude unpaid contributions due from Group entities to the
schemes, and any non-transferrable financial instruments issued by a
Group entity and held by the schemes. If the fair value of plan assets
exceeds the present value of the defined benefit obligation, the resultant
asset is limited to the asset ceiling defined as present value of economic
benefits available in the form of future refunds from the plan or
reductions in contributions to the plan. In order to calculate the present
value of economic benefits, consideration is given to any minimum
funding requirements that apply to any plan in the Group.
Remeasurements of defined benefit plans comprise actuarial gains and
losses arising from experience adjustments and changes in actuarial
assumptions, the return on plan assets (excluding net interest) and the
effect of the asset ceiling (if any). The Group recognises remeasurements
immediately in other comprehensive income and does not reclassify
them to the income statement in subsequent periods.
Service costs comprising current service costs, past service costs, gains
and losses on curtailments and net interest expense/income are
charged or credited to the income statement.
Past service costs are recognised at the earlier of the date the plan
amendment or curtailment occurs or when related restructuring
costs are recognised.
The Group determines the net interest expense/income on the net
defined benefit liability/asset for the period by applying the discount
rate used to measure the defined benefit obligation at the beginning
of the year to the net defined benefit liability/asset. Net interest
expense is charged to finance costs, whereas, net interest income is
credited to investment income.
For defined contribution plans, the Group pays contributions to
publicly or privately administered pension plans. Once the
contributions have been paid, the Group, as employer, has no
further payment obligations. The Group’s contributions are charged
to the income statement in the year to which they relate and are
included in staff costs.
Equity compensation plans
The Group offers share award and option plans over the Company’s
ordinary shares for certain employees, including a Save As You Earn
plan (SAYE plan), details of which are given in the Directors’
Remuneration Report and in note 33.
The Group accounts for options and awards under equity
compensation plans, which were granted after 7 November 2002,
until such time as they are fully vested, using the fair value based
method of accounting (the ‘fair value method’). Under this method,
the cost of providing equity compensation plans is based on the fair
value of the share awards or option plans at date of grant, which is
recognised in the income statement over the expected vesting
period of the related employees and credited to the equity
compensation reserve, part of shareholders’ funds. In certain
jurisdictions, awards must be settled in cash instead of shares, and
the credit is taken to liabilities rather than reserves. The fair value of
these cash-settled awards is recalculated each year, with the income
statement charge and liability being adjusted accordingly.
Shares purchased by employee share trusts to fund these awards
are shown as deduction from shareholders’ equity at their weighted
average cost.
When the options are exercised and new shares are issued, the proceeds
received, net of any transaction costs, are credited to share capital (par
value) and the balance to share premium. Where the shares are already
held by employee trusts, the net proceeds are credited against the cost
of these shares, with the difference between cost and proceeds being
taken to retained earnings. In both cases, the relevant amount in the
equity compensation reserve is then credited to retained earnings.
(AC) Income taxes
The current tax expense is based on the taxable profits for the year,
after any adjustments in respect of prior years. Tax, including tax
relief for losses if applicable, is allocated over profits before taxation
and amounts charged or credited to components of other
comprehensive income and equity, as appropriate.
Provision is made for deferred tax liabilities, or credit taken for
deferred tax assets, using the liability method, on all material
temporary differences between the tax bases of assets and liabilities
and their carrying amounts in the consolidated financial statements.
The rates enacted or substantively enacted at the statement of financial
position date are used to value the deferred tax assets and liabilities.
Deferred tax assets are recognised to the extent that it is probable that
future taxable profit will be available against which the temporary
differences can be utilised. Where there is a history of tax losses, deferred
tax assets are only recognised in excess of deferred tax liabilities if there
is convincing evidence that future profits will be available.
Deferred tax is provided on any temporary differences arising from
investments in subsidiaries, associates and joint ventures, except
where the timing of the reversal of the temporary difference can be
Aviva plc Annual report and accounts 2018
114
Strategic report
Governance
IFRS financial statements
Other information
Accounting policies
Continued
controlled and it is probable that the difference will not reverse in
the foreseeable future.
Deferred taxes are not provided in respect of temporary differences
arising from the initial recognition of goodwill, or from the initial
recognition of an asset or liability in a transaction which is not a
business combination and affects neither accounting profit nor
taxable profit or loss at the time of the transaction.
Current and deferred tax relating to items recognised in other
comprehensive income and directly in equity are similarly recognised
in other comprehensive income and directly in equity respectively.
Deferred tax related to fair value re-measurement of available for sale
investments, pensions and other post-retirement obligations and
other amounts charged or credited directly to other comprehensive
income is recognised in the statement of financial position as a
deferred tax asset or liability. Current tax on interest paid on the direct
capital instrument and tier 1 notes is credited directly in equity.
Current and deferred tax includes amounts provided in respect of
uncertain tax positions, where management expects it is more likely
than not that an economic outflow will occur as a result of
examination by a relevant tax authority. Provisions reflect
management’s best estimate of the ultimate liability based on their
interpretation of tax law, precedent and guidance, informed by
external tax advice as necessary. The final amounts of tax due may
ultimately differ from management’s best estimate at the balance
sheet date. Changes in facts and circumstances underlying these
provisions are reassessed at each balance sheet date, and the
provisions are re-measured as required to reflect current information.
In addition to paying tax on shareholders’ profits (‘shareholder tax’),
the Group’s life businesses in the UK, Ireland and Singapore pay tax on
policyholders’ investment returns (‘policyholder tax’) on certain
products at policyholder tax rates. The incremental tax borne by the
Group represents income tax on policyholder’s investment return. In
jurisdictions where policyholder tax is applicable, the total tax charge
in the income statement is allocated between shareholder tax and
policyholder tax. The shareholder tax is calculated by applying the
corporate tax rate to the shareholder profit. The difference between
the total tax charge and shareholder tax is allocated to policyholder
tax. This calculation methodology is consistent with the legislation
relating to the calculation of tax on shareholder profits. The Group has
decided to show separately the amounts of policyholder tax to
provide a meaningful measure of the tax the Group pays on its profit.
In the pro forma reconciliations, the Group adjusted operating profit
has been calculated after charging policyholder tax.
(AD) Borrowings
Borrowings are classified as being for either core structural or
operational purposes. They are recognised initially at their issue
proceeds less transaction costs incurred. Subsequently, most
borrowings are stated at amortised cost, and any difference
between net proceeds and the redemption value is recognised in
the income statement over the period of the borrowings using the
effective interest rate method. All borrowing costs are expensed as
they are incurred except where they are directly attributable to the
acquisition or construction of property and equipment as described
in accounting policy P.
Where loan notes have been issued in connection with certain
securitised mortgage loans, the Group has taken advantage of the
fair value option under IAS 39 to present the mortgages, associated
liabilities and derivative financial instruments at fair value, since
they are managed as a portfolio on a fair value basis. This
presentation provides more relevant information and eliminates any
accounting mismatch which would otherwise arise from using
different measurement bases for these three items.
(AE) Share capital and treasury shares
Equity instruments
An equity instrument is a contract that evidences a residual interest
in the assets of an entity after deducting all its liabilities.
Accordingly, a financial instrument is treated as equity if:
(i) there is no contractual obligation to deliver cash or other
financial assets or to exchange financial assets or liabilities on
terms that may be unfavourable; and
(ii) the instrument is a non-derivative that contains no contractual
obligation to deliver a variable number of shares or is a
derivative that will be settled only by the Group exchanging a
fixed amount of cash or other assets for a fixed number of the
Group’s own equity instruments.
Share issue costs
Incremental external costs directly attributable to the issue of new
shares are shown in equity as a deduction, net of tax, from the
proceeds of the issue and disclosed where material.
Dividends
Interim dividends on ordinary shares are recognised in equity in the
period in which they are paid. Final dividends on these shares are
recognised when they have been approved by shareholders.
Dividends on preference shares are recognised in the period in
which they are declared and appropriately approved.
Treasury shares
Where the Company or its subsidiaries purchase the Company’s
share capital or obtain rights to purchase its share capital, the
consideration paid (including any attributable transaction costs net
of income taxes) is shown as a deduction from total shareholders’
equity. Gains and losses on own shares are charged or credited to
the treasury share account in equity.
(AF) Fiduciary activities
Assets and income arising from fiduciary activities, together with
related undertakings to return such assets to customers, are
excluded from these financial statements where the Group has no
contractual rights in the assets and acts in a fiduciary capacity such
as nominee, trustee or agent.
(AG) Earnings per share
Basic earnings per share is calculated by dividing net income
available to ordinary shareholders by the weighted average number
of ordinary shares in issue during the year, excluding the weighted
average number of treasury shares.
Earnings per share has also been calculated on Group adjusted
operating profit attributable to ordinary shareholders, net of tax,
non-controlling interests, preference dividends, the direct capital
instrument (the DCI) and tier one notes as the directors believe this
figure provides a better indication of operating performance. Details
are given in note 15.
For the diluted earnings per share, the weighted average number of
ordinary shares in issue is adjusted to assume conversion of all
dilutive potential ordinary shares, such as convertible debt and
share options granted to employees.
Potential or contingent share issuances are treated as dilutive when
their conversion to shares would decrease net earnings per share.
(AH) Operations held for sale
Assets and liabilities held for disposal as part of operations which are
held for sale are shown separately in the consolidated statement of
financial position. Operations held for sale are recorded at the lower of
their carrying amount and their fair value less the estimated selling
costs.
Aviva plc Annual report and accounts 2018
115
Strategic report
Governance
IFRS financial statements
Other information
Consolidated financial statements
Consolidated income statement
For the year ended 31 December 2018
Income
Gross written premiums
Premiums ceded to reinsurers
Premiums written net of reinsurance
Net change in provision for unearned premiums
Net earned premiums
Fee and commission income
Net investment (expense)/income
Share of profit after tax of joint ventures and associates
Profit on the disposal and remeasurement of subsidiaries, joint ventures and associates
Expenses
Claims and benefits paid, net of recoveries from reinsurers
Change in insurance liabilities, net of reinsurance
Change in investment contract provisions
Change in unallocated divisible surplus
Fee and commission expense
Other expenses
Finance costs
Profit before tax
Tax attributable to policyholders’ returns
Profit before tax attributable to shareholders’ profits
Tax credit/(expense)
Less: tax attributable to policyholders’ returns
Tax attributable to shareholders’ profits
Profit for the year
Attributable to:
Equity holders of Aviva plc
Non-controlling interests
Profit for the year
Earnings per share
Basic (pence per share)
Diluted (pence per share)
Note
6
H
I & J
K
4(a)
7
41(b)
48
8
14(d)
AC & 14
14(d)
14(d)
40
AG & 15
2018
£m
2017
£m
28,659
(2,326)
26,333
(81)
26,252
2,180
(10,847)
112
102
27,606
(2,229)
25,377
(153)
25,224
2,187
22,066
41
135
17,799
49,653
(23,142)
6,246
5,321
3,237
(3,393)
(3,843)
(573)
(24,113)
(1,074)
(13,837)
294
(4,329)
(3,537)
(683)
(16,147)
(47,279)
1,652
477
2,129
35
(477)
(442)
2,374
(371)
2,003
(728)
371
(357)
1,687
1,646
1,568
119
1,687
1,497
149
1,646
38.2p
37.8p
35.0p
34.6p
The accounting policies (identified alphabetically) on pages 102 to 115 and notes (identified numerically) on pages 123 to 241 are an
integral part of the financial statements.
Aviva plc Annual report and accounts 2018
116
Strategic report
Governance
IFRS financial statements
Other information
Consolidated financial statements
Continued
Consolidated statement of comprehensive income
For the year ended 31 December 2018
Profit for the year
Other comprehensive income:
Items that may be reclassified subsequently to income statement
Investments classified as available for sale
Fair value gains/(losses)
Fair value gains transferred to profit on disposals
Share of other comprehensive (loss)/income of joint ventures and associates
Foreign exchange rate movements
Aggregate tax effect – shareholder tax on items that may be reclassified subsequently to income statement
Items that will not be reclassified to income statement
Owner-occupied properties – fair value gains/(losses)
Remeasurements of pension schemes
Aggregate tax effect – shareholder tax on items that will not be reclassified subsequently to income statement
Total other comprehensive income, net of tax
Total comprehensive income for the year
Attributable to:
Equity holders of Aviva plc
Non-controlling interests
Note
2018
£m
2017
£m
1,687
1,646
38
38
38
38, 40
14(b)
38
39
14(b)
57
(78)
(10)
5
8
1
(279)
43
(253)
(7)
(2)
6
68
5
(1)
(5)
5
69
1,434
1,715
1,310
124
1,434
1,523
192
1,715
The accounting policies (identified alphabetically) on pages 102 to 115 and notes (identified numerically) on pages 123 to 241 are an
integral part of the financial statements.
Aviva plc Annual report and accounts 2018
117
Strategic report
Governance
IFRS financial statements
Other information
Consolidated financial statements
Continued
Reconciliation of Group adjusted operating profit to profit for the year
For the year ended 31 December 2018
Group adjusted operating profit before tax attributable to shareholders’ profits
Life business1
General insurance and health1
Fund management
Other:
Other operations1
Corporate centre
Group debt costs and other interest
Group adjusted operating profit before tax attributable to shareholders’ profits
Integration and restructuring costs
Group adjusted operating profit before tax attributable to shareholders’ profits after integration and restructuring
costs
Adjusted for the following:
Life business: Investment variances and economic assumption changes
Non-life business: Short-term fluctuation in return on investments
General insurance and health business: Economic assumption changes
Impairment of goodwill, joint ventures, associates and other amounts expensed
Amortisation and impairment of intangibles
Amortisation and impairment of acquired value of in-force business
Profit on the disposal and remeasurement of subsidiaries, joint ventures and associates
Other2
Adjusting items before tax
Profit before tax attributable to shareholders’ profits
Tax on operating profit
Tax on other activities
Profit for the year
Note
2018
£m
2017
£m
2,999
704
146
(237)
(216)
(280)
3,116
—
2,852
704
164
(143)
(184)
(325)
3,068
(141)
3,116
2,927
(197)
(476)
1
(13)
(209)
(426)
102
231
(987)
2,129
(647)
205
(442)
1,687
34
(345)
(7)
(49)
(197)
(495)
135
—
(924)
2,003
(639)
282
(357)
1,646
7
9
10(a)
10(a)
17(a)
18
18
4(a)
15(a)(i)
15(a)(i)
1 Non-insurance businesses in the UK previously included within ‘Other operations’, such as the savings business, have been reclassified to life business and general insurance and health segments as this presentation is
consistent with how the business is managed. See note 1 for further details. The impact of this change was to reduce life business operating profit by £80 million (2017: £30 million) and increase general insurance and health
operating profit by £4 million (2017: £4 million).
2 Other includes a movement in the discount rate used for estimating lump sum payments in the settlement of bodily injury claims which resulted in a gain of £190 million (see note 43(b)), a provision release of £78 million
relating to the sale of Aviva USA in 2013, a gain of £36 million relating to negative goodwill on the acquisition of Friends First (see note 3), a charge of £63 million relating to the UK defined benefit pension scheme as a result of
the requirement to equalise members’ benefits for the effects of Guaranteed Minimum Pension (see note 51(b)) and a charge of £10 million relating to goodwill payments to preference shareholders, which was announced on
30 April 2018, and associated administration costs (see note 35).
The accounting policies (identified alphabetically) on pages 102 to 115 and notes (identified numerically) on pages 123 to 241 are an
integral part of the financial statements.
Aviva plc Annual report and accounts 2018
118
Strategic report
Governance
IFRS financial statements
Other information
Consolidated financial statements
Continued
Reconciliation of Group adjusted operating profit to profit for the year continued
Group adjusted operating profit can be further analysed into the following segments (details of segments can be found in note 5):
Year ended 31 December 2018
United Kingdom1
Canada
France
Poland
Italy, Ireland, Spain and Other
Asia
Aviva Investors
Other Group activities
Corporate Centre
Group debt costs and other interest
Total
Year ended 31 December 2017
United Kingdom1
Canada
France
Poland
Italy, Ireland, Spain and Other
Asia
Aviva Investors
Other Group activities
Corporate Centre
Group debt costs and other interest
Total
Long-term
business
£m
General
insurance and
health
£m
Fund
management
£m
Other
operations
£m
1,871
—
436
170
225
300
1
(4)
2,999
453
46
110
20
90
(16)
—
1
704
—
—
—
—
—
(4)
150
—
146
—
1
(35)
9
(14)
(18)
—
(180)
(237)
Long-term
business
£m
General
insurance and
health
£m
Fund
management
£m
Other
operations
£m
1,728
—
425
156
292
235
1
15
2,852
447
46
104
21
98
(8)
—
(4)
704
—
—
—
—
—
(4)
168
—
164
—
—
(29)
6
(14)
(32)
32
(106)
(143)
Total
£m
2,324
47
511
199
301
262
151
(183)
3,612
(216)
(280)
3,116
Total
£m
2,175
46
500
183
376
191
201
(95)
3,577
(184)
(325)
3,068
1 Non-insurance businesses in the UK previously included within ‘Other operations’, such as the savings business, have been reclassified to long-term business and general insurance and health segments as this presentation is
consistent with how the business is managed. See note 1 for further details. The impact of this change was to reduce long-term business operating profit by £80 million (2017: £30 million) and increase general insurance and
health operating profit by £4 million (2017: £4 million).
The accounting policies (identified alphabetically) on pages 102 to 115 and notes (identified numerically) on pages 123 to 241 are an
integral part of the financial statements.
Aviva plc Annual report and accounts 2018
119
Strategic report
Governance
IFRS financial statements
Other information
Consolidated financial statements
Continued
Consolidated statement of changes in equity
For the year ended 31 December 2018
Ordinary
share
capital
note 32
£m
Preference
share
capital
note 35
£m
Capital
reserves1
note 32b, 37
£m
Treasury
shares
note 34
£m
Currency
translation
reserve
note 38
£m
Other
reserves
note 38
£m
Retained
earnings
note 39
£m
DCI and
tier 1 notes
note 36
£m
Total equity
excluding
non-
controlling
interests
£m
Non-
controlling
interests
note 40
£m
Total equity
£m
Balance at 1 January
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Dividends and appropriations
Non-controlling interests share of dividends
declared in the year
Shares purchased in buy-back2
Transfer to profit on disposal of subsidiaries, joint
ventures and associates
Changes in non-controlling interests in
subsidiaries
Reserves credit for equity compensation plans
Shares issued under equity compensation plans
Capital contributions from non-controlling
interests
Forfeited dividend income
Reclassification of tier 1 notes to financial
liabilities
Treasury shares held by subsidiary companies
Owner-occupied properties fair value gains
transferred to retained earnings on disposals
Aggregate tax effect – shareholder tax
1,003
—
—
—
—
—
(30)
—
—
—
2
—
—
—
—
—
—
200 10,195
—
—
—
—
—
—
—
—
(14)
—
—
—
—
1,141
—
28
28
—
(274)
—
(50)
(50)
—
4,918
1,568
(236)
1,332
(1,189)
731 17,900
1,568
(258)
1,310
(1,189)
—
—
—
—
1,235 19,135
1,687
(253)
1,434
(1,189)
119
5
124
—
—
—
—
—
—
—
—
—
—
—
—
—
—
30
—
—
—
7
—
—
—
—
—
—
—
—
—
—
—
(1)
—
—
—
—
—
—
—
—
—
—
—
(600)
(40)
36
(7)
—
—
—
—
—
—
—
—
—
64
(55)
—
—
—
—
—
—
—
1
—
49
—
4
—
—
—
8
—
—
—
—
—
—
—
—
—
—
—
—
—
(600)
(90)
—
(90)
(600)
(4)
(6)
64
2
—
4
—
—
—
8
—
(4)
(306)
—
—
(312)
64
2
3
—
—
—
—
—
3
4
—
—
—
8
Balance at 31 December
975
200 10,232
(15)
1,122
(279)
4,523
731 17,489
966 18,455
1 Capital reserves consist of share premium of £1,214 million, a capital redemption reserve of £44 million and a merger reserve of £8,974 million.
2 On 1 May 2018, the Group announced a share buy-back of ordinary shares for an aggregate purchase price of up to £600 million. On completion in 2018 of this buy-back, £600 million of shares had been purchased and shares
with a nominal value of £30 million have been cancelled, giving rise to an additional capital redemption reserve of an equivalent amount. See note 32 for further details of the shares purchased in buy-back.
For the year ended 31 December 2017
Ordinary
share capital
note 32
£m
Preference
share capital
note 35
£m
Capital
reserves1
note 32b, 37
£m
Treasury
shares
note 34
£m
Balance at 1 January
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Dividends and appropriations
Non-controlling interests share of dividends
declared in the year
Shares purchased in buy-back2
Transfer to profit on disposal of subsidiaries, joint
ventures and associates
Changes in non-controlling interests in
subsidiaries
Reserves credit for equity compensation plans
Shares issued under equity compensation plans
Capital contributions from non-controlling
interests
Reclassification of tier 1 notes to financial
liabilities3
Treasury shares held by subsidiary companies
Owner-occupied properties fair value gains
transferred to retained earnings on disposals
Aggregate tax effect – shareholder tax
1,015
—
—
—
—
—
(14)
—
—
—
2
—
—
—
—
—
200 10,171
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
14
—
—
—
10
—
—
—
—
—
(15)
—
—
—
—
—
—
—
—
—
—
—
—
1
—
—
Currency
translation
reserve
note 38
£m
1,146
—
121
121
—
Other
reserves
note 38
£m
Retained
earnings
note 39
£m
DCI and
tier 1 notes
note 36
£m
Total equity
excluding
non-
controlling
interests
£m
Non-
controlling
interests
note 40
£m
Total equity
£m
(349)
—
(93)
(93)
—
4,835
1,497
(2)
1,495
(1,081)
1,123 18,126
1,497
26
1,523
(1,081)
—
—
—
—
1,425 19,551
1,646
69
1,715
(1,081)
149
43
192
—
—
(300)
(103)
—
(103)
(300)
—
—
—
—
—
(300)
(126)
137
—
—
—
—
—
—
—
—
—
77
(44)
—
—
—
(2)
—
1
—
—
42
—
(92)
—
2
16
—
—
—
—
—
—
—
12
—
77
10
—
(392)
—
(484)
1
—
—
—
16
—
12
(315)
—
—
(315)
77
10
36
36
—
—
—
—
(484)
1
—
16
Balance at 31 December
1,003
200 10,195
(14)
1,141
(274)
4,918
731 17,900
1,235 19,135
1 Capital reserves consist of share premium of £1,207 million, a capital redemption reserve of £14 million and a merger reserve of £8,974 million.
2 On 25 May 2017, the Group announced a share buy-back of ordinary shares for an aggregate purchase price of up to £300 million. On completion in 2017 of this buy-back, £300 million of shares had been purchased and shares
with a nominal value of £14 million have been cancelled, giving rise to a capital redemption reserve of an equivalent amount. See note 32 for further details of the shares purchased in buy-back.
3 On 28 September 2017, notification was given that the Group would redeem the $650 million fixed rate tier 1 notes. At that date, the instrument was reclassified as a financial liability of £484 million, representing its fair value
on translation into sterling on that date. The resulting foreign exchange loss of £92 million has been charged to retained earnings.
The accounting policies (identified alphabetically) on pages 102 to 115 and notes (identified numerically) on pages 123 to 241 are an
integral part of the financial statements.
Aviva plc Annual report and accounts 2018
120
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IFRS financial statements
Other information
Consolidated financial statements
Continued
Consolidated statement of financial position
As at 31 December 2018
Assets
Goodwill
Acquired value of in-force business and intangible assets
Interests in, and loans to, joint ventures
Interests in, and loans to, associates
Property and equipment
Investment property
Loans
Financial investments
Reinsurance assets
Deferred tax assets
Current tax assets
Receivables
Deferred acquisition costs
Pension surpluses and other assets
Prepayments and accrued income
Cash and cash equivalents
Assets of operations classified as held for sale
Total assets
Equity
Capital
Ordinary share capital
Preference share capital
Capital reserves
Share premium
Capital redemption reserve
Merger reserve
Treasury shares
Currency translation reserve
Other reserves
Retained earnings
Equity attributable to shareholders of Aviva plc
Direct capital instrument and tier 1 notes
Equity excluding non-controlling interests
Non-controlling interests
Total equity
Liabilities
Gross insurance liabilities
Gross liabilities for investment contracts
Unallocated divisible surplus
Net asset value attributable to unitholders
Pension deficits and other provisions
Deferred tax liabilities
Current tax liabilities
Borrowings
Payables and other financial liabilities
Other liabilities
Liabilities of operations classified as held for sale
Total liabilities
Total equity and liabilities
Approved by the Board on 6 March 2019
Thomas D. Stoddard
Chief Financial Officer
Company number: 2468686
Note
O & 17
O & 18
D & 19
D & 20
P & 21
Q & 22
V & 24
S, T, U & 27
N & 46
AC & 49
28
X & 29
X & 30
X & 30(b)
Y & 58(d)
AH & 4(c)
2018
£m
2017
£m
1,872
3,201
1,214
304
548
11,482
28,785
297,585
11,755
185
76
8,879
2,965
3,341
2,947
46,484
8,855
1,876
3,455
1,221
421
509
10,797
27,857
311,082
13,492
144
94
8,285
2,906
3,468
2,860
43,347
10,871
430,478
442,685
AE
32
35
32(b)
32(b)
D & 37
34
38
38
39
36
40
975
200
1,175
1,214
44
8,974
10,232
(15)
1,122
(279)
4,523
16,758
731
17,489
966
18,455
1,003
200
1,203
1,207
14
8,974
10,195
(14)
1,141
(274)
4,918
17,169
731
17,900
1,235
19,135
L & 42
M & 44
L & 48
D
AA, AB & 50
AC & 49
AD & 52
S & 53
54
AH & 4(c)
144,077
202,468
5,949
18,125
1,399
1,885
254
9,420
16,882
3,043
8,521
148,650
203,986
9,082
18,327
1,429
2,377
290
10,286
16,459
2,791
9,873
412,023
423,550
430,478
442,685
The accounting policies (identified alphabetically) on pages 102 to 115 and notes (identified numerically) on pages 123 to 241 are an
integral part of the financial statements.
Aviva plc Annual report and accounts 2018
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IFRS financial statements
Other information
Consolidated financial statements
Continued
Consolidated statement of cash flows
For the year ended 31 December 2018
The cash flows presented in this statement cover all the Group’s activities and include flows from both policyholder and shareholder
activities. All cash and cash equivalents are available for use by the Group.
Cash flows from operating activities1
Cash generated from operating activities
Tax paid
Total net cash from operating activities
Cash flows from investing activities
Acquisitions of, and additions to, subsidiaries, joint ventures and associates, net of cash acquired
Disposals of subsidiaries, joint ventures and associates, net of cash transferred
Purchases of property and equipment
Proceeds on sale of property and equipment
Purchases of intangible assets
Total net cash from/(used in) investing activities
Cash flows from financing activities
Proceeds from issue of ordinary shares
Shares purchased in buy-back
Treasury shares purchased for employee trusts
New borrowings drawn down, net of expenses
Repayment of borrowings2
Net repayment of borrowings
Interest paid on borrowings
Preference dividends paid
Ordinary dividends paid
Forfeited dividend income
Coupon payments on direct capital instrument and tier 1 notes
Capital contributions from non-controlling interests of subsidiaries
Dividends paid to non-controlling interests of subsidiaries
Other3
Total net cash used in financing activities
Total net increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at 31 December
Note
58(a)
58(b)
58(c)
21
32
52(e)
16
16
16
40
40
2018
£m
2017
£m
6,405
(447)
5,958
8,361
(620)
7,741
192
381
(87)
15
(64)
437
8
(600)
(4)
3,148
(4,181)
(1,033)
(551)
(17)
(1,128)
4
(44)
3
(90)
(13)
(3,465)
25
(49)
(69)
5
(107)
(195)
12
(300)
—
1,320
(1,904)
(584)
(610)
(17)
(983)
—
(81)
36
(103)
—
(2,630)
2,930
43,587
4,916
38,405
92
266
58(d)
46,609
43,587
1 Cash flows from operating activities include interest received of £5,093 million (2017: £5,302 million) and dividends received of £4,648 million (2017: £2,606 million).
2 Repayment of borrowings includes the redemption of €500 million 6.875% subordinated notes and $575 million 7.875% undated subordinated notes in full at first call dates and the maturity of €350 million 0.100% senior
3
notes.
Includes £10 million related to goodwill payments to preference shareholders, which was announced on 30 April 2018, and associated administration costs (see note 35) and a £3 million donation of forfeited dividend income
to a charitable foundation.
The accounting policies (identified alphabetically) on pages 102 to 115 and notes (identified numerically) on pages 123 to 241 are an
integral part of the financial statements.
Aviva plc Annual report and accounts 2018
122
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IFRS financial statements
Other information
Notes to the consolidated financial statements
1 – Presentation changes
During 2018, non-insurance business in the UK which was previously reported within the Other products and services segment, such as the
savings business, are now reported within the long-term business or general insurance and health segments, as appropriate, as this is more
reflective of the Group’s operating segments and consistent with how the businesses are managed. Comparative information in the
products and services segmental note 5(b) has been restated to reflect this change. This resulted in a loss before tax of £80 million (2017:
£30 million) and profit before tax of £4 million (2017: £4 million) being transferred from the Other products and services segment to the long-
term business and general insurance and health segments respectively. The corresponding net assets amount is £55 million (2017: £140
million). This change has no impact on the Group’s adjusted operating profit, profit before tax, net assets or on the operating segmental
disclosures in note 5(a).
2 – Exchange rates
The Group’s principal overseas operations during the year were located within the eurozone, Canada and Poland. The results and cash
flows of these operations have been translated into sterling at the average rates for the year, and the assets and liabilities have been
translated at the year end rates as follows:
Eurozone
Average rate (€1 equals)
Year end rate (€1 equals)
Canada
Average rate ($CAD1 equals)
Year end rate ($CAD1 equals)
Poland
Average rate (PLN1 equals)
Year end rate (PLN1 equals)
2018
2017
£0.88
£0.90
£0.58
£0.57
£0.21
£0.21
£0.88
£0.89
£0.60
£0.59
£0.21
£0.21
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
3 – Subsidiaries, joint ventures and associates – acquisitions
This note provides details of the acquisitions of subsidiaries, joint ventures and associates that the Group has made during the year.
(i) Wealthify
On 8 February 2018, Aviva acquired a majority shareholding in Wealthify Group Limited, the holding company of Wealthify, for a cash
consideration of £17 million. The investment is part of Aviva’s strategy to build customer loyalty by providing customers with a wide range
of insurance and investment services, all managed through the convenience and simplicity of Aviva’s digital hub, MyAviva.
(ii) Friends First
On 13 November 2017, Aviva plc announced the acquisition of Friends First Life Assurance Company DAC (Friends First), an Irish insurer, for
a consideration of €146 million (approximately £129 million). Following completion of the transaction on 1 June 2018, Friends First is now a
wholly owned subsidiary. As a result of this acquisition, Aviva is now one of the largest composite insurers in Ireland.
The following table summarises the consideration for the acquisition, the fair value of the assets acquired, liabilities assumed and resulting
allocation to goodwill.
Assets
Acquired value of in-force business and intangible assets
Property and equipment
Investment property
Financial investments
Reinsurance assets
Receivables
Tax assets
Cash and cash equivalents
Total identifiable assets
Liabilities
Gross Insurance liabilities
Gross liabilities for investment contracts
Unallocated divisible surplus
Payables and other financial liabilities
Other liabilities
Total identifiable liabilities
Net identifiable assets acquired
Consideration
Negative goodwill arising on acquisition
1 June 2018
Fair Value
£m
96
3
424
3,207
502
33
3
354
4,622
1,409
2,921
66
33
28
4,457
165
129
36
The acquisition resulted in a gain from negative goodwill of £36 million, as the fair value of the net assets acquired of £165 million exceeded
the consideration paid of £129 million. The gain arose primarily due to differences between the valuation of the pension scheme liability
used to determine the transaction price and the recognition and measurement principles defined by IAS 19. The gain has been recognised
immediately in the income statement as required by IFRS 3. The receivables balance of £33 million is made up of other receivables,
prepayments and accrued income, measured at fair value and assessed as fully recoverable.
In the period 1 June 2018 to 31 December 2018, the profits of the acquired Friends First company have contributed net earned premiums
and fees and commission income of £68 million and a loss before tax attributable to shareholders of £0.4 million.
If the acquisition had been effective on 1 January 2018, on a pro-forma basis the contribution to the Group’s net earned premiums is
estimated at £102 million and profit before tax attributable to shareholders is estimated at £5 million. In determining this amount,
management has assumed that the fair value adjustments that arose on the date of acquisition would have been the same if the
acquisition occurred on 1 January 2018. The pro-forma results are provided for information purposes only and do not necessarily reflect the
actual results that would have occurred had the acquisition taken place on 1 January 2018, nor are they necessarily indicative of the future
results of the combined Group.
Subsequent events
On 30 January 2019, Aviva acquired a majority holding in Neos Ventures Limited for a cash consideration of £9 million.
Aviva plc Annual report and accounts 2018
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
4 – Subsidiaries, joint ventures and associates – disposals and held for sale
This note provides details of the disposals of subsidiaries, joint ventures and associates that the Group has made during the year, together
with details of businesses held for sale at the year end.
(a) Summary
The profit on the disposal and remeasurement of subsidiaries, joint ventures and associates comprises:
Disposals
Held for sale remeasurements
Remeasurements due to change in control status
Total profit on disposal and remeasurement
2018
£m
113
(13)
2
102
2017
£m
237
(125)
23
135
The profit on disposal in the period of £113 million (2017: £237 million) primarily relates to the disposals of Italy Avipop and three businesses
in Spain (see note 4(b)(i) and (ii) below for further details respectively). There has been a £13 million remeasurement loss in relation to
Friends Provident International Limited (FPI) (see note 4(c)(i) for further details) and a £2 million remeasurement gain due to change in
control status of the Hong Kong business (see note 4(d) for further details).
(b) Disposals of subsidiaries, joint ventures and associates
The following businesses were disposed of in 2018:
Assets
Goodwill, acquired value of in-force business and intangible assets
Investments
Receivables and other financial assets
Reinsurance assets
Deferred acquisition costs
Prepayments and accrued income
Cash and cash equivalents
Total assets
Liabilities
Gross insurance liabilities
Payables and other financial liabilities
Tax liabilities
Other liabilities
Total liabilities
Net assets
Non-controlling interests before disposal
Group’s share of net assets disposed
Cash consideration
Less: transaction costs
Net consideration
Reserves recycled to the income statement
Profit on disposal
Other small disposals (iii)
Total profit on disposal
Italy – Avipop
(i)
£m
Spain (ii)
£m
439
376
17
75
15
—
42
964
376
2
143
6
527
437
(213)
224
235
(3)
232
16
24
213
457
4
6
—
6
18
704
381
19
48
21
469
235
(128)
107
189
(4)
185
(14)
64
Total
£m
652
833
21
81
15
6
60
1,668
757
21
191
27
996
672
(341)
331
424
(7)
417
2
88
25
113
Italy – Avipop
(i)
On 29 March 2018, Aviva announced that it had completed the sale of its entire shareholding of Avipop Assicurazioni S.p.A and Avipop Vita
S.p.A to Banco BPM for cash consideration of €265 million (approximately £235 million). The transaction resulted in a total gain on disposal
of £24 million.
(ii) Spain
On 11 July 2018, Aviva announced that it had completed the sale of its entire shareholding in life insurance and pension joint ventures
Caja Murcia Vida and Caja Granada Vida to Bankia for a total consideration of €203 million (approximately £180 million). In addition, on
1 October 2018, Aviva completed the sale of its entire 50% shareholding in the small life insurance operation Pelayo Vida to Santa Lucia
for a total consideration of €10 million (approximately £9 million). These transactions resulted in a total gain on disposal of £64 million.
(iii) Other
On 19 January 2018, Aviva announced that it had completed the sale of its entire 49% shareholding in its joint venture in Taiwan, First Aviva
Life (Aviva Taiwan) to Aviva’s joint venture partner, First Financial Holding Company Limited (FFH) for cash consideration of $1. The
transaction resulted in a gain of £7 million arising from reserves recycled to the Income Statement. Remeasurement losses arising from the
classification of Aviva Taiwan as held for sale were recognised in 2017.
Aviva plc Annual report and accounts 2018
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
4 – Subsidiaries, joint ventures and associates – disposals and held for sale continued
On 5 November 2018, Aviva Investors completed the sale of its Real Estate Multi-Manager business to LaSalle Investment Management and
exited its partnership arrangement in Encore+, a pan-European commercial property fund, also with LaSalle. The assets disposed of
represent customer related intangible assets. The gain on disposal was £27 million.
The remaining balance of £9 million loss primarily relates to other currency translation reserve recycling adjustments.
(iv) Disposals of other investments
In the second half of 2018, Aviva France disposed of its investments in the asset management company Primonial Real Estate Investment
Management and the breakdown assistance company Opteven. The realised gains on disposal of these investments recognised in net
investment income was €107 million (approximately £94 million).
(c) Assets and liabilities of operations classified as held for sale
The assets and liabilities of operations classified as held for sale as at 31 December 2018 are as follows:
Assets
Goodwill, acquired value of in-force and other intangibles
Property and equipment
Loans
Financial investments
Reinsurance assets
Other assets
Cash and cash equivalents
Total assets
Liabilities
Gross insurance liabilities
Gross liability for investment contracts
Unallocated divisible surplus
Other liabilities
Total liabilities
Net assets
2018
£m
2017
£m
660
5
—
7,251
45
206
688
8,855
121
8,341
—
59
8,521
334
1,467
5
6
8,306
123
225
739
10,871
914
8,663
19
277
9,873
998
Assets and liabilities of operations classified as held for sale as at 31 December 2018 relate to the expected disposal of the international
operations of FPI. See below for further details. Assets and liabilities of operations classified as held for sale during 2017 relate to Italy
Avipop, Aviva Taiwan and Spain which were disposed of in 2018 and FPI.
(i) FPI
On 19 July 2017, Aviva announced the sale of FPI to RL360 Holding Company Limited, a subsidiary of International Financial Group Limited,
for a total consideration of £340 million. The conditions defined in IFRS 5 for a subsidiary to be classified as held for sale include the
presumption that the sale will be completed within 12 months of the date of reclassification. The transaction remains subject to regulatory
approvals and is now expected to complete in the first half of 2019. As such, the subsidiary continues to be classified as held for sale and
has been remeasured at fair value based on the expected sale price less costs to sell, calculated as £334 million. This resulted in a total loss
on remeasurement of £118 million in 2017, and an additional remeasurement loss of £13 million in 2018 (see note 18). The goodwill
attributable to FPI was fully impaired in 2017 (see note 17). The business remains a consolidated subsidiary of Aviva at the balance sheet
date.
(d) Remeasurements due to change in control status
On 13 February 2018, Aviva announced that it has completed the transaction to develop a digital insurance joint venture in Hong Kong
(Blue) with Hillhouse Capital Group (Hillhouse) and Tencent Holdings Limited (Tencent). The joint venture commenced operating under its
new corporate structure during the first half of 2018. The transaction included the sale of 60% of the shareholding in Aviva Life Insurance
Company Limited (Aviva Hong Kong) for cash consideration of HKD 301 million (approximately £29 million). The transaction resulted in a
remeasurement gain of £2 million mainly arising through the recycling of reserves to the income statement and, additionally, a loss of
£4 million in equity in accordance with IFRS 10 as Aviva has retained control of certain activities under the sale agreement.
(e) Significant restrictions
In certain jurisdictions the ability of subsidiaries to transfer funds to the Group in the form of cash dividends or to repay loans and advances
is subject to local corporate or insurance laws and regulations and solvency requirements. There are no protective rights of non-controlling
interests which significantly restrict the Group’s ability to access or use the assets and settle the liabilities of the Group.
Aviva plc Annual report and accounts 2018
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
5 – Segmental information
The Group’s results can be segmented either by activity or by geography. Our primary reporting format is along market reporting lines, with
supplementary information being given by business activity. This note provides segmental information on the consolidated income
statement and consolidated statement of financial position.
(a) Operating segments
United Kingdom
The United Kingdom comprises two operating segments – Life and General Insurance. The principal activities of our UK Life operations are
life insurance, long-term health and accident insurance, savings, pensions and annuity business. UK General Insurance provides insurance
cover to individuals and businesses, for risks associated mainly with motor vehicles, property and liability (such as employers’ liability and
professional indemnity liability) and medical expenses.
Canada
The principal activity of our operation in Canada is general insurance. In particular it provides personal and commercial lines insurance
products principally distributed through insurance brokers.
France
The principal activities of our operations in France are long-term business and general insurance. The long-term business offers a range of
long-term insurance and savings products, primarily for individuals, with a focus on the unit-linked market. The general insurance business
predominantly sells personal and small commercial lines insurance products through agents and a direct insurer.
Poland
Activities in Poland comprise long-term business and general insurance and includes our long-term business in Lithuania.
Italy, Ireland, Spain and Other
These countries are not individually significant at a Group level, so have been aggregated into a single reporting segment in line with IFRS 8.
The principal activities of our operations in Italy and Ireland are long-term business and general insurance. The principal activity of our
operation in Spain was the sale of accident and health insurance and a selection of savings products. Our ‘Other’ operations include our life
operations in Turkey. This segment also includes Friends First, which was acquired on 1 June 2018 (see note 3). The results of entities within
Spain are included up to the date of disposal (Unicorp Vida and Caja España Vida on 15 September 2017, Caja Murcia Vida and Caja
Granada Vida on 11 July 2018 and Pelayo Vida on 1 October 2018) and the results of Avipop, part of our operations in Italy, have been
included up to the date of disposal on 29 March 2018 (see note 4).
Asia
Our activities in Asia principally comprise our long-term business operations in China, India, Singapore, Hong Kong, Vietnam, Indonesia,
Taiwan (up to 19 January 2018, (see note 4(b))) and FPI (see note 4(c)). This segment also includes general insurance and health operations
in Singapore and health operations in Indonesia. This segment includes the results of the digital insurance joint venture in Hong Kong,
which commenced operating under its new corporate structure during the first half of 2018.
Aviva Investors
Aviva Investors operates in most of the markets in which the Group operates, in particular the UK, France, North America and Asia Pacific.
Aviva Investors manages policyholders’ and shareholders’ invested funds, provides investment management services for institutional
pension fund mandates and manages a range of retail investment products. These include investment funds, unit trusts, open-ended
investment companies and individual savings accounts.
Other Group activities
Investment return on centrally held assets and head office expenses, such as Group treasury and finance functions, together with certain
taxes and financing costs arising on central borrowings are included in ‘Other Group activities’, along with central core structural
borrowings and certain tax balances in the segmental statement of financial position. The results of our internal reinsurance and digital
broker operations and the Group’s interest in Wealthify (see note 3) are also included in this segment, as are the elimination entries for
certain inter-segment transactions.
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
5 – Segmental information continued
Measurement basis
The accounting policies of the segments are the same as those for the Group as a whole. Any transactions between the business segments
are subject to normal commercial terms and market conditions. The Group evaluates performance of operating segments on the basis of:
(i) profit or loss from operations before tax attributable to shareholders
(ii) profit or loss from operations before tax attributable to shareholders, adjusted for items outside the segment management’s control,
including investment market performance and fiscal policy changes.
(a) (i) Segmental income statement for the year ended 31 December 2018
Gross written premiums
Premiums ceded to reinsurers
Internal reinsurance revenue
Premiums written net of reinsurance
Net change in provision for unearned premiums
Net earned premiums
Fee and commission income
Net investment (expense)/income
Inter-segment revenue
Share of profit of joint ventures and associates
Profit/(loss) on the disposal and remeasurement of
subsidiaries, joint ventures and associates
Segmental income1
United
Kingdom
Life
£m
GI
£m
7,302
(1,666)
—
5,636
14
5,650
939
6,589
(6,693)
—
78
4,504
(317)
6
4,193
(87)
4,106
122
4,228
16
—
—
Canada2
£m
3,047
(119)
—
2,928
27
2,955
24
2,979
51
—
1
France
£m
Poland
£m
5,584
(77)
—
5,507
(38)
5,469
313
5,782
(2,302)
—
9
616
(12)
—
604
7
611
94
705
(73)
—
—
Europe
Italy,
Ireland,
Spain and
Other
£m
6,504
(113)
(2)
6,389
9
6,398
113
6,511
(1,111)
—
10
—
—
—
—
—
89
(26)
4,244
3,031
3,489
632
5,499
Claims and benefits paid, net of recoveries from reinsurers
Change in insurance liabilities, net of reinsurance
Change in investment contract provisions
Change in unallocated divisible surplus
Fee and commission expense
Other expenses
Inter-segment expenses
Finance costs
(10,184)
6,184
7,540
270
(741)
(1,687)
(232)
(157)
(2,731)
351
—
—
(1,225)
(220)
(5)
(1)
(1,989)
(133)
—
—
(791)
(182)
(6)
(5)
(4,659)
557
27
1,754
(484)
(256)
(1)
(1)
(356)
148
—
12
(146)
(106)
(6)
—
(2,595)
(872)
(2,249)
1,063
(343)
(188)
(7)
(5)
Segmental expenses
Profit/(loss) before tax
Tax attributable to policyholders’ returns
Profit/(loss) before tax attributable to shareholders’
993
(3,831)
(3,106)
(3,063)
(454)
(5,196)
967
469
413
—
(75)
—
426
—
178
—
303
1
Asia
£m
Aviva
Investors3
£m
Other Group
activities4
£m
Total
£m
1,102
(20)
(7)
1,075
(13)
1,062
202
1,264
(286)
—
14
(5)
987
(570)
(40)
42
138
(199)
(272)
—
(3)
(904)
83
7
—
—
—
—
—
—
368
368
37
259
—
27
691
—
—
(39)
—
(33)
(449)
—
—
(521)
170
—
— 28,659
(2)
(2,326)
3
—
1 26,333
—
(81)
1 26,252
5
2,180
6 28,432
(486) (10,847)
259
112
—
—
(9)
102
(489) 18,058
(58) (23,142)
51
6,246
—
5,321
—
3,237
569
(3,393)
(483)
(3,843)
(2)
(259)
(401)
(573)
(324) (16,406)
(813)
—
1,652
477
profits
1,436
413
(75)
426
178
304
90
170
(813)
2,129
Adjusting items:
Reclassification of corporate costs and unallocated interest
Life business: Investment variances and economic
assumption changes
Non-life business: Short-term fluctuation in return on
investments
General insurance and health business: Economic
assumption changes
Impairment of goodwill, joint ventures, associates and
other amounts expensed
Amortisation and impairment of intangibles
Amortisation and impairment of AVIF
(Profit)/loss on the disposal and remeasurement of
subsidiaries, joint ventures and associates
Other5
Group adjusted operating profit/(loss) before tax
attributable to shareholders’ profits after integration
and restructuring costs
Integration and restructuring costs
Group adjusted operating profit/(loss) before tax
attributable to shareholders’ profits
—
(16)
115
—
—
—
—
73
285
172
4
—
32
—
—
—
—
(190)
1,909
415
—
—
31
—
45
—
—
46
—
—
—
47
—
48
(6)
44
(5)
—
2
2
—
—
—
10
2
—
2
7
—
—
—
(1)
57
57
—
—
3
6
(89)
(36)
—
21
—
—
3
13
130
5
—
5
(67)
—
—
—
—
—
3
—
(27)
—
—
197
156
476
—
8
30
3
9
(5)
(1)
13
209
426
(102)
(231)
511
199
301
262
151
(679)
3,116
—
—
—
—
—
—
—
1,909
415
47
511
199
301
262
151
(679)
3,116
1 Total reported income, excluding inter-segment revenue, includes £4,412 million from the United Kingdom (Aviva plc’s country of domicile). Income is attributed on the basis of geographical origin which does not differ
materially from revenue by geographical destination, as most risks are located in the countries where the contracts were written.
2 Canada adjusted operating profit includes £1 million relating to non-insurance activities.
3 Aviva Investors adjusted operating profit includes £1 million profit relating to Aviva Investors Pooled Pensions business.
4 Other Group activities include Group Reinsurance and net expenses of £99 million associated with supporting the development of the Group’s digital business written through its UK insurance intermediary which places
business primarily on behalf of UK General Insurance.
5 Other includes a movement in the discount rate used for estimating lump sum payments in settlement of bodily injury claims which resulted in a gain of £190 million (see note 43(b)), a provision release of £78 million relating
to the sale of Aviva USA in 2013, a gain of £36 million relating to negative goodwill on the acquisition of Friends First (see note 3), a charge of £63 million relating to the UK defined benefit pension scheme as a result of the
requirement to equalise members’ benefits for the effects of Guaranteed Minimum Pension (see note 51(b)) and a charge of £10 million relating to goodwill payments to preference shareholders, which was announced on 30
April 2018, and associated administration costs (see note 35).
Aviva plc Annual report and accounts 2018
128
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
5 – Segmental information continued
(a) (ii) Segmental income statement for the year ended 31 December 2017
Gross written premiums
Premiums ceded to reinsurers
Internal reinsurance revenue
Premiums written net of reinsurance
Net change in provision for unearned premiums
Net earned premiums
Fee and commission income
Net investment income
Inter-segment revenue
Share of profit/(loss) of joint ventures and associates
Profit/(loss) on the disposal and remeasurement of
subsidiaries, joint ventures and associates
Segmental income1
United
Kingdom
GI
£m
4,355
(271)
(6)
4,078
(63)
4,015
121
4,136
138
—
—
Life
£m
6,872
(1,531)
—
5,341
—
5,341
906
6,247
16,202
—
72
Canada
£m
3,138
(110)
—
3,028
(84)
2,944
24
2,968
86
—
—
France
£m
5,692
(78)
—
5,614
23
5,637
316
5,953
2,613
—
14
Europe
Italy, Ireland,
Spain and
Other
£m
Poland
£m
594
(11)
—
583
3
586
83
669
292
—
—
5,923
(101)
(9)
5,813
(21)
5,792
141
5,933
811
—
12
Asia
£m
1,032
(127)
(10)
895
(11)
884
193
1,077
1,465
—
(57)
—
—
—
216
16
28
(118)
22,521
4,274
3,054
8,796
977
6,784
2,367
Claims and benefits paid, net of recoveries from reinsurers
Change in insurance liabilities, net of reinsurance
Change in investment contract provisions
Change in unallocated divisible surplus
Fee and commission expense
Other expenses
Inter-segment expenses
Finance costs
(10,783)
1,380
(9,041)
195
(496)
(1,385)
(207)
(233)
(2,547)
78
—
—
(1,268)
(221)
(8)
(1)
(1,902)
(221)
—
—
(796)
(178)
(6)
(5)
(5,145)
(804)
(1,591)
153
(703)
(281)
2
(1)
(397)
(134)
—
(2)
(134)
(102)
(6)
—
(2,799)
(928)
(2,121)
85
(421)
(229)
(12)
(7)
(526)
(450)
(947)
(137)
(144)
(298)
—
(3)
Aviva
Investors2
£m
Other Group
Activities3
£m
Total
£m
—
—
—
—
—
—
407
407
136
239
—
—
782
—
—
(137)
—
(39)
(418)
—
—
—
—
25
27,606
(2,229)
—
25 25,377
(153)
—
25 25,224
2,187
(4)
21 27,411
323 22,066
239
41
—
—
(7)
135
337 49,892
(14) (24,113)
(1,074)
(13,837)
294
(4,329)
(3,537)
(239)
(683)
5
—
—
(328)
(425)
(2)
(433)
Segmental expenses
(20,570)
(3,967)
(3,108)
(8,370)
(775)
(6,432)
(2,505)
(594)
(1,197) (47,518)
Profit/(loss) before tax
Tax attributable to policyholders’ returns
1,951
(330)
307
—
(54)
—
426
—
202
—
352
(4)
(138)
(37)
188
—
(860)
—
2,374
(371)
Profit/(loss) before tax attributable to shareholders’
profits
1,621
307
(54)
426
202
348
(175)
188
(860)
2,003
Adjusting items:
Reclassification of corporate costs and unallocated interest
Life business: Investment variances and economic
assumption changes
Non-life business: Short-term fluctuation in return on
investments
General insurance and health business: Economic
assumption changes
Impairment of goodwill, joint ventures, associates and
other amounts expensed
Amortisation and impairment of intangibles
Amortisation and impairment of AVIF
(Profit)/loss on the disposal and remeasurement of
subsidiaries, joint ventures and associates
Group adjusted operating profit/(loss) before tax
attributable to shareholders’ profits after integration
and restructuring costs
Integration and restructuring costs
Group adjusted operating profit/(loss) before tax
attributable to shareholders’ profits
—
(12)
(323)
—
—
—
74
327
—
—
56
18
—
31
—
—
28
—
7
(2)
2
50
—
48
249
(26)
(9)
—
1
2
—
(7)
(3)
—
—
7
—
—
12
27
—
—
5
1
—
38
—
—
47
9
154
—
(216)
(16)
(28)
118
5
(69)
—
—
—
—
—
5
—
—
(3)
(34)
284
345
—
—
15
11
7
49
197
495
7
(135)
1,699
65
400
11
31
15
475
25
183
—
365
11
191
—
198
(615)
2,927
3
11
141
1,764
411
46
500
183
376
191
201
(604)
3,068
1 Total reported income, excluding inter-segment revenue, includes £26,949 million from the United Kingdom (Aviva plc’s country of domicile). Income is attributed on the basis of geographical origin which does not differ
materially from revenue by geographical destination, as most risks are located in the countries where the contracts were written.
2 Aviva Investors adjusted operating profit includes £1 million profit relating to the Aviva Investors Pooled Pensions business.
3 Other Group activities include Group Reinsurance and net expenses of £48 million associated with supporting the development of the Group’s digital business written through its UK insurance intermediary which places
business primarily on behalf of UK General Insurance.
Aviva plc Annual report and accounts 2018
129
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
5 – Segmental information continued
(a) (iii) Segmental statement of financial position as at 31 December 2018
United
Kingdom
Life
£m
GI
£m
Canada
£m
France
£m
Poland
£m
Europe
Italy,
Ireland,
Spain and
Other
£m
Asia
£m
Aviva
Investors
£m
Other Group
activities
£m
Total
£m
Goodwill
Acquired value of in-force business and intangible assets
Interests in, and loans to, joint ventures and associates
Property and equipment
Investment property
Loans
Financial investments
Deferred acquisition costs
Other assets
Assets of operations classified as held for sale
663
2,424
859
71
6,124
27,619
169,221
1,361
38,240
—
924
154
—
29
436
—
3,627
489
5,311
—
82
220
8
50
—
164
—
98
117
258
3,595
710
4,696 71,903
354
8,355
—
367
1,225
—
27
72
—
4
—
—
125
96
55
5
807
255
3,423 32,842
259
4,840
—
124
304
—
51
25
479
5
—
37
5,422
11
525
8,855
—
5
—
4
616
—
343
—
—
1,872
107
3,201
—
1,518
122
548
(96) 11,482
— 28,785
6,108 297,585
2,965
1,267 13,600 73,667
8,855
—
—
—
Total assets
Insurance liabilities
Long-term business and outstanding claims provisions
Unearned premiums
Other insurance liabilities
Gross liabilities for investment contracts
Unallocated divisible surplus
Net asset value attributable to unitholders
External borrowings
Other liabilities, including inter-segment liabilities
Liabilities of operations classified as held for sale
Total liabilities
Total equity
Total equity and liabilities
246,582 10,970
6,812 85,390
3,954 39,284 15,410
2,235 19,841 430,478
94,181
214
—
123,406
2,244
25
1,660
13,667
—
4,914
2,104
16
—
—
—
10
(255)
—
3,455 16,778
501
1,517
—
—
— 54,159
3,518
—
2,427
—
—
—
5,350
1,011
—
—
3,068 12,646
410
109
—
—
4 23,874
(78)
—
46
944
—
55
—
—
230
—
4,069
91
—
—
210
—
—
801
8,521
4 139,115
—
—
—
4,946
—
—
16
— 202,468
1,025
—
—
5,949
— 15,673 18,125
—
7,704
9,420
1,126 23,463
589
—
8,521
—
235,397
6,789
5,983 82,733
3,466 37,842 13,692
1,614 24,507 412,023
(a) (iv) Segmental statement of financial position as at 31 December 2017
United
Kingdom
Life
£m
GI
£m
Canada
£m
France
£m
Poland
£m
Europe
Italy, Ireland,
Spain and
Other
£m
Goodwill
Acquired value of in-force business and intangible assets
Interests in, and loans to, joint ventures and associates
Property and equipment
Investment property
Loans
Financial investments
Deferred acquisition costs
Other assets
Assets of operations classified as held for sale
663
2,751
936
52
6,242
26,695
184,428
1,364
38,800
—
924
152
—
30
324
5
4,184
487
5,370
—
84
258
9
46
—
180
—
90
184
253
3,322
739
4,592 72,886
322
8,567
—
383
1,338
—
29
78
—
4
—
7
124
4
68
3
215
197
3,775 27,403
222
3,591
1,685
118
244
—
Asia
£m
52
26
445
8
—
34
5,007
8
765
9,186
18,455
430,478
Aviva
Investors
£m
Other Group
activities
£m
Total
£m
—
4
—
4
788
—
400
2
1,876
—
3,455
92
1,642
—
109
509
(94) 10,797
27,857
—
8,407 311,082
2,906
1,020 11,995 71,690
10,871
—
—
—
Total assets
Insurance liabilities
Long-term business and outstanding claims provisions1
Unearned premiums
Other insurance liabilities1
Gross liabilities for investment contracts
Unallocated divisible surplus
Net asset value attributable to unitholders
External borrowings
Other liabilities, including inter-segment liabilities
Liabilities of operations classified as held for sale
Total liabilities
Total equity
Total equity and liabilities
261,931 11,476
6,890 86,363
4,255 33,512 15,531
2,218 20,509 442,685
100,183
228
—
130,890
2,514
57
1,566
14,234
—
5,360
2,003
13
—
—
—
—
(294)
—
3,449 17,213
458
1,578
—
—
53,529
—
5,239
—
2,472
—
1
—
4,927
971
—
—
3,275 10,110
520
119
—
—
2 18,335
922
68
—
—
70
—
869
253
1,021
—
4,056
74
—
—
339
—
—
618
8,852
—
—
—
1,230
—
—
—
392
—
11 143,657
4,980
—
—
13
— 203,986
9,082
—
15,798 18,327
8,649 10,286
1,376 23,346
9,873
—
249,672
7,082
5,998 83,839
3,717 31,847 13,939
1,622 25,834 423,550
19,135
442,685
1 Following a review, 2017 comparative amounts have been amended, with a reclassification of £244 million made from ‘Other insurance liabilities’ to ‘Long-term business and outstanding claims provisions’ in order to align
with note 42(a).
(b) Further analysis by products and services
The Group’s results can be further analysed by products and services which comprise long-term business, general insurance and health,
fund management and other activities. Non-insurance businesses in the UK previously included within ‘Other’, such as the savings
business, have been reclassified to the long-term business or general insurance and health segments, as appropriate, as this presentation is
consistent with how the business is managed (see note 1 for further details). Results for the year ended 31 December 2017 have been
restated accordingly.
Aviva plc Annual report and accounts 2018
130
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
5 – Segmental information continued
Long-term business
Our long-term business comprises life insurance, long-term health and accident insurance, savings, pensions and annuity business written
by our life insurance subsidiaries, including managed pension fund business. Long-term business also includes our share of the other life
and related business written in our associates and joint ventures, as well as lifetime mortgage business written in the UK.
General insurance and health
Our general insurance and health business provides insurance cover to individuals and to small and medium-sized businesses, for risks
associated mainly with motor vehicles, property and liability, such as employers’ liability and professional indemnity liability, and medical
expenses.
Fund management
Our fund management business invests policyholders’ and shareholders’ funds and provides investment management services for
institutional pension fund mandates. It manages a range of retail investment products, including investment funds, unit trusts, open-ended
investment companies and individual savings accounts. Clients include Aviva Group businesses and third-party financial institutions,
pension funds, public sector organisations, investment professionals and private investors.
Other
‘Other’ includes service companies, head office expenses such as Group treasury and finance functions, and certain financing costs and
taxes not allocated to business segments and elimination entries for certain inter-segment transactions.
(b) (i) Segmental income statement – products and services for the year ended 31 December 2018
Gross written premiums1
Premiums ceded to reinsurers
Premiums written net of reinsurance
Net change in provision for unearned premiums
Net earned premiums
Fee and commission income
Net investment (expense)/income
Inter-segment revenue
Share of profit/(loss) of joint ventures and associates
Profit/(loss) on the disposal and remeasurement of subsidiaries, joint ventures and associates
Segmental income
Claims and benefits paid, net of recoveries from reinsurers
Change in insurance liabilities, net of reinsurance
Change in investment contract provisions
Change in unallocated divisible surplus
Fee and commission expense
Other expenses
Inter-segment expenses
Finance costs
Segmental expenses
Profit/(loss) before tax
Tax attributable to policyholders’ returns
Profit/(loss) before tax attributable to shareholders’ profits
Adjusting items
Group adjusted operating profit/(loss) before tax attributable to shareholders’ profits
Long-term
business2
£m
General
insurance
and
Health2,3
£m
Fund
management
£m
18,140
(1,775)
10,519
(551)
16,365
—
16,365
1,496
17,861
(10,375)
—
112
84
9,968
(81)
9,887
138
10,025
63
—
—
—
7,682
10,088
(16,540)
6,044
5,321
3,237
(1,248)
(2,152)
(249)
(164)
(6,602)
202
—
—
(2,592)
(596)
(12)
(6)
(5,751)
(9,606)
1,931
477
2,408
591
2,999
482
—
482
222
704
—
—
—
—
—
365
365
(1)
263
—
27
654
—
—
—
—
(31)
(461)
—
—
(492)
162
—
162
(16)
146
Other2,4
£m
Total
£m
—
—
—
—
—
181
181
(534)
—
—
(9)
28,659
(2,326)
26,333
(81)
26,252
2,180
28,432
(10,847)
263
112
102
(362)
18,062
—
—
—
—
478
(634)
(2)
(403)
(23,142)
6,246
5,321
3,237
(3,393)
(3,843)
(263)
(573)
(561)
(16,410)
(923)
—
(923)
190
(733)
1,652
477
2,129
987
3,116
1 Gross written premiums include inward reinsurance premiums assumed from other companies amounting to £56 million, which all relates to property and liability insurance.
2 Non-insurance business in the UK previously included within Other operations, such as the savings business, have been reclassified to long-term business and general insurance and health segments as this presentation is
consistent with how the business is managed. See note 1 for further details. The impact of this change was to reduce long-term operating profit by £80 million and increase general insurance and health operating profit by £4
million.
3 General insurance and health business segment includes gross written premiums of £879 million relating to health business. The remaining business relates to property and liability insurance.
4 Other includes net expenses of £99 million associated with supporting the development of the Group’s digital business written through its UK insurance intermediary which places business primarily on behalf of UK General
Insurance.
Aviva plc Annual report and accounts 2018
131
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
5 – Segmental information continued
(b) (ii) Segmental income statement – products and services for the year ended 31 December 2017 – restated1
Gross written premiums2
Premiums ceded to reinsurers
Premiums written net of reinsurance
Net change in provision for unearned premiums
Net earned premiums
Fee and commission income
Net investment income/(expense)
Inter-segment revenue
Share of profit of joint ventures and associates
Profit/(loss) on the disposal and remeasurement of subsidiaries, joint ventures and associates
Segmental income
Claims and benefits paid, net of recoveries from reinsurers
Change in insurance liabilities, net of reinsurance
Change in investment contract provisions
Change in unallocated divisible surplus
Fee and commission expense
Other expenses
Inter-segment expenses
Finance costs
Segmental expenses
Profit/(loss) before tax
Tax attributable to policyholders’ returns
Profit/(loss) before tax attributable to shareholders’ profits
Adjusting items
Group adjusted operating profit/(loss) before tax attributable to shareholders’ profits
Long-term
business
£m
General
insurance and
health3
£m
Fund
management
£m
17,083
(1,741)
15,342
—
15,342
1,486
16,828
21,468
—
41
100
10,523
(488)
10,035
(153)
9,882
134
10,016
331
—
—
42
38,437
10,389
(17,791)
(863)
(13,837)
294
(1,210)
(1,919)
(226)
(240)
(35,792)
2,645
(371)
2,274
578
2,852
(6,322)
(211)
—
—
(2,668)
(626)
(15)
(6)
(9,848)
541
—
541
163
704
—
—
—
—
—
369
369
(1)
244
—
—
612
—
—
—
—
(36)
(425)
—
—
(461)
151
—
151
13
164
Other4
£m
—
—
—
—
—
198
198
268
—
—
(7)
459
—
—
—
—
(415)
(567)
(3)
(437)
Total
£m
27,606
(2,229)
25,377
(153)
25,224
2,187
27,411
22,066
244
41
135
49,897
(24,113)
(1,074)
(13,837)
294
(4,329)
(3,537)
(244)
(683)
(1,422)
(47,523)
(963)
—
(963)
311
(652)
2,374
(371)
2,003
1,065
3,068
1 Non-insurance business in the UK previously included within ‘Other’, such as the savings business, have been reclassified to the long-term business and general insurance and health segments as this presentation is
consistent with how the business is managed. See note 1 for further details. The impact of this change was to reduce long-term operating profit by £30 million and increase general insurance and health operating profit by
£4 million.
2 Gross written premiums include inward reinsurance premiums assumed from other companies amounting to £91 million, of which £73 million relates to property and liability insurance and £18 million relates to long-term
business.
3 General insurance and health business segment includes gross written premiums of £914 million relating to health business. The remaining business relates to property and liability insurance.
4 Other includes net expenses of £48 million associated with supporting the development of the Group’s digital business written through its UK insurance intermediary which places business primarily on behalf of UK General
Insurance.
(b) (iii) Segmental statement of financial position – products and services as at 31 December 2018
Long-term
business1
£m
General
insurance and
health1
£m
Fund
management
£m
Other1
£m
Total
£m
Goodwill
Acquired value of in-force business and intangible assets
Interests in, and loans to, joint ventures and associates
Property and equipment
Investment property
Loans
Financial investments
Deferred acquisition costs
Other assets
Assets of operations classified as held for sale
Total assets
Gross insurance liabilities
Gross liabilities for investment contracts
Unallocated divisible surplus
Net asset value attributable to unitholders
External borrowings
Other liabilities, including inter-segment liabilities
Liabilities of operations classified as held for sale
Total liabilities
Total equity
Total equity and liabilities
722
2,688
1,502
260
10,995
28,620
280,130
1,877
49,316
8,855
1,083
403
8
147
584
165
11,279
1,088
9,243
—
—
5
—
4
—
—
66
—
1,117
—
67
105
8
137
(97)
—
1,872
3,201
1,518
548
11,482
28,785
6,110 297,585
2,965
73,667
8,855
—
13,991
—
384,965
24,000
1,192
20,321 430,478
127,709
202,468
5,949
2,451
1,706
19,124
8,521
16,368
—
—
—
10
1,373
—
367,928
17,751
—
—
—
—
—
574
—
574
—
—
—
15,674
7,704
2,392
—
144,077
202,468
5,949
18,125
9,420
23,463
8,521
25,770 412,023
18,455
430,478
1 Non-insurance business in the UK previously included within ‘Other’, such as the savings business, have been reclassified to the long-term business and general insurance and health segments as this presentation is consistent
with how the business is managed. See note 1 for further details.
Aviva plc Annual report and accounts 2018
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Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
5 – Segmental information continued
(b) (iv) Segmental statement of financial position – products and services as at 31 December 2017 – restated1
Goodwill
Acquired value of in-force business and intangible assets
Interests in, and loans to, joint ventures and associates
Property and equipment
Investment property
Loans
Financial investments
Deferred acquisition costs
Other assets
Assets of operations classified as held for sale
Total assets
Gross insurance liabilities
Gross liabilities for investment contracts
Unallocated divisible surplus
Net asset value attributable to unitholders
External borrowings
Other liabilities, including inter-segment liabilities
Liabilities of operations classified as held for sale
Total liabilities
Total equity
Total equity and liabilities
General
insurance and
health
£m
Fund
management
£m
Long-term
business
£m
720
2,922
1,617
240
10,392
27,671
290,840
1,804
49,118
10,552
395,876
131,987
203,986
9,082
2,529
1,601
18,828
9,694
1,084
439
9
136
499
186
11,934
1,100
9,283
319
24,989
16,663
—
—
—
—
1,413
179
377,707
18,255
3
4
—
4
—
—
54
2
905
—
972
—
—
—
—
—
376
—
376
Other
£m
69
90
16
129
(94)
—
8,254
—
12,384
—
Total
£m
1,876
3,455
1,642
509
10,797
27,857
311,082
2,906
71,690
10,871
20,848
442,685
—
—
—
15,798
8,685
2,729
—
148,650
203,986
9,082
18,327
10,286
23,346
9,873
27,212
423,550
19,135
442,685
1 Non-insurance business in the UK previously included within ‘Other’, such as the savings business, have been reclassified to the long-term business and general insurance and health segments as this presentation is
consistent with how the business is managed. See note 1 for further details.
Aviva plc Annual report and accounts 2018
133
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Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
6 – Details of income
This note gives further detail on the items appearing in the income section of the consolidated income statement.
Gross written premiums
Long-term:
Insurance contracts
Participating investment contracts
General insurance and health
Less: premiums ceded to reinsurers
Gross change in provision for unearned premiums (note 42(c)(iv))
Reinsurers’ share of change in provision for unearned premiums (note 46(c)(iii))
Net change in provision for unearned premiums
Net earned premiums
Fee and commission income
Fee income from investment contract business
Fund management fee income
Other fee income
Reinsurance commissions receivable
Other commission income
Net change in deferred revenue
Total revenue
Net investment income
Interest and similar income
From financial instruments designated as trading and other than trading
From AFS investments and financial instruments at amortised cost
Dividend income
Other income from investments designated as trading
Realised (losses)/gains on disposals
Unrealised gains and losses (see accounting policy K)
(Losses)/gains arising in the year
Gains/(losses) recognised now realised
Other income from investments designated as other than trading
Realised gains on disposals
Unrealised gains and losses (see accounting policy K)
(Losses)/gains arising in the year
Losses recognised now realised
Realised gains on AFS investments
Gains recognised in prior periods as unrealised in equity
Net income from investment properties
Rent
Expenses relating to these properties
Realised gains on disposal
Fair value gains on investment properties (note 22)
Foreign exchange gains/(losses) on investments other than trading
Other investment expenses
Net investment (expense)/income
Share of profit after tax of joint ventures (note 19(a)(i))
Share of profit/(loss) after tax of associates (note 20(a)(i))
Share of profit after tax of joint ventures and associates
Profit on disposal and remeasurement of subsidiaries, joint ventures and associates (note 4(a))
Total income
Aviva plc Annual report and accounts 2018
134
2018
£m
2017
£m
11,064
7,076
10,519
28,659
(2,326)
(98)
17
(81)
11,192
5,891
10,523
27,606
(2,229)
(158)
5
(153)
26,252
25,224
1,059
527
405
26
164
(1)
2,180
1,062
512
422
33
161
(3)
2,187
28,432
27,411
5,051
54
5,105
4,649
4,994
42
5,036
2,542
(922)
511
(1,726)
922
(804)
(1,726)
436
(511)
(75)
436
7,278
6,198
(19,919)
(7,278)
(27,197)
(19,919)
13,153
(6,198)
6,955
13,153
78
2
583
(121)
69
307
838
192
(64)
574
(101)
30
481
984
(12)
(75)
(10,847)
22,066
91
21
112
102
89
(48)
41
135
17,799
49,653
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
7 – Details of expenses
This note gives further detail on the items appearing in the expenses section of the consolidated income statement.
Claims and benefits paid
Claims and benefits paid to policyholders on long-term business
Insurance contracts
Participating investment contracts
Non-participating investment contracts
Claims and benefits paid to policyholders on general insurance and health business
Less: Claim recoveries from reinsurers
Insurance contracts
Participating investment contracts
Claims and benefits paid, net of recoveries from reinsurers
Change in insurance liabilities
Change in insurance liabilities (note 41(b))
Change in reinsurance asset for insurance provisions (note 41(b))
Change in insurance liabilities, net of reinsurance
Change in investment contract provisions
Investment income allocated to investment contracts
Other changes in provisions
Participating investment contracts (note 44(c)(i))
Non-participating investment contracts
Change in reinsurance asset for investment contract provisions
Change in investment contract provisions
Change in unallocated divisible surplus (note 48)
Fee and commission expense
Acquisition costs
Commission expenses for insurance and participating investment contracts
Change in deferred acquisition costs for insurance and participating investment contracts
Deferrable costs for non-participating investment contracts
Other acquisition costs
Change in deferred acquisition costs for non-participating investment contracts
Investment (income)/expense attributable to unitholders
Reinsurance commissions and other fee and commission expense
Other expenses
Other operating expenses
Staff costs (note 11(b))
Central costs and sharesave schemes
Depreciation
Impairment of goodwill on subsidiaries (note 17(a))
Amortisation of acquired value of in-force business on insurance/investment contracts (note 18)
Amortisation of intangible assets (note 18)
Net impairment of acquired value of in-force business (note 18)
Impairment of intangible assets (note 18)
Integration and restructuring costs
Other expenses (see below)
Impairments
Net impairment on loans
Net impairment on financial investments
Net impairment on receivables and other financial assets
Net impairment on non-financial assets
Other net foreign exchange losses
Other expenses
Finance costs (note 8)
Total expenses
2018
£m
2017
£m
12,163
6,117
8
6,913
25,201
13,547
5,694
20
6,647
25,908
(1,984)
(75)
(1,772)
(23)
23,142
24,113
(6,415)
169
(6,246)
623
451
1,074
(6,128)
9,899
540
272
(5)
2,684
1,247
7
(5,321)
13,837
(3,237)
(294)
2,678
(183)
32
996
84
(704)
490
3,393
1,172
216
40
13
426
209
—
—
—
1,729
1
—
9
—
28
2,776
(182)
33
958
(206)
496
454
4,329
1,115
184
35
2
468
186
8
7
141
1,335
2
—
4
1
49
3,843
573
3,537
683
16,147
47,279
Other types of expenses were £1,729 million (2017: £1,335 million) which mainly included costs relating to property, IT and other items.
Other items included a provision release of £78 million relating to the sale of Aviva USA in 2013, a gain of £36 million relating to negative
goodwill on the acquisition of Friends First, a charge of £63 million relating to the UK defined benefit pension scheme as a result of the
requirement to equalise members’ benefits for the effects of Guaranteed Minimum Pension and a charge of £10 million relating to goodwill
payments to preference shareholders, which was announced on 30 April 2018, and associated administration costs (see note 35).
The change in insurance liabilities line includes a gain of £190 million relating to the movement in the discount rate used for estimating
lump sum payments in settlement of bodily injury claims (see note 43(b)).
Aviva plc Annual report and accounts 2018
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
8 – Finance costs
This note analyses the interest costs on our borrowings (which are described in note 52) and similar charges. Finance costs comprise:
Interest expense on core structural borrowings
Subordinated debt
Long term senior debt
Commercial paper
Interest expense on operational borrowings
Amounts owed to financial institutions
Securitised mortgage loan notes at fair value
Interest on collateral received
Net finance charge on pension schemes (note 51(b)(i))
Unwind of discount on GI reserves
Extinguishment of debt
Other similar charges
Total finance costs
2018
£m
364
6
(2)
368
20
95
115
8
22
—
—
60
2017
£m
391
4
(2)
393
34
83
117
9
24
2
47
91
573
683
9 – Life business investment variances and economic assumption changes
The long-term nature of much of the Group’s operations means that, for management’s decision-making and internal performance
management, the effects of short-term economic volatility are treated as adjusting items. The Group focuses instead on a Group adjusted
operating profit measure that incorporates an expected return on investments supporting its life business, as described below.
(a) Definitions
Group adjusted operating profit for life business is based on expected investment returns on financial investments backing shareholder and
policyholder funds over the reporting period, with consistent allowance for the corresponding expected movements in liabilities. Group
adjusted operating profit includes the effect of variance in experience for non-economic items, such as mortality, persistency and expenses,
and the effect of changes in non-economic assumptions, where not treated as other items. Changes due to economic items, such as market
value movements and interest rate changes, which give rise to variances between actual and expected investment returns, and the impact
of changes in economic assumptions on liabilities, are disclosed separately outside Group adjusted operating profit.
(b) Economic volatility
The investment variances and economic assumption changes excluded from Group adjusted operating profit for life businesses are as
follows:
Life business
Investment variances and economic assumptions
2018
£m
(197)
2017
£m
34
Investment variances and economic assumption changes were £197 million negative (2017: £34 million positive), primarily due to negative
variances in the UK and Italy. In the UK, these variances were mainly due to an increase in yields, the widening of corporate bond spreads
and an increase in the allowance for the possible adverse impact of the decision for the UK to leave the European Union, partially offset by
the beneficial impact of our equity hedges. The negative variance in Italy was primarily driven by a widening of sovereign credit spreads and
a fall in equity markets.
The Group has kept under review the allowance in our long-term assumptions for future property prices and rental income for the possible
adverse impact of the decision for the UK to leave the European Union. This allowance has been determined in line with previous periods
and is £395 million as at 31 December 2018, an increase of £109 million from 31 December 2017.
The variance in 2017 was driven by positive variances in the UK, partially offset by negative variances in France. Positive variances in the
UK were mainly due to economic modelling developments implemented in 2017. These included developments to align the approach
to calculating valuation interest rates across the heritage Aviva and Friends Life portfolios and also a development to the approach to
calculating the valuation interest rate for certain deferred annuity business. The negative variance in France was primarily due to an
increase in life annuity pension reserves, resulting from a reduction to the discount rate cap used in the calculation of these reserves.
Aviva plc Annual report and accounts 2018
136
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Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
9 – Life business investment variances and economic assumption changes continued
(c) Methodology
The expected investment returns and corresponding expected movements in life business liabilities are calculated separately for each
principal life business unit.
The expected return on investments for both policyholders’ and shareholders’ funds is based on opening economic assumptions applied to
the expected funds under management over the reporting period. Expected investment return assumptions are derived actively, based on
market yields on risk-free fixed interest assets at the end of each financial year. The same margins are applied on a consistent basis across
the Group to gross risk-free yields, to obtain investment return assumptions for equity and property. Expected funds under management
are equal to the opening value of funds under management, adjusted for sales and purchases during the period arising from expected
operating experience.
The actual investment return is affected by differences between the actual and expected funds under management and changes in asset
mix, as well as movements in interest rates. To the extent that these differences arise from the operating experience of the life business, or
management decisions to change asset mix, the effect is included in the Group adjusted operating profit. The residual difference between
actual and expected investment return is included in investment variances, outside Group adjusted operating profit but included in profit
before tax.
The movement in liabilities included in Group adjusted operating profit reflects both the change in liabilities due to the expected return on
investments and the impact of experience variances and assumption changes for non-economic items. This would include movements in
liabilities due to changes in the discount rate arising from discretionary management decisions that impact on product profitability over
the lifetime of products.
The effect of differences between actual and expected economic experience on liabilities, and changes to economic assumptions used to
value liabilities, are taken outside Group adjusted operating profit. For many types of life business, including unit-linked and with-profits
funds, movements in asset values are offset by corresponding changes in liabilities, limiting the net impact on profit. The profit impact of
economic volatility on other life business depends on the degree of matching of assets and liabilities, and exposure to financial options and
guarantees.
(d) Assumptions
The expected rate of investment return is determined using consistent assumptions between operations, having regard to local economic
and market forecasts of investment return and asset classification under IFRS.
The principal assumptions underlying the calculation of the expected investment return for equity and property are:
United Kingdom
Eurozone
2018
%
4.8
4.4
Equity
2017
%
4.8
4.2
2018
%
3.3
2.9
Property
2017
%
3.3
2.7
The expected return on equity and property has been calculated by reference to the ten year mid-price swap rate for an AA-rated bank in
the relevant currency plus a risk premium. The use of risk premium reflects management’s long-term expectations of asset return in excess
of the swap yield from investing in different asset classes. The asset risk premiums are set out in the table below:
All territories
Equity risk premium
Property risk premium
The ten year mid-price swap rates as at the start of the period are set out in the table below:
Territories
United Kingdom
Eurozone
2018
%
3.5
2.0
2018
%
1.3
0.9
2017
%
3.5
2.0
2017
%
1.3
0.7
For fixed interest securities classified as fair value through profit or loss, the expected investment returns are based on average prospective
yields for the actual assets held less an adjustment for credit risk (assessed on a best estimate basis); this includes an adjustment for credit
risk on all eurozone sovereign debt. Where such securities are classified as held for sale, the expected investment return comprises the
expected interest or dividend payments and amortisation of the premium or discount at purchase.
Aviva plc Annual report and accounts 2018
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Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
10 – Non-life business: short-term fluctuations in return on investments
Group adjusted operating profit for non-life business is based on an expected long-term investment return over the period. Any variance
between the total investment return (including realised and unrealised gains) and the expected return over the period is disclosed
separately outside Group adjusted operating profit, in short-term fluctuations. The long-term investment return and economic assumption
changes for our non-life business is described in more detail below.
(a) The short-term fluctuations in investment return and economic assumption changes attributable to the non-life business result and
reported outside operating profit were as follows:
Non-life business
Short-term fluctuations in investment return (see (b) below)
Economic assumption changes (see (g) below)
(b) The long-term investment return and short-term fluctuation are as follows:
Non-life business
Analysis of investment income:
Net investment (expenses)/income
Foreign exchange losses and other charges
Analysed between:
Long-term investment return, reported within operating profit
Short-term fluctuation in investment return, reported outside operating profit
General insurance and health
Other operations1
2018
£m
(476)
1
(475)
2018
£m
(88)
(8)
(96)
2017
£m
(345)
(7)
(352)
2017
£m
49
(24)
25
380
370
(315)
(161)
(476)
(96)
(57)
(288)
(345)
25
1 Represents short-term fluctuations on assets backing non-life business in Group centre investments, including the centre hedging programme and Group external borrowings.
(c) The long-term investment return is calculated separately for each principal non-life market. In respect of equities and investment
properties, the return is calculated by multiplying the opening market value of the investments, adjusted for sales and purchases during the
year, by the long-term rate of investment return.
The long-term rate of investment return is determined using consistent assumptions between operations, having regard to local economic
and market forecasts of investment return. The allocated long-term return for other investments (including debt securities) is the actual
income receivable for the year. Actual income and long-term investment return both contain the amortisation of the discounts/premium
arising on the acquisition of fixed income securities. For other operations, the long-term return reflects assets backing non-life business
held in Group centre investments.
Market value movements which give rise to variances between actual and long-term investment returns are disclosed separately in short-
term fluctuations outside operating profit.
The impact of realised and unrealised gains and losses on Group centre investments, including the centre hedging programme which is
designed to economically protect the total Group’s capital against adverse equity and foreign exchange movements, is included in short-
term fluctuations on other operations.
The short-term fluctuation of a £476 million loss during 2018 was primarily due to adverse market conditions across most of our major
markets. This resulted in losses on fixed interest income securities driven by interest rate increases and widening credit spreads plus
significant falls in equities and other adverse market movements on Group centre holdings.
Aviva plc Annual report and accounts 2018
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Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
10 – Non-life business: short-term fluctuations in return on investments continued
(d) The total assets supporting the general insurance and health business, which contribute towards the long-term return, are:
Debt securities
Equity securities
Investment properties
Cash and cash equivalents
Other1
Assets supporting general insurance and health business
Assets supporting other non-life business2
Total assets supporting non-life business
Includes the internal loan to Group from UK Insurance.
1
2 Represents assets backing non-life business in Group centre investments, including the centre hedging programme.
The principal assumptions underlying the calculation of the long-term investment return are:
United Kingdom
Eurozone
Canada
2018
£m
9,271
866
584
1,294
2,349
2017
£m
10,054
772
499
1,115
2,498
14,364
14,938
812
685
15,176
15,623
Long-term rates of return
Equities
Long-term rates of return
Investment properties
2018
%
4.8
4.4
5.9
2017
%
4.8
4.2
5.5
2018
%
3.3
2.9
4.4
2017
%
3.3
2.7
4.0
The long-term rates of return on equities and investment properties have been calculated by reference to the ten-year mid-price swap rate
for an AA-rated bank in the relevant currency plus a risk premium. The underlying reference rates and risk premiums for the United
Kingdom and Eurozone are shown in note 9.
(e) The table below compares the actual return on investments attributable to the non-life business, after deducting investment
management expenses and charges, with the aggregate long-term return over a five-year period.
Actual return attributable to shareholders
Long-term return credited to operating results
Excess of actual returns over long-term returns
2014-2018
£m
2013-2017
£m
821
(1,983)
(1,162)
1,148
(2,170)
(1,022)
Management continues to view the excess of actual returns over long-term returns as short-term fluctuations. The principal assumptions
underlying the calculation of the long-term investment returns are reviewed on a regular basis, having regard to local economic and market
forecasts, and are considered appropriate for the purpose of decision making and internal performance management by the Group chief
operating decision maker.
(f) The table below shows the sensitivity of the Group’s adjusted non-life business Group adjusted operating profit before tax to changes in
the long-term rates of return:
Movement in investment return for
Equities
Investment properties
By
Change in
1% higher/lower
1% higher/lower
Group adjusted operating profit before tax
Group adjusted operating profit before tax
2018
£m
8
5
2017
£m
3
3
(g) The economic assumption changes of £1 million (2017: £7 million adverse) arise as a result of a slight increases in interest rates used to
value claims reserves for periodic payment orders (PPOs) and latent claims.
As explained in accounting policy L, provisions for latent claims are discounted, using rates based on the relevant swap curve, in the
relevant currency at the reporting date, having regard to the duration of the expected settlement of the claims. The discount rate is set at
the start of the accounting period, with any change in rates between the start and end of the accounting period being reflected below
Group adjusted operating profit as an economic assumption change. The range of discount rates used is disclosed in note 42.
Aviva plc Annual report and accounts 2018
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Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
11 – Employee information
This note shows where our staff are employed throughout the world, excluding staff employed by our joint ventures and associates, and
analyses the total staff costs.
(a) Employee numbers
The number of persons employed by the Group, including directors under a service contract, was:
United Kingdom
Canada
France
Poland
Italy, Ireland, Spain and Other
Asia
Aviva Investors
Other Group activities
Total employee numbers
At 31
December
Average for
the year1
2018
Number
15,746
4,334
3,928
1,708
1,950
1,832
1,471
734
2017
Number2
2018
Number
14,639
4,336
3,959
1,718
1,687
1,789
1,437
764
15,414
4,330
3,911
1,716
1,864
1,817
1,460
720
2017
Number2
14,785
4,320
3,962
1,715
1,723
1,729
1,350
748
31,703
30,329
31,232
30,332
1 Average employee numbers have been calculated using a monthly average that takes into account recruitment, leavers, transfers, acquisitions and disposals of businesses during the year.
2 Following a review of employee numbers, comparative amounts have been amended from those previously reported. The effect of this change is to increase the number of employees in Canada by 77, Asia by 231 and in Total
by 308, and to increase the average number of employees in Canada by 78, Asia by 164 and in Total by 242.
(b) Staff costs
Wages and salaries
Social security costs
Post-retirement obligations
Defined benefit schemes (note 51(d))
Defined contribution schemes (note 51(d))
Profit sharing and incentive plans
Equity compensation plans (note 33(d))
Termination benefits
Total staff costs
Staff costs are charged within:
Acquisition costs
Claims handling expenses
Central costs and sharesave schemes
Other operating expenses (note 7)
Integration and restructuring costs
Total staff costs
2018
£m
1,260
233
23
163
221
64
10
2017
£m
1,241
224
23
146
208
77
23
1,974
1,942
2018
£m
565
161
76
1,172
—
1,974
2017
£m
526
164
100
1,115
37
1,942
12 – Directors
Information concerning individual directors’ emoluments, interests and transactions is given in the Directors’ Remuneration Report in the
‘Corporate governance’ section of this report. For the purposes of the disclosure required by Schedule 5 to the Companies Act 2006, the
total aggregate emoluments of the directors in respect of 2018 was £10 million (2017: £12 million). Employer contributions to pensions for
executive directors for qualifying periods were £165,373 (2017: £50,336). The aggregate net value of share awards granted to the directors in
the period was £10.2 million (2017: £10.6 million). The net value has been calculated by reference to the closing middle market price of an
ordinary share at the date of grant. During the year, no share options were exercised by directors (2017: no share options).
Aviva plc Annual report and accounts 2018
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Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
13 – Auditors’ remuneration
This note shows the total remuneration payable by the Group, excluding VAT and any overseas equivalent thereof, to our auditors.
Fees payable to PwC LLP and its associates for the statutory audit of the Aviva Group and Company financial statements
Fees payable to PwC LLP and its associates for other services
Audit of Group subsidiaries
Additional fees related to the prior year audit of Group subsidiaries
Total audit fees
Audit related assurance
Other assurance services
Total audit and assurance fees
Tax compliance services
Tax advisory services
Services relating to corporate finance transactions
Other non-audit services not covered above
Fees payable to PwC LLP and its associates for services to Group companies
Fees payable to BDO LLP and its associates for the statutory audit of Group subsidiaries in Poland
Fees payable to PwC LLP, BDO LLP and their associates for services to Group companies
Fees payable to PwC LLP and its associates for Group occupational pensions scheme audits
2018
£m
1.9
13.4
0.4
15.7
4.7
0.9
21.3
—
—
—
1.0
22.3
0.2
22.5
0.3
2017
£m
2.6
14.1
0.9
17.6
4.7
2.2
24.5
—
—
—
0.8
25.3
—
25.3
0.3
The table above reflects the disclosure requirements of SI2011/2198 – The Companies (Disclosure of Auditor Remuneration and Liability
Limitation Agreements) (Amendment) Regulations 2011.
Fees payable for the audit of the Group’s subsidiaries include fees for the statutory audit of the subsidiaries, both inside and outside the UK,
and for the work performed by the principal auditors in respect of the subsidiaries for the purpose of the consolidated financial statements
of the Group.
Audit related assurance comprises services in relation to statutory and regulatory filings. These include fees for the audit of the Group’s
Solvency II regulatory returns for 2018, services for the audit of other regulatory returns of the Group’s subsidiaries and review of interim
financial information under the Listing Rules of the UK Listing Authority. Total audit fees (excluding additional fees relating to the prior year
audits of Group subsidiaries) and audit-related assurance fees were £20.0 million (2017: £21.5 million).
Other assurance services in 2018 of £0.9 million (2017: £2.2 million) mainly include fees relating to the independent review of the Solvency II
internal model that the Company believes is most appropriately performed by the principal auditors.
The 2018 fees for other non-audit services of £1.0 million include a number of individually smaller services.
Details of the Group’s process for safeguarding and supporting the independence and objectivity of the external auditors are given in the
Audit Committee report.
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
14 – Tax
This note analyses the tax charge for the year and explains the factors that affect it.
(a) Tax (credited)/charged to the income statement
(i) The total tax (credit)/charge comprises:
Current tax
For the period
Prior period adjustments
Total current tax
Deferred tax
Origination and reversal of temporary differences
Changes in tax rates or tax laws
Write (back) of deferred tax assets
Total deferred tax
Total tax (credited)/charged to income statement
2018
£m
559
(49)
510
(531)
(13)
(1)
(545)
(35)
(ii) The Group, as a proxy for policyholders in the UK, Ireland and Singapore, is required to record taxes on investment income and
gains each year. Accordingly, the tax benefit or expense attributable to UK, Ireland and Singapore life insurance policyholder returns is
included in the tax charge. The tax credit attributable to policyholder returns included in the credit above is £477 million (2017: charge
of £371 million).
(iii) The tax credit above, comprising current and deferred tax, can be analysed as follows:
UK tax
Overseas tax
2018
£m
(236)
201
(35)
(iv) Unrecognised tax losses and temporary differences of previous years were used to reduce the current tax expense and deferred tax
credit by £nil million and £nil million (2017: £13 million and £nil million), respectively.
(v) Deferred tax (credited)/charged to the income statement represents movements on the following items:
Long-term business technical provisions and other insurance items
Deferred acquisition costs
Unrealised (losses) on investments
Pensions and other post-retirement obligations
Unused losses and tax credits
Subsidiaries, associates and joint ventures
Intangibles and additional value of in-force long-term business
Provisions and other temporary differences
Total deferred tax (credited)/charged to income statement
(b) Tax (credited)/charged to other comprehensive income
(i) The total tax (credit)/charge comprises:
Current tax
In respect of pensions and other post-retirement obligations
In respect of foreign exchange movements
Deferred tax
In respect of pensions and other post-retirement obligations
In respect of fair value (losses) on owner-occupied properties
In respect of unrealised (losses) on investments
Total tax (credited) to other comprehensive income
(ii) The tax charge attributable to policyholders’ returns included above is £nil (2017: £nil).
Aviva plc Annual report and accounts 2018
142
2017
£m
651
(46)
605
134
(8)
(3)
123
728
2017
£m
528
200
728
2017
£m
37
(2)
(33)
19
19
(4)
(85)
172
123
2018
£m
907
3
(1,453)
2
7
(7)
(64)
60
(545)
2018
£m
2017
£m
(59)
(1)
(60)
16
—
(7)
9
(51)
(45)
4
(41)
42
(2)
(9)
31
(10)
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
14 – Tax continued
(c) Tax credited to equity
Tax credited directly to equity in the year in respect of coupon payments on the direct capital instrument and tier 1 notes amounted to
£8 million (2017: £16 million).
(d) Tax reconciliation
The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the tax rate of the home country of the
Company as follows:
Total profit before tax
Tax calculated at standard UK corporation tax rate of 19.00% (2017: 19.25%)
Reconciling items
Different basis of tax – policyholders
Adjustment to tax charge in respect of prior periods
Non-assessable income and items not taxed at the full statutory rate
Non-taxable profit on sale of subsidiaries and associates
Disallowable expenses
Different local basis of tax on overseas profits
Change in future local statutory tax rates
Movement in deferred tax not recognised
Tax effect of profit from joint ventures and associates
Other
Total tax (credited)/charged to income statement
Shareholder
£m
Policyholder
£m
2018
£m
Shareholder
£m
Policyholder
£m
2017
£m
2,129
(477)
1,652
2,003
371
2,374
405
(91)
314
386
—
(16)
(4)
(59)
50
71
—
(3)
(6)
4
442
(385)
—
—
—
—
(1)
—
—
—
—
(477)
(385)
(16)
(4)
(59)
50
70
—
(3)
(6)
4
(35)
—
(44)
(47)
(27)
47
82
(36)
(3)
(3)
2
357
71
301
—
—
—
—
(1)
—
—
—
—
371
457
301
(44)
(47)
(27)
47
81
(36)
(3)
(3)
2
728
The tax (credit)/charge attributable to policyholder returns is removed from the Group’s total profit before tax in arriving at the Group’s
profit before tax attributable to shareholders’ profits. As the net of tax profits attributable to with-profits and unit-linked policyholders is
zero, the Group’s pre-tax profit attributable to policyholders is an amount equal and opposite to the tax charge/(credit) attributable to
policyholders included in the total tax charge.
Finance Act 2016 introduced legislation reducing the UK corporation tax rate from 1 April 2020 to 17%. In addition, in France the rate of
corporation tax was reduced from 34.43% to 32.02% from 1 January 2019, to 27.37% from 1 January 2021 and 25.83% from 1 January 2022.
These reduced rates were used in the calculation of the Group’s deferred tax assets and liabilities as at 31 December 2018 and 31 December
2017.
Aviva plc Annual report and accounts 2018
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
15 – Earnings per share
This note shows how to calculate earnings per share on profit attributable to ordinary shareholders, based both on the present shares in
issue (the basic earnings per share) and the potential future shares in issue, including conversion of share options granted to employees
(the diluted earnings per share). We have also shown the same calculations based on our Group adjusted operating profit as we believe this
gives an important indication of operating performance. Consideration of both these measures gives a full picture of the performance of
the business in the period.
(a) Basic earnings per share
(i) The profit attributable to ordinary shareholders is:
Profit before tax attributable to shareholders’ profits
Tax attributable to shareholders’ profit
Profit for the year
Amount attributable to non-controlling interests
Cumulative preference dividends for the year
Coupon payments in respect of the direct capital instrument (DCI) and tier 1 notes
(net of tax)
Profit attributable to ordinary shareholders
(ii) Basic earnings per share is calculated as follows:
Group adjusted operating profit attributable to ordinary shareholders
Integration and restructuring costs
Group adjusted operating profit attributable to ordinary shareholders after integration
and restructuring costs
Adjusting items:
Group
adjusted
operating
profit
£m
3,116
(647)
2,469
(100)
(17)
Adjusting
items
£m
(987)
205
(782)
(19)
—
2018
Total
£m
2,129
(442)
1,687
(119)
(17)
Group
adjusted
operating
profit
£m
3,068
(639)
2,429
(134)
(17)
Adjusting
items
£m
(1,065)
282
(783)
(15)
—
2017
Total
£m
2,003
(357)
1,646
(149)
(17)
(36)
—
(36)
(65)
—
(65)
2,316
(801)
1,515
2,213
(798)
1,415
2018
2017
Net of tax, NCI,
preference
dividends and
DCI1
£m
Per share
p
Before tax
£m
Net of tax, NCI,
preference
dividends and
DCI1
£m
2,316
—
58.4
—
3,068
(141)
2,213
(111)
Before tax
£m
3,116
—
Per share
p
54.8
(2.8)
3,116
2,316
58.4
2,927
2,102
52.0
Investment variances and economic assumption changes
Non-life business: Short-term fluctuation in return on investments
General insurance and health business: Economic assumption changes
Impairment of goodwill, joint ventures, associates and other amounts expensed
Amortisation and impairment of intangibles
Amortisation and impairment of acquired value of in-force business
Profit on disposal and remeasurement of subsidiaries, joint ventures and associates
Other2
(197)
(476)
1
(13)
(209)
(426)
102
231
(198)
(378)
(1)
(13)
(172)
(371)
102
230
(5.0)
(9.6)
—
(0.3)
(4.3)
(9.4)
2.6
5.8
34
(345)
(7)
(49)
(197)
(495)
135
—
86
(250)
(6)
(49)
(151)
(430)
113
—
Profit attributable to ordinary shareholders
2,129
1,515
38.2
2,003
1,415
2.1
(6.3)
(0.1)
(1.2)
(3.7)
(10.6)
2.8
—
35.0
1 DCI includes the direct capital instrument and tier 1 notes.
2 Other includes a movement in the discount rate used for estimating lump sum payments in the settlement of bodily injury claims which resulted in a gain of £190 million (see note 43(b)), a provision release of £78 million
relating to the sale of Aviva USA in 2013, a gain of £36 million relating to negative goodwill on the acquisition of Friends First (see note 3), a charge of £63 million relating to the UK defined benefit pension scheme as a result of
the requirement to equalise members’ benefits for the effects of Guaranteed Minimum Pension (see note 51(b)) and a charge of £10 million relating to goodwill payments to preference shareholders, which was announced on
30 April 2018, and associated administration costs (see note 35).
(iii) The calculation of basic earnings per share uses a weighted average of 3,963 million (2017: 4,041 million) ordinary shares in issue,
after deducting treasury shares. The actual number of shares in issue at 31 December 2018 was 3,902 million (2017: 4,013 million) and
3,899 million (2017: 4,010 million) excluding treasury shares.
(iv) On 1 May 2018 Aviva announced a share buy-back of ordinary shares for an aggregate purchase price of up to £600 million (2017:
£300 million), which was carried out in full during the period from 1 May 2018 to 17 September 2018. The number of shares in issue has
reduced by 119 million as at 31 December 2018 in respect of shares acquired and cancelled under the buy-back programme. Net of new
shares issued during the period, the number of shares in issue reduced by 110 million (2017: 49 million).
Aviva plc Annual report and accounts 2018
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Other information
Notes to the consolidated financial statements
Continued
15 – Earnings per share continued
(b) Diluted earnings per share
(i) Diluted earnings per share is calculated as follows:
Profit attributable to ordinary shareholders
Dilutive effect of share awards and options
Diluted earnings per share
Weighted
average
number of
shares
million
3,963
47
4,010
Total
£m
1,515
—
1,515
2018
2017
Per share
p
38.2
(0.4)
37.8
Total
£m
1,415
—
1,415
Weighted
average
number of
shares
million
4,041
48
4,089
Per share
p
35.0
(0.4)
34.6
(ii) Diluted earnings per share on Group adjusted operating profit attributable to ordinary shareholders is calculated as follows:
Group adjusted operating profit attributable to ordinary shareholders
Dilutive effect of share awards and options
Diluted group adjusted operating profit per share
Weighted
average
number of
shares
million
3,963
47
4,010
Total
£m
2,316
—
2,316
2018
2017
Per share
p
58.4
(0.6)
57.8
Total
£m
2,213
—
2,213
Weighted
average
number of
shares
million
4,041
48
4,089
Per share
p
54.8
(0.7)
54.1
16 – Dividends and appropriations
This note analyses the total dividends and other appropriations paid during the year. The table below does not include the final dividend
proposed after the year end because it is not accrued in these financial statements.
Ordinary dividends declared and charged to equity in the year
Final 2017 – 19.00 pence per share, paid on 17 May 2018
Final 2016 – 15.88 pence per share, paid on 17 May 2017
Interim 2018 – 9.25 pence per share, paid on 24 September 2018
Interim 2017 – 8.40 pence per share, paid on 17 November 2017
Preference dividends declared and charged to equity in the year
Coupon payments on DCI and tier 1 notes
2018
£m
764
—
364
—
1,128
17
44
1,189
2017
£m
—
646
—
337
983
17
81
1,081
Subsequent to 31 December 2018, the directors proposed a final dividend for 2018 of 20.75 pence per ordinary share (2017: 19.00 pence),
amounting to £810 million (2017: £764 million) in total. Subject to approval by shareholders at the AGM, the dividend will be paid on 30 May
2019 and will be accounted for as an appropriation of retained earnings in the year ending 31 December 2019.
Interest on the direct capital instrument and tier 1 notes is treated as an appropriation of retained profits and, accordingly, is accounted for
when paid. Tax relief is obtained at a rate of 19% (2017: 19.25%).
Aviva plc Annual report and accounts 2018
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
17 – Goodwill
This note analyses the changes to the carrying amount of goodwill during the year, and details the results of our impairment testing on
both goodwill and intangible assets with indefinite lives.
(a) Carrying amount
Gross amount
At 1 January
Acquisitions and additions
Disposals
Foreign exchange rate movements
At 31 December
Accumulated impairment
At 1 January
Impairment charges
Disposals
Foreign exchange rate movements
At 31 December
Carrying amount at 1 January
Carrying amount at 31 December
Less: Assets classified as held for sale
Carrying amount at 31 December
2018
£m
2017
£m
2,080
8
(99)
2
1,991
(168)
(13)
63
(1)
(119)
1,912
1,872
—
2,292
11
(241)
18
2,080
(247)
(10)
96
(7)
(168)
2,045
1,912
(36)
1,872
1,876
Goodwill from acquisitions and additions in 2018 arose from the acquisition of Wealthify. Goodwill from acquisitions and additions in 2017
arose on the acquisition of VietinBank’s 50% shareholding in VietinBank Aviva Life Insurance Company Limited (Aviva Vietnam) which
resulted in Aviva Vietnam becoming a wholly owned subsidiary of the Group. Negative goodwill of £36 million arose from the purchase of
Friends First and was recognised immediately in the income statement (see note 3).
Disposals in 2018 include the disposal of the Italy Avipop business as well as the remainder of the business in Spain (see note 4).
The total impairment of goodwill in 2018 is a charge of £13 million comprised of impairments of goodwill relating to business in the UK,
Asia and Poland. The total impairment of goodwill in 2017 was a charge of £10 million relating to business in Canada and the held for sale
adjustments for Friends Provident International Limited (FPI). Impairment tests on goodwill were conducted as described in note 17(b)
below.
(b) Goodwill allocation and impairment testing
A summary of the goodwill and intangibles with indefinite useful lives allocated to groups of cash generating units is presented below.
United Kingdom – long-term business
United Kingdom – general insurance and health
Canada
France – long-term business
Poland
Italy – general insurance and health
Italy – long-term business
Ireland – general insurance and health
Spain – long-term business
Asia
Carrying
amount of
goodwill
2017
£m
663
924
84
—
29
29
8
98
25
52
2018
£m
663
924
82
—
27
26
—
99
—
51
1,872
1,912
Carrying
amount of
intangibles
with indefinite
useful lives
(detailed in
note 18)
2018
£m
—
—
—
56
7
—
—
—
—
—
63
2017
£m
—
—
—
55
7
—
—
—
190
—
252
2018
£m
663
924
82
56
34
26
—
99
—
51
Total
2017
£m
663
924
84
55
36
29
8
98
215
52
1,935
2,164
Goodwill in all business units is tested for impairment by comparing the carrying value of the cash generating unit to which the goodwill
relates, to the recoverable value of that cash generating unit. The recoverable amount is the value in use of the cash generating unit unless
otherwise stated. The classification of FPI in Asia remains as held for sale (see note 4(c)). The Group measured the recoverable amount of
FPI at the estimated fair value less costs to sell.
Long-term business
Value in use has been calculated based on a shareholder value of the business calculated in accordance with Solvency II principles,
adjusted where Solvency II does not represent a best estimate of shareholders’ interests. The principal adjustments relate to the exclusion
of the benefit of transitional measures on technical provisions and the volatility adjustment under Solvency II, modification of the Solvency
II risk margin to an economic view and removal of restrictions on contract boundaries or business scope.
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
17 – Goodwill continued
The present value of expected profits arising from future new business may be included within the shareholder value and is calculated on
an adjusted Solvency II basis, using profit projections based on the most recent three year business plans approved by management. These
plans reflect management’s best estimate of future profits based on both historical experience and expected growth rates for the relevant
cash generating unit. The underlying assumptions of these projections include market share, customer numbers, mortality, morbidity and
persistency.
Future new business profits beyond the initial three years are extrapolated using a steady growth rate. Growth rates and expected future
profits are set with regards to management estimates, past experience and relevant available market statistics.
Expected profits from future new business are discounted using a risk adjusted discount rate. The discount rate is a combination of a risk-
free rate and a risk margin to make prudent allowance for the risk that experience in future years for new business may differ from that
assumed.
Key assumptions
The Solvency II non-economic assumptions in relation to mortality, morbidity, persistency and expenses and other items are derived
actively, based on management’s best estimate assumptions. Economic assumptions are based on market data as at the end of each
reporting period. The basic risk-free rate curves used to value the technical provisions reflect the curves, credit risk adjustment and
fundamental spread for the matching adjustment published by EIOPA on their website. For the purposes of calculating value in use, the
Solvency II risk margin has been modified to an economic view, with a cost of capital rate of 2%.
For the goodwill in the UK Life long-term business that arose on the Friends Life acquisition, the value of the business was sufficient to
demonstrate goodwill recoverability on its own. As such it was not necessary to estimate the present value of expected profits from future
new business.
General insurance, health, fund management and other businesses
Value in use is calculated as the discounted value of expected future profits of each business. The calculation uses cash flow projections
based on business plans approved by management covering a three year period. These plans reflect management’s best estimate of future
profits based on both historical experience and expected growth rates for the relevant cash generating unit. The underlying assumptions of
these projections include market share, customer numbers, premium rate and fee income changes, claims inflation and commission rates.
Cash flows beyond that three year period are extrapolated using a steady growth rate. Growth rates and expected future profits are set with
regards to past experience and relevant available market statistics.
Future profits are discounted using a risk adjusted discount rate.
Key assumptions
United Kingdom general insurance and health
Ireland general insurance and health
Italy general insurance and health
Canada general insurance
Extrapolated future
profits growth rate
Future profits
discount rate
2018
%
1
Nil
Nil
4
2017
%
1
Nil
1
4
2018
(Pre-tax)
%
6.3
6.9
12.5
7.8
2017
(Pre-tax)
%
5.8
6.2
11.2
7.0
Indefinite life intangible asset
France
The recoverable amount of the indefinite life intangible asset has been assessed based on the fair value less costs to sell of the cash
generating unit to which it relates. The fair value less costs to sell was determined based on the quoted market value of Aviva’s share of the
subsidiary to which it relates.
Results of impairment testing
As a result of the announced sale of the Group’s entire shareholding in FPI, the recoverable amount of FPI within the wider Asian cash
generating unit was determined based on the agreed consideration less costs to sell. This indicated an impairment of goodwill and AVIF
related to non-participating investment contracts of £8 million and £110 million respectively in 2017 (see note 18) as a result of the shortfall
of £118 million between FPI’s carrying amount and its fair value less costs to sell of £334 million. The estimate of fair value less costs to sell
was calculated on the basis of the agreed sales consideration of £340 million (see note 4(c)(i)) after deducting a £6 million reinsurance
recapture fee between FPI and Aviva Re Limited which is embedded in the sale agreement. The FPI goodwill balance is fully written down,
however, there has been a further impairment of £13 million to AVIF in 2018 (see note 18).
Review of a UK business within the other Group activities operating segment identified the need to impair a balance of £8 million of
goodwill due to the current and forecast performance of the related cash generating unit being below the original financial plan.
Management’s impairment review in relation to the goodwill allocated to the Asian operating segment indicated the need to write down
a balance of £3 million as a result of the current and forecast financial performance of the related cash generating units.
A further impairment of £2 million was identified to the goodwill allocated to the Polish business due to the deterioration of the financial
position and forecast financial performance of one of the cash generating units.
Other than for the cash generating units noted above, the recoverable amount exceeds the carrying value of the cash generating units
including goodwill, and there is no further impairment of goodwill in 2018.
Aviva plc Annual report and accounts 2018
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Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
18 – Acquired value of in-force business (AVIF) and intangible assets
This note shows the movements in cost, amortisation and impairment of the acquired value of in-force business and intangible assets
during the year.
Gross amount
At 1 January 2017
Additions and transfers
Disposals
Foreign exchange rate movements
At 31 December 2017
Additions and transfers
Disposals
Foreign exchange rate movements
At 31 December 2018
Accumulated amortisation
At 1 January 2017
Amortisation for the year
Disposals and transfers
Foreign exchange rate movements
At 31 December 2017
Amortisation for the year
Disposals and transfers
Foreign exchange rate movements
At 31 December 2018
Accumulated Impairment
At 1 January 2017
Impairment losses charged to expenses
Disposals
Foreign exchange rate movements
At 31 December 2017
Impairment charges3
Disposals
Foreign exchange rate movements
At 31 December 2018
Carrying amount
At 1 January 2017
At 31 December 2017
At 31 December 2018
Less: Assets classified as held for sale
AVIF on
insurance
contracts1 (a)
£m
AVIF on
investment
contracts2 (a)
£m
Other
intangible
assets with
finite useful
lives (b)
£m
Intangible
assets with
indefinite useful
lives (c)
£m
2,639
8
(40)
13
2,620
67
—
5
2,692
(870)
(206)
28
(12)
(1,060)
(183)
—
(4)
(1,247)
(19)
(8)
—
—
(27)
—
—
—
(27)
1,750
1,533
1,418
(5)
1,413
2,704
—
(7)
—
2,697
30
—
(1)
2,726
(583)
(262)
7
—
(838)
(243)
—
—
(1,081)
(24)
(110)
—
—
(134)
(13)
—
—
(147)
2,097
1,725
1,498
(649)
849
1,976
184
(208)
14
1,966
153
(488)
(8)
1,623
(504)
(186)
146
—
(544)
(209)
48
2
(703)
(81)
(7)
43
(1)
(46)
—
8
—
(38)
1,391
1,376
882
(6)
876
367
—
—
13
380
(57)
(189)
—
134
(57)
—
—
—
(57)
—
57
—
—
(68)
—
—
(3)
(71)
—
—
—
(71)
242
252
63
—
63
Total
£m
7,686
192
(255)
40
7,663
193
(677)
(4)
7,175
(2,014)
(654)
181
(12)
(2,499)
(635)
105
(2)
(3,031)
(192)
(125)
43
(4)
(278)
(13)
8
—
(283)
5,480
4,886
3,861
(660)
3,201
1 On insurance and participating investment contracts.
2 On non-participating investment contracts.
3
Impairment charges comprise £13 million of AVIF impairment in respect of FPI recognised within profit/(loss) on the disposal and remeasurement of subsidiaries, joint ventures and associates due to FPI’s classification as held
for sale (see note 4 and 17(b)).
(a) Acquired value of in-force business
AVIF on insurance and investment contracts is generally recoverable in more than one year. Of the total AVIF of £2,916 million,
£2,904 million (2017: £2,142 million) is expected to be recovered more than one year after the statement of financial position date.
In 2018, the additions relate to the acquisition of Friends First (see note 3).
Non-participating investment contract AVIF is reviewed for evidence of impairment, consistent with reviews conducted for other finite life
intangible assets. Insurance and participating investment contract AVIF is reviewed for impairment at each reporting date as part of the
liability adequacy requirements of IFRS 4. AVIF is reviewed for evidence of impairment and impairment tested at product portfolio level
by reference to the value of future profits in accordance with Solvency II principles, adjusted where Solvency II does not represent a best
estimate of shareholders’ interests, consistent with the impairment test for goodwill for long-term business (see note 17(b)).
In 2018, an impairment charge of £13 million (2017: £110 million) was recognised in relation to the AVIF on non-participating investment
contracts relating to FPI, to write down the AVIF balance to its recoverable amount as explained in note 17(b). In addition, in 2017 £8 million
of AVIF on insurance contracts in relation to the book of business reinsured by FPI to Aviva Re Limited was considered to be non-
recoverable and was written-off.
Aviva plc Annual report and accounts 2018
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
18 – Acquired value of in-force business (AVIF) and intangible assets continued
(b) Other intangible assets with finite useful lives
Other intangible assets with finite useful lives consist mainly of the value of bancassurance and other distribution agreements and
capitalised software. Additions of intangibles with finite lives in 2018 relate to capitalisation of software costs in relation to the Group’s
digital initiatives primarily undertaken by the Group’s digital company Aviva UK Digital Limited.
Additions of intangibles with finite lives in 2017 related to capitalisation of software costs in relation to the Group’s digital initiatives as well
as additions of finite life intangibles on the Group balance sheet following the full consolidation of the Group’s previously equity accounted
joint ventures in Poland.
Disposals in 2018 relate to the sale of the Italy Avipop business (see note 4). Disposals in 2017 relate to the derecognition of intangible
assets with finite useful lives in relation to the disposal of part of the Group’s Spanish business.
The amortisation charge for 2018 is £209 million (2017: £186 million). No Impairment losses arose in 2018 (2017: £7 million) on intangible
assets with finite lives.
(c) Intangible assets with indefinite useful lives
Intangible assets with indefinite useful lives primarily comprise the value of distribution channel Union Financière de France Banque in
France where the existing life of the asset supports this classification. Impairment testing of these intangible assets is covered in note 17(b).
No impairment has been recognised in 2018.
Disposals in 2018 relate to the sale of the Spanish business (see note 4).
19 – Interests in, and loans to, joint ventures
In several businesses, Group companies and other parties jointly control certain entities. This note analyses these interests and describes
the principal joint ventures in which we are involved.
(a) Carrying amount and details of joint ventures
(i) The movements in the carrying amount comprised:
At 1 January
Share of results before tax
Share of tax
Share of results after tax
Amortisation of intangibles1
Loss on remeasurement of joint venture
Share of (loss)/profit after tax
Reclassification from/(to) subsidiary
Additions
Disposals
Share of (losses)/gains taken to other comprehensive income
Dividends received from joint ventures
Foreign exchange rate movements
At 31 December
Goodwill and
intangibles
£m
57
—
—
—
(5)
—
(5)
—
—
—
—
—
(6)
Equity
interests
£m
1,164
99
(3)
96
—
—
96
5
33
(79)
(10)
(35)
(6)
2018
Total
£m
1,221
99
(3)
96
(5)
—
91
5
33
(79)
(10)
(35)
(12)
46
1,168
1,214
Goodwill and
intangibles
£m
92
—
—
—
(7)
—
(7)
(23)
—
—
—
—
(5)
57
Equity
interests
£m
1,512
99
(3)
96
—
(7)
89
(34)
55
(409)
6
(38)
(17)
2017
Total
£m
1,604
99
(3)
96
(7)
(7)
82
(57)
55
(409)
6
(38)
(22)
1,164
1,221
1 Comprises amortisation of AVIF on insurance contracts of £nil million (2017: £1 million) and other intangibles of £5 million (2017: £6 million).
Additions and disposals during the year relate mainly to the Group’s holdings in property management undertakings. £20 million of the
additions relate to a capital injection into the new Hong Kong JV as detailed below.
On 13 February 2018, Aviva announced that it has completed the transaction to develop a digital insurance joint venture in Hong Kong with
Hillhouse Capital Group (Hillhouse) and Tencent Holdings Limited (Tencent). The joint venture commenced operating under its new
corporate structure during the first half of 2018. The transaction included the sale of 60% of the shareholding in Aviva Life Insurance
Company Limited (Aviva Hong Kong) as detailed in note 4(d). This is reflected as reclassification from subsidiary of £5 million and new
capital addition of £20 million in 2018.
In 2017, reclassification to subsidiary reflects changes in the Group’s holdings in its Poland and Vietnam undertakings.
On 19 January 2018, Aviva announced that it had completed the sale of its entire 49% shareholding in its joint venture in Taiwan, First Aviva
Life (Aviva Taiwan) to Aviva’s joint venture partner, First Financial Holding Company Limited (FFH) for cash consideration of $1. The
transaction resulted in a gain of £7 million arising from reserves recycled to the Income Statement. Remeasurement losses arising from the
classification of Aviva Taiwan as held for sale were recognised in 2017, as explained in note 4(b)(iii).
The Group’s share of total comprehensive income related to joint venture entities is £81 million (2017: £88 million).
Aviva plc Annual report and accounts 2018
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Other information
Notes to the consolidated financial statements
Continued
19 – Interests in, and loans to, joint ventures continued
(ii) The carrying amount at 31 December comprised:
Goodwill and
intangibles
£m
Equity
interests
£m
Property management undertakings
Long-term business undertakings
General insurance and health undertakings
Total
—
46
—
46
797
363
8
1,168
1,214
2018
Total
£m
797
409
8
Goodwill and
intangibles
£m
—
57
—
57
Equity
interests
£m
820
335
9
2017
Total
£m
820
392
9
1,164
1,221
The property management undertakings perform property ownership and management activities, and are incorporated and operate in the
UK. All such investments are held by subsidiary entities.
The long-term business undertakings perform life insurance activities. All investments in such undertakings are unlisted with the exception
of AvivaSA Emeklilik ve Hayat A.S which has issued publicly a minority portion of shares. All investments in such undertakings are held by
subsidiaries, except for the shares in the Chinese joint venture, Aviva-COFCO Life Insurance Company Ltd., which are held by Aviva plc.
The Group’s share of net assets of that company is £294 million (2017: £274 million) and it has a carrying value at cost of £123 million
(2017: £123 million).
The investment in general insurance and health undertakings relates to the health insurance operations in our Indonesian joint venture.
(iii) No joint ventures are considered to be material from a Group perspective (2017: none). The Group’s principal joint ventures are as follows:
Name
Ascot Real Estate Investments LP
2-10 Mortimer Street Limited Partnership
Southgate LP
Aviva-COFCO Life Insurance Company Ltd.
Aviva Life Insurance Company Limited
PT Astra Aviva Life
AvivaSA Emeklilik ve Hayat A.S
Nature of activities
Property management
Property management
Property management
Life insurance
Life insurance
Life and Health insurance
Life insurance
Principal place of business
UK
UK
UK
China
Hong Kong
Indonesia
Turkey
Proportion of
ownership interest
2018
50.00%
50.00%
50.00%
50.00%
40.00%
50.00%
40.00%
2017
50.00%
50.00%
50.00%
50.00%
100.00%
50.00%
40.00%
The Group has no joint ventures whose non-controlling interest (NCI) is material on the basis of their share of profit/(loss).
(iv) The joint ventures have no significant contingent liabilities to which the Group is exposed. The Group has commitments to provide
funding to property management joint ventures of £13 million (2017: £6 million).
In certain jurisdictions the ability of joint ventures to transfer funds in the form of cash dividends or to repay loans and advances made by
the Group is subject to local corporate or insurance laws and regulations and solvency requirements.
(b) Impairment testing
Interests in joint ventures are tested for impairment of goodwill and intangibles when there is an indicator of impairment. They are tested
for impairment by comparing the carrying value of the cash generating unit to which the goodwill or intangible relates to the recoverable
value of that cash generating unit. Recoverable amount for long-term and general insurance businesses is calculated on a consistent basis
with that used for impairment testing of goodwill, as set out in note 17(b). The recoverable amount of property management undertakings
is the fair value less costs to sell of the joint venture, measured in accordance with the Group’s accounting policy for investment property
(see accounting policy Q).
20 – Interests in, and loans to, associates
This note analyses our interests in entities which we do not control but where we have significant influence.
(a) Carrying amount and details of associates
(i) The movements in the carrying amount comprised:
At 1 January
Share of results before tax
Share of tax
Share of results after tax
Impairment
Share of profit/(loss) after tax
Additions
Reduction in Group interest
Reclassification to investment
Dividends received from associates
Foreign exchange rate movements
Movements in carrying amount
At 31 December
Goodwill and
intangibles
£m
Equity
interests
£m
—
—
—
—
—
—
—
—
—
—
—
—
—
421
22
(1)
21
—
21
2
(78)
(54)
(8)
—
(117)
304
2018
Total
£m
421
22
(1)
21
—
21
2
(78)
(54)
(8)
—
(117)
304
Aviva plc Annual report and accounts 2018
150
Goodwill and
intangibles
£m
Equity
interests
£m
416
22
(5)
17
—
17
2
(5)
—
(13)
4
5
65
—
—
—
(65)
(65)
—
—
—
—
—
(65)
—
2017
Total
£m
481
22
(5)
17
(65)
(48)
2
(5)
—
(13)
4
(60)
421
421
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
20 – Interests in, and loans to, associates continued
The Group’s share of total comprehensive income related to associates is £21 million (2017: £48 million expense).
(ii) No associates are considered to be material from a Group perspective (2017: none). All investments in principal associates are held by
subsidiaries. The Group’s principal associates are as follows:
Name
Nature of activities
Principal place of business
Aviva Life Insurance Company India Limited
SCPI Ufifrance Immobilier
SCPI Logipierre 1
Lend Lease JEM Partners Fund Limited
AI UK Commercial Real Estate Debt Fund1
Life insurance
Property Management
Property Management
Investment holding
Property Management
India
France
France
Singapore
UK
1 The Group has significant influence over AI UK Commercial Real Estate Debt Fund so it is therefore accounted for as an associate.
Proportion of
ownership interest
2018
2017
49.00%
20.40%
44.46%
22.50%
17.16%
49.00%
20.40%
44.46%
22.50%
15.90%
A principal property management associate SCPI Selectipierre 2 was disposed of externally to the Group during 2018. The proportion of
ownership interest in 2017 was 28.67%.
On 5 November 2018, Aviva Investors exited its partnership arrangement in Encore+, a pan-European commercial property fund, with
LaSalle Investment Management, as detailed in note 4(b)(iii). As a result, the Group’s 4.8% shareholding in Encore+ has been reclassified
from associates to financial investments as the Group no longer has significant influence.
(iii) The associates have no significant contingent liabilities to which the Group is exposed. The Group has commitments to provide funding
to property management associates of £5 million (2017: £2 million).
In certain jurisdictions the ability of associates to transfer funds in the form of cash dividends or to repay loans and advances made by the
Group is subject to local corporate or insurance laws and regulations and solvency requirements.
(b) Impairment testing
The recoverable amount of property management undertakings is the fair value less costs to sell of the associate, measured in accordance
with the Group’s accounting policy for investment property (see accounting policy Q).
In 2017, the Group determined that the goodwill of £47 million and AVIF of £18 million of its investment in Aviva Life Insurance Company
India Limited (Aviva India) were fully impaired following management’s annual impairment review. The total impairment of £65 million was
recognised within the income statement as a component of share of profit after tax of joint ventures and associates.
The recoverable amount of Aviva India was determined based on its value in use which was calculated on an embedded value (EV) basis in
line with Actuarial Practice Standard 10 (APS 10) as defined by the Institute of Actuaries of India. The EV cash flow projections, based on
business plans covering a three year period, were adjusted to reflect a more prudent view of the value of the in-force business by applying
higher expense overruns over an extended 7 year period on a run-off rate of 14% and pre-tax discount rate of 12%.
The recoverable amount determined based on this adjusted embedded value calculation and allocated to Aviva’s 49% shareholding was
£93 million which upon comparison with Aviva India’s carrying amount at the time of the impairment assessment indicated that its
goodwill and AVIF balances were fully impaired.
Aviva plc Annual report and accounts 2018
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
21 – Property and equipment
This note analyses our property and equipment, which are primarily properties occupied by Group companies.
Cost or valuation
At 1 January 2017
Additions
Disposals1
Transfers (to)/from investment property (note 22)
Fair value losses
Foreign exchange rate movements
At 31 December 2017
Additions
Disposals
Transfers (to)/from investment property (note 22)
Fair value gains
Foreign exchange rate movements
At 31 December 2018
Depreciation and impairment
At 1 January 2017
Charge for the year
Disposals1
Impairment charge
Foreign exchange rate movements
At 31 December 2017
Charge for the year
Disposals
Impairment charge
Foreign exchange rate movements
At 31 December 2018
Carrying amount
At 31 December 2017
At 31 December 2018
Less: Amounts classified as held for sale
At 31 December 2018
Properties
under
construction
£m
Owner-
occupied
properties
£m
Motor vehicles
£m
Computer
equipment
£m
Other assets
£m
Total
£m
5
1
—
(5)
—
—
1
1
(2)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
—
—
—
341
3
(20)
11
(4)
9
340
21
(8)
—
3
3
359
(20)
—
15
2
—
(3)
—
—
—
—
(3)
337
356
(4)
352
3
—
—
—
—
—
3
1
—
—
—
—
4
(2)
—
—
—
—
(2)
(1)
—
—
—
(3)
1
1
—
1
270
18
(134)
—
—
1
155
24
(7)
—
—
3
175
(246)
(13)
134
—
—
(125)
(14)
6
—
(4)
277
47
(61)
—
—
2
265
40
(6)
—
—
7
306
(141)
(22)
54
(8)
(3)
(120)
(25)
2
—
(5)
896
69
(215)
6
(4)
12
764
87
(23)
—
3
13
844
(409)
(35)
203
(6)
(3)
(250)
(40)
8
—
(9)
(137)
(148)
(291)
30
38
—
38
145
158
(1)
157
514
553
(5)
548
1 Disposals of computer equipment primarily comprise exhausted assets within Aviva Central Services.
Total net fair value gains of £3 million on owner-occupied properties consist of £1 million of losses in the year (2017: £6 million losses) which
have been taken to the income statement and £3 million reversal of losses (2017: £3 million reversal) taken to the income statement in
previous years and £1 million gains (2017: £1 million losses) which have been taken to other comprehensive income.
Owner-occupied properties are stated at their revalued amounts, as assessed by qualified external valuers. These values are assessed in
accordance with the relevant parts of the current Royal Institute of Chartered Surveyors Appraisal and Valuation Standards in the UK, and
with current local valuation practices in other countries. This assessment is in accordance with UK Valuations Standards (‘Red book’), and is
the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an
arm’s-length transaction, after proper marketing wherein the parties had acted knowledgeably and without compulsion, on the basis of the
highest and best use of asset that is physically possible, legally permissible and financially feasible. The valuation assessment adopts
market-based evidence and is in line with guidance from the International Valuation Standards Committee and the requirements of IAS 16
Property, Plant and Equipment.
Similar considerations apply to properties under construction, where an estimate is made of valuation when complete, adjusted for
anticipated costs to completion, profit and risk, reflecting market conditions at the valuation date.
If owner-occupied properties were stated on a historical cost basis, the carrying amount would be £364 million (2017: £349 million).
The Group has no material finance leases for property and equipment.
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
22 – Investment property
This note gives details of the properties we hold for long-term rental yields or capital appreciation.
Freehold
£m
Leasehold
£m
Carrying value
At 1 January
Acquisitions
Additions
Capitalised expenditure on existing properties
Fair value gains
Disposals
Transfers to property and equipment (note 21)
Reclassification1
Foreign exchange rate movements
At 31 December
9,147
218
543
136
307
(713)
—
(82)
45
9,601
2018
Total
£m
10,797
426
640
151
307
(890)
—
—
51
1,650
208
97
15
—
(177)
—
82
6
1,881
11,482
Freehold
£m
Leasehold
£m
9,169
—
530
99
440
(1,216)
(6)
—
131
9,147
1,647
—
12
31
41
(85)
—
—
4
1,650
2017
Total
£m
10,816
—
542
130
481
(1,301)
(6)
—
135
10,797
1 A review of part leasehold/part freehold properties held by the Group has resulted in the reclassification of £82m from freehold to leasehold properties in 2018.
Please see note 23 ‘Fair value methodology’ for further information on the fair value measurement and valuation techniques of investment
property.
The fair value of investment properties leased to third parties under operating leases at 31 December 2018 was £11,172 million (2017:
£10,513 million). Future contractual aggregate minimum lease rentals receivable under the non-cancellable portion of these leases are
given in note 56(b)(i).
23 – Fair value methodology
This note explains the methodology for valuing our assets and liabilities measured at fair value, and for fair value disclosures. It also
provides an analysis of these according to a ‘fair value hierarchy’, determined by the market observability of valuation inputs.
(a) Basis for determining fair value hierarchy
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the ‘fair value
hierarchy’ described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
Level 1
Inputs to Level 1 fair values are quoted prices (unadjusted) in active markets for identical assets and liabilities that the entity can access at
the measurement date.
Level 2
Inputs to Level 2 fair values are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full
term of the instrument. Level 2 inputs include the following:
• Quoted prices for similar assets and liabilities in active markets.
• Quoted prices for identical or similar assets and liabilities in markets that are not active, the prices are not current, or price quotations
vary substantially either over time or among market makers, or in which little information is released publicly.
• Inputs other than quoted prices that are observable for the asset or liability (for example, interest rates and yield curves observable at
commonly quoted intervals, implied volatilities, and credit spreads).
• Market-corroborated inputs.
Where we use broker quotes and no information as to the observability of inputs is provided by the broker, the investments are classified
as follows:
• Where the broker price is validated by using internal models with market observable inputs and the values are similar, we classify the
investment as Level 2.
• In circumstances where internal models are not used to validate broker prices, or the observability of inputs used by brokers is
unavailable, the investment is classified as Level 3.
Level 3
Inputs to Level 3 fair values are unobservable inputs for the asset or liability. Unobservable inputs may have been used to measure fair
value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for
the asset or liability at the measurement date. However, the fair value measurement objective remains the same, i.e. an exit price at the
measurement date from the perspective of a market participant that holds the asset or owes the liability. Unobservable inputs reflect the
assumptions the business unit considers that market participants would use in pricing the asset or liability. Examples are investment
properties and commercial and equity release mortgage loans.
Aviva plc Annual report and accounts 2018
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Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
23 – Fair value methodology continued
The majority of the Group’s assets and liabilities measured at fair value are based on quoted market information or observable market
data. Of the total assets and liabilities measured at fair value 17.7% (2017: 15.7%) of assets and 3.4% (2017: 3.2%) of liabilities are based on
estimates and recorded as Level 3. Where estimates are used, these are based on a combination of independent third-party evidence and
internally developed models, calibrated to market observable data where possible. Third-party valuations using significant unobservable
inputs validated against Level 2 internally modelled valuations are classified as Level 3, where there is a significant difference between the
third-party price and the internally modelled value. Where the difference is insignificant, the instrument would be classified as Level 2.
(b) Changes to valuation techniques
There were no changes in the valuation techniques during the year compared to those described in the 2017 annual consolidated financial
statements.
(c) Comparison of the carrying amount and fair values of financial instruments
Set out below is a comparison of the carrying amounts and fair values of financial assets and liabilities, excluding those classified as held for
sale. These amounts may differ where the assets or liabilities are carried on a measurement basis other than fair value, e.g. amortised cost.
2018
Carrying
amount
£m
Fair value
£m
2017
Carrying
amount
£m
Fair value
£m
Financial assets
Loans (note 24(a))
Financial investments (note 27(a))
Fixed maturity securities
Equity securities
Other investments (including derivatives)
Financial liabilities
Non-participating investment contracts (note 44(a))
Net asset value attributable to unitholders
Borrowings (note 52(a))1
Derivative liabilities (note 60(b))
28,731
28,785
297,585 297,585
169,289 169,289
82,128
46,168
82,128
46,168
27,796
311,082
174,808
89,968
46,306
27,857
311,082
174,808
89,968
46,306
112,013 112,013
18,125
9,420
5,571
18,125
9,826
5,571
116,332
18,327
11,538
5,751
116,332
18,327
10,286
5,751
1 Within the fair value total, the estimated fair value has been provided for the portion of loans and borrowings that are carried at amortised cost as disclosed in note 23 (h).
Fair value of the following assets and liabilities approximate to their carrying amounts:
• Receivables
• Cash and cash equivalents
• Payables and other financial liabilities
As set out in accounting policy A, the Group has chosen to defer application of IFRS 9 due to its activities being predominantly connected
with insurance. To facilitate comparison with entities applying IFRS 9 in full, the table below splits the Group’s financial instruments as at
the reporting date between those which are considered to have contractual terms which are solely payments of principal and interest
(SPPI) on the principal amount outstanding (excluding instruments held for trading or managed and evaluated on a fair value basis), and all
other instruments not falling into this category.
Debt securities
Equity securities
Loans
Receivables
Cash and cash equivalents
Accrued income and Interest
Other financial assets
Total
SPPI –
Fair value
Non-SPPI –
fair value1
273 169,413
82,338
26,271
3,041
33,926
2,217
52,802
—
2,460
5,849
13,246
193
10
22,031 370,008
1
Instruments within this category include financial assets that meet the definition of held for trading, financial assets that are managed and evaluated on a fair value basis, and instruments with contractual terms that do not
give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
There has been a £7 million decrease in the fair value of SPPI instruments, and a £23,645 million decrease in the fair value of non-SPPI
instruments during the reporting period.
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IFRS financial statements
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Notes to the consolidated financial statements
Continued
23 – Fair value methodology continued
(d) Fair value hierarchy analysis
An analysis of assets and liabilities measured at amortised cost and fair value categorised by fair value hierarchy is given below.
2018
Recurring fair value measurements
Investment property (note 22)
Loans (note 24(a))
Financial investments measured at fair value (note 27(a))
Fixed maturity securities
Equity securities
Other investments (including derivatives)
Financial assets of operations classified as held for sale
Total
Financial liabilities measured at fair value
Non-participating investment contracts1 (note 44(a))
Net asset value attributable to unit holders
Borrowings (note 52(a))
Derivative liabilities (note 60(b))
Financial liabilities of operations classified as held for sale
Total
Fair value
hierarchy
Level 1
£m
Level 2
£m
Level 3
£m
Sub-total
Fair value
£m
Amortised
cost
£m
Total
carrying
value
£m
—
—
—
518
11,482
25,008
11,482
25,526
—
3,259
11,482
28,785
102,979
81,714
37,780
5,240
48,732
—
4,281
19
17,578 169,289
82,128
46,168
7,251
414
4,107
1,992
—
—
—
—
169,289
82,128
46,168
7,251
227,713
53,550
60,581 341,844
3,259 345,103
111,966
18,100
—
466
5,241
135,773
47
—
—
4,571
—
4,618
—
25
1,225
534
3,100
112,013
18,125
1,225
5,571
8,341
—
—
8,195
—
—
112,013
18,125
9,420
5,571
8,341
4,884 145,275
8,195 153,470
1
In addition to the balances in this table, included within reinsurance assets in the statement of financial position and note 41 are £4,009 million of non-participating investment contracts, which are legally reinsurance but do
not meet the definition of a reinsurance contract under IFRS. These assets are financial instruments measured at fair value through profit and loss and are classified as Level 1 assets.
2018
Non-recurring fair value measurement
Properties occupied by group companies
Total
Fair value
hierarchy
Level 1
£m
Level 2
£m
Level 3
£m
Total
fair value
£m
—
—
—
—
352
352
352
352
IFRS 13, Fair Value Measurement, permits assets and liabilities to be measured at fair value on either a recurring or non-recurring basis.
Recurring fair value measurements are those that other IFRSs require or permit in the statement of financial position at the end of each
reporting period, whereas non-recurring fair value measurements of assets or liabilities are those that other IFRSs require or permit in the
statement of financial position in particular circumstances. The value of owner-occupied properties measured on a non-recurring basis at
31 December 2018 was £352 million (2017: £333 million), stated at their revalued amounts in line with the requirements of IAS 16 Property,
Plant and Equipment.
2017
Recurring fair value measurements
Investment property (note 22)
Loans (note 24(a))
Financial investments measured at fair value (note 27(a))
Fixed maturity securities
Equity securities
Other investments (including derivatives)
Financial assets of operations classified as held for sale
Total
Financial liabilities measured at fair value
Non-participating investment contracts1 (note 44(a))
Net asset value attributable to unit holders
Borrowings (note 52(a))
Derivative liabilities (note 60(b))
Financial liabilities of operations classified as held for sale
Total
Fair value
hierarchy
Level 1
£m
Level 2
£m
Level 3
£m
Sub-total
Fair value
£m
Amortised cost
£m
Total
carrying
value
£m
—
—
—
443
10,797
23,949
10,797
24,392
—
3,465
10,797
27,857
107,771
89,192
38,249
6,192
51,900
—
5,194
27
15,137
776
2,863
2,093
174,808
89,968
46,306
8,312
—
—
—
—
174,808
89,968
46,306
8,312
241,404
57,564
55,615
354,583
3,465
358,048
116,123
18,314
—
521
5,346
140,304
209
—
—
4,872
26
5,107
—
13
1,180
358
3,306
116,332
18,327
1,180
5,751
8,678
—
—
9,106
—
—
116,332
18,327
10,286
5,751
8,678
4,857
150,268
9,106
159,374
1
In addition to the balances in this table, included within reinsurance assets in the statement of financial position and note 41 are £6,094 million of non-participating investment contracts, which are legally reinsurance but do
not meet the definition of a reinsurance contract under IFRS. These assets are financial instruments measured at fair value through profit and loss and are classified as Level 1 assets
2017
Non-recurring fair value measurement
Properties occupied by group companies
Total
Aviva plc Annual report and accounts 2018
155
Fair value
hierarchy
Level 1
£m
Level 2
£m
Level 3
£m
Total
fair value
£m
—
—
—
—
333
333
333
333
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
23 – Fair value methodology continued
(e) Valuation approach for fair value assets and liabilities classified as Level 2
Please see note 23(a) for a description of typical Level 2 inputs.
Debt securities, in line with market practice, are generally valued using an independent pricing service. These valuations are determined
using independent external quotations from multiple sources and are subject to a number of monitoring controls, such as monthly price
variances, stale price reviews and variance analysis. Pricing services, where available, are used to obtain the third-party broker quotes.
Where pricing services providers are used, a single valuation is obtained and applied. When prices are not available from pricing services,
quotes are sourced from brokers.
Over-the-counter derivatives are valued using broker quotes or models such as option pricing models, simulation models or a combination
of models. The inputs for these models include a range of factors which are deemed to be observable, including current market and
contractual prices for underlying instruments, period to maturity, correlations, yield curves and volatility of the underlying instruments.
Unit Trusts and other investment funds included under the other investments category are valued using net asset values which are not
subject to a significant adjustment for restrictions on redemption or for limited trading activity.
(f) Transfers between levels of the fair value hierarchy
For financial instruments that are recognised at fair value on a recurring basis, the Group determines whether transfers have occurred
between levels of the fair value hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value
measurement as a whole) at the end of the reporting period.
Transfers between Level 1 and Level 2
There were no significant transfers between Level 1 and Level 2 during the year.
Transfers to/from Level 3
£1.4 billion of assets transferred into Level 3 and £0.6 billion of assets transferred out of Level 3 relate principally to debt securities held by
our businesses in the UK and France. These are transferred between Levels 2 and 3 depending on the availability of observable inputs and
whether the counterparty and broker quotes are corroborated using valuation models with observable inputs.
There were no significant transfers of liabilities into and out of Level 3 during the year.
(g) Further information on Level 3 assets and liabilities:
The table below shows movement in the Level 3 assets and liabilities measured at fair value.
2018
Opening balance at 1 January 2018
Total net gains/(losses) recognised in the
income statement1
Purchases
Issuances
Disposals
Transfers into Level 3
Transfers out of Level 3
Reclassification to held for sale
Foreign exchange rate movements
Investment
Property
£m
Loans
£m
Debt
securities
£m
Equity
securities
£m
Assets
Financial
assets of
operations
classified
as held for
sale
£m
Other
investments
(including
derivatives)
£m
Non
participating
investment
contracts
£m
Net asset
value
attributable
to unitholders
£m
Derivative
liabilities
£m
Borrowings
£m
Liabilities
Financial
liabilities of
operations
classified
as held for
sale
£m
10,797 23,949 15,137
776
2,863 2,093
—
(13)
(358)
(1,180) (3,306)
—
376
(530)
(363)
1,185 3,451 3,175
200
—
(927) (2,065) (1,221)
1,242
—
(503)
—
—
—
111
3
—
—
—
51
(102)
189
—
(544)
95
(2)
—
2
(69)
1,761
—
(554)
77
—
—
29
(73)
201
—
(191)
20
(58)
—
—
—
(108)
—
108
—
—
—
—
—
—
—
—
(12)
—
—
—
—
(25)
(136)
(59)
—
20
—
—
—
(1)
(81)
—
—
36
—
—
—
—
74
(95)
—
189
(20)
58
—
—
(534)
(1,225) (3,100)
Balance at 31 December 2018
11,482 25,008 17,578
414
4,107 1,992
1 Total net gains/(losses) recognised in the income statement includes realised gains/(losses) on disposals.
2017
Opening balance at 1 January 2017
Total net gains/(losses) recognised in the
income statement1
Purchases
Issuances
Disposals
Transfers into Level 3
Transfers out of Level 3
Reclassification to held for sale
Foreign exchange rate movements
Balance at 31 December 2017
Investment
Property
£m
Loans
£m
Debt
securities
£m
Equity
securities
£m
Assets
Financial
assets of
operations
classified
as held for
sale
£m
Other
investments
(including
derivatives)
£m
Non
participating
investment
contracts
£m
Net asset
value
attributable
to unitholders
£m
Derivative
liabilities
£m
Borrowings
£m
Liabilities
Financial
liabilities of
operations
classified as
held for sale
£m
10,768 20,923 16,447
913
4,001
980
(3,408)
(20)
(1,600)
(1,110)
—
511
672
—
(1,289)
—
—
—
135
643
3,252
151
(1,025)
—
—
—
5
(795)
1,745
—
(1,771)
899
(1,399)
(340)
351
10,797 23,949 15,137
(179)
66
—
(12)
2
—
(19)
5
776
55
944
—
(439)
10
(83)
162
267
(1)
(1,383)
132
(135)
(1,682) 2,041
30
57
—
(153)
—
153
—
—
3,408
—
7
—
—
—
—
—
—
—
(105)
(9)
—
180
(164)
1,342
—
(2)
(97)
—
—
27
—
—
—
—
(165)
(113)
—
377
(132)
135
(3,408)
—
2,863
2,093
—
(13)
(358)
(1,180)
(3,306)
1 Total net gains/(losses) recognised in the income statement includes realised gains/(losses) on disposals.
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Notes to the consolidated financial statements
Continued
23 – Fair value methodology continued
Total net losses recognised in the income statement in the year ended 31 December 2018 in respect of Level 3 assets measured at fair
value amounted to £761 million (2017: net gains of £397 million) with net losses in respect of liabilities of £143 million (2017: net losses of
£360 million). Net losses of £529 million (2017: net gains of £200 million) attributable to assets and net losses of £178 million (2017: net losses
of £212 million) attributable to liabilities relate to those still held at the end of the year.
The principal assets classified as Level 3, and the valuation techniques applied to them, are described below.
Investment property
(i)
• Investment property is valued in the UK at least annually by external chartered surveyors in accordance with guidance issued by The
Royal Institution of Chartered Surveyors, and using estimates during the intervening period. Outside the UK, valuations are produced by
external qualified professional appraisers in the countries concerned. Investment properties are valued on an income approach that is
based on current rental income plus anticipated uplifts at the next rent review, lease expiry, or break options taking into consideration
lease incentives and assuming no further growth in the estimated rental value of the property. The uplift and discount rates are derived
from rates implied by recent market transactions on similar properties. These inputs are deemed unobservable.
(ii) Loans
• Commercial mortgage loans and Primary Healthcare loans held by our UK Life business are valued using a Portfolio Credit Risk Model.
This model calculates a Credit Risk Adjusted Value for each loan. The risk adjusted cash flows are discounted using a yield curve, taking
into account the term dependent gilt yield curve and global assumptions for the liquidity premium. Loans valued using this model have
been classified as Level 3 as the liquidity premium is deemed to be non-market observable. The liquidity premium used in the discount
rate ranges between 65 bps to 195 bps.
• Equity release mortgage loans held by our UK Life business are valued using an internal model, with fair value initially being equal to the
transaction price. The value of these loans is dependent on the expected term of the mortgage and the forecast property value at the end
of the term, and is calculated by adjusting future cash flows for credit risk and discounting using a yield curve plus an allowance for
illiquidity. At 31 December 2018 the illiquidity premium used in the discount rate was 210 bps.
The mortgages have a no negative equity guarantee (‘NNEG’) such that the cost of any potential shortfall between the value of the loan
and the realised value of the property, at the end of the term, is recognised by a deduction to the value of the loan. Property valuations
at the reporting date are obtained by taking the most recent valuation for the property and indexing using market observable regional
house price indices.
NNEG is calculated using base property growth rates reduced for the cost of potential dilapidations, using a stochastic model. In addition,
a cost of capital charge is applied to reflect the variability in these cashflows. The base property growth rate assumption is RPI +0.75%
which equates to a long-term average growth rate of 4.3% pa. After applying the cost of capital charge, dilapidations and the stochastic
distribution, the effective net long-term growth rate equates to 0.6% pa.
• Mortgage loan assumptions for future property prices and rental income also include an allowance for the possible adverse impact of the
decision for the UK to leave the European Union (see note 9).
• Infrastructure and Private Finance Initiative (PFI) loans held by our UK Life business are valued using a discounted cash flow model. This adds
spreads for credit and illiquidity to a risk-free discount rate. Credit spreads used in the discount rate are calculated using an internally
developed methodology which depends on the credit rating of each loan, credit spreads on publicly traded bonds and an estimated recovery
rate in event of default and are deemed to be unobservable. The liquidity premium used in the discount rate is 65 bps.
(iii) Debt securities
• Structured bond-type and non-standard debt products held by our business in France and bonds held by our UK business have no active
market. These debt securities are valued either using counterparty or broker quotes and validated against internal or third-party models.
These bonds have been classified as Level 3 because either (i) the third-party models includes a significant unobservable liquidity
adjustment, or (ii) differences between the valuation provided by the counterparty and broker quotes and the validation model are
sufficiently significant to result in a Level 3 classification.
• Privately placed notes held by our UK Life business have been valued using broker quotes or a discounted cash flow model using
discount factors based on swap curves of similar maturity, plus internally derived spreads for credit risk. As these spreads have been
deemed to be unobservable these notes have been classified as Level 3.
• Debt securities held by our French business and by our UK and Asia businesses which are not traded in an active market have been valued
using third party or counterparty valuations. These prices are considered to be unobservable due to infrequent market transactions.
(iv) Equity securities
• Equity securities which primarily comprise private equity holdings held in the UK are valued by a number of third party specialists. These
are valued using a range of techniques, including earnings multiples, forecast cash flows and price/earnings ratios which are deemed to
be unobservable.
(v) Property Funds
• Property funds are valued based on external valuation reports received from fund managers.
(vi) Financial assets of operations classified as held for sale
• Financial assets of operations classified as held for sale are held by our Asia business and consist primarily of discretionary managed
funds of £1.4 billion (2017: £1.6 billion) and debt securities which are not traded in an active market and have been valued using third
party or counterparty valuations of £0.4 billion (2017: £0.4 billion). These assets are included within the relevant asset category within the
sensitivity table below.
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Notes to the consolidated financial statements
Continued
23 – Fair value methodology continued
(vii) Liabilities
The principal liabilities classified as Level 3, and the valuation techniques applied to them, are:
• £3.1 billion (2017: £3.3 billion) of non-participating investment contract liabilities which are included within financial liabilities of
operations classified as held for sale. These are classified as Level 3, either because the underlying unit funds are classified as Level 3 or
because the liability relates to unfunded units or other non-unit adjustments which are based on a discounted cash flow analysis using
unobservable market data and assumptions. These liabilities are included within the relevant asset category within the sensitivity table
below.
• Securitised mortgage loan notes, presented within Borrowings, are valued using a similar technique to the related Level 3 securitised
mortgage assets.
Where these valuations are at a date other than the balance sheet date, as in the case of some private equity funds, adjustments are made
to reflect items such as subsequent drawdowns and distributions and the fund manager’s carried interest.
Sensitivities
Where possible, the Group tests the sensitivity of the fair values of Level 3 assets and liabilities to changes in unobservable inputs to
reasonable alternatives. Level 3 valuations are sourced from independent third parties when available and, where appropriate, validated
against internally-modelled valuations, third-party models or broker quotes. Where third-party pricing sources are unwilling to provide a
sensitivity analysis for their valuations, the Group undertakes, where feasible, sensitivity analysis on the following basis:
• For third-party valuations validated against internally-modelled valuations using significant unobservable inputs, the sensitivity of the
internally-modelled valuation to changes in unobservable inputs to a reasonable alternative is determined.
• For third-party valuations either not validated or validated against a third-party model or broker quote, the third-party valuation in its
entirety is considered an unobservable input. Sensitivities are determined by flexing inputs of internal models to a reasonable alternative,
including the yield, NAV multiple or other suitable valuation multiples of the financial instrument implied by the third-party valuation. For
example, for a fixed income security the implied yield would be the rate of return which discounts the security’s contractual cash flows to
equal the third-party valuation.
The table below shows the sensitivity of the fair value of Level 3 assets and liabilities at 31 December 2018 to changes in unobservable
inputs to a reasonable alternative:
Investment property
Loans
Commercial mortgage loans and Primary Healthcare loans
Equity release mortgage loans
2018
Fair value
£bn Most significant unobservable input
11.6 Equivalent rental yields
11.5
Illiquidity premium
9.7 Base property growth rate
Current property market values
Infrastructure and Private Finance Initiative (PFI) loans
Other
3.4
0.4
Illiquidity premium
Illiquidity premium
Reasonable
alternative
+/- 5-10%
+/- 20 bps
+/- 10%
+/- 10%
+/- 25 bps1
+/- 25 bps1
Debt securities
Structured bond-type and non-standard debt products
Privately placed notes
Other debt securities
Equity securities
Other investments
Property Funds
Other investments (including derivatives)
Liabilities
Non-participating investment contract liabilities
Borrowings
Other liabilities (including derivatives)
Total Level 3 investments
1 On discount spreads.
2 Dependent on investment category.
6.6 Market spread (credit, liquidity and other)
1.6 Credit spreads
9.8 Credit and liquidity spreads
0.3 Market spread (credit, liquidity and other)
+/- 25 bps
+/- 25 bps1
+/- 20-25 bps
+/- 25 bps
0.8 Market multiples applied to net asset values
4.9 Market multiples applied to net asset values
+/- 15-20%
+/- 10-40%2
(3.1) Fair value of the underlying unit funds
(1.2)
(0.6)
Illiquidity premium
Independent valuation vs counterparty
+/- 20-25%
+/- 50 bps
N/A
55.7
Sensitivities
Positive
Impact
£bn
Negative
Impact
£bn
0.9
(0.9)
0.2
0.5
0.3
0.1
—
0.1
0.1
0.4
—
0.1
0.7
0.4
—
—
3.8
(0.2)
(0.5)
(0.4)
(0.1)
—
(0.1)
—
(0.4)
—
(0.1)
(0.6)
(0.4)
—
—
(3.7)
The above table demonstrates the effect of a change in one unobservable input while other assumptions remain unchanged. In reality,
there may be a correlation between the unobservable inputs and other factors. It should also be noted that some of these sensitivities are
non-linear, and larger or smaller impacts should not be interpolated or extrapolated from these results.
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Other information
Notes to the consolidated financial statements
Continued
23 – Fair value methodology continued
(h) Assets and liabilities not carried at fair value for which fair value is disclosed
The table below shows the fair value and fair value hierarchy for those assets and liabilities not carried at fair value.
2018
Assets and liabilities not carried at fair value
Loans
Borrowings
2017
Assets and liabilities not carried at fair value
Loans
Borrowings
Fair value hierarchy
As recognised
in the
consolidated
statement of
financial
position line
item
Level 1
£m
Level 2
£m
Level 3
£m
Total fair value
£m
3,259
8,195
—
7,979
1,454
213
1,751
409
3,205
8,601
Fair value hierarchy
As recognised
in the
consolidated
statement of
financial
position line
item
Level 1
£m
Level 2
£m
Level 3
£m
Total fair value
£m
3,465
9,106
—
9,779
1,280
205
2,124
374
3,404
10,358
Notes
24(b)
52(a)
Notes
24(b)
52(a)
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Notes to the consolidated financial statements
Continued
24 – Loans
This note analyses the loans our Group companies have made, the majority of which are mortgage loans.
(a) Carrying amounts
The carrying amounts of loans at 31 December 2018 and 2017 were as follows:
2018
2017
Policy loans
Loans to banks
Healthcare, infrastructure & PFI other loans
UK securitised mortgage loans (see note 25)
Non-securitised mortgage loans
Loans to brokers and other intermediaries
Other loans
Total
1
303
5,358
2,437
17,427
—
—
25,526
At fair value
through profit
or loss other
than trading
£m
At amortised
cost
£m
At fair value
through profit
or loss other
than trading
£m
At amortised
cost
£m
Total
£m
770
1,923
5,358
2,437
17,427
164
706
769
1,620
—
—
—
164
706
1
554
3,563
2,463
17,817
—
—
3,259
28,785
24,398
Total
£m
793
2,524
3,563
2,463
17,817
180
523
27,863
(6)
792
1,970
—
—
—
180
523
3,465
—
Less: Amounts classified as held for sale
—
—
—
(6)
25,526
3,259
28,785
24,392
3,465
27,857
Of the above total loans, £26,696 million (2017: £26,206 million) are due to be recovered in more than one year after the statement of
financial position date.
Loans at fair value
Fair values have been calculated by using cash flow models appropriate for each portfolio of mortgages. Further details of the fair value
methodology and models utilised are given in note 23 (g).
The cumulative change in fair value of loans attributable to changes in credit risk to 31 December 2018 was a £1,304 million loss (2017:
£1,090 million loss).
Non-securitised mortgage loans include £7.3 billion (2017: £6.8 billion) of residential equity release mortgages, £7.3 billion (2017: £7.6 billion)
of commercial mortgages and £2.8 billion (2017: £3.4 billion) relating to UK primary healthcare and PFI businesses. The healthcare and PFI
mortgage loans are secured against General Practitioner premises, other primary health-related premises or other emergency services
related premises. For all such loans, government support is provided through either direct funding or reimbursement of rental payments to
the tenants to meet income service and provide for the debt to be reduced substantially over the term of the loan. Although the loan
principal is not government-guaranteed, the nature of these businesses and premises provides considerable comfort of an ongoing
business model and low risk of default.
Healthcare, Infrastructure and PFI other loans of £5.4 billion (2017: £3.6 billion) are secured against the income from healthcare and
educational premises.
Loans at amortised cost
The fair value of these loans at 31 December 2018 was £3,205 million (2017: £3,404 million).
(b) Analysis of loans carried at amortised cost
Policy loans
Loans to banks
Non-securitised mortgage loans
Loans to brokers and other intermediaries
Other loans
Total
2018
2017
Amortised
Cost
£m
769
1,620
9
164
707
3,269
Impairment
£m
Carrying Value
£m
Amortised Cost
£m
Impairment
£m
Carrying Value
£m
—
—
(9)
—
(1)
(10)
769
1,620
—
164
706
3,259
792
1,970
9
180
523
3,474
—
—
(9)
—
—
(9)
792
1,970
—
180
523
3,465
The movements in the impairment provisions on these loans for the years ended 31 December 2018 and 2017 were as follows:
At 1 January
Increase during the year
At 31 December
2018
£m
(9)
(1)
(10)
2017
£m
(7)
(2)
(9)
Aviva plc Annual report and accounts 2018
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
24 – Loans continued
(c) Collateral
Loans to banks include cash collateral received under stock lending arrangements (see note 61 for further discussion regarding these
collateral positions). The obligation to repay this collateral is included in payables and other financial liabilities (note 53).
The Group holds collateral in respect of loans where it is considered appropriate in order to reduce the risk of non-recovery. This collateral
generally takes the form of liens or charges over properties and, in the case of policy loans, the underlying policy for the majority of the loan
balances above. In all other situations, the collateral must be in a readily realisable form, such as listed securities, and is held in segregated
accounts.
25 – Securitised mortgages and related assets
The Group, in its UK Life business, has loans receivable, secured by mortgages, which have then been securitised through non-recourse
borrowings. This note gives details of the relevant transactions.
(a) Description of current arrangements
In a UK long-term business subsidiary, Aviva Equity Release UK Limited (AER), the beneficial interest in certain portfolios of lifetime
mortgages has been transferred to five special purpose securitisation companies (the ERF companies), in return for initial consideration
and, at later dates, deferred consideration. The deferred consideration represents receipts accrued within the ERF companies after meeting
all their obligations to the note holders, loan providers and other third parties in the priority of payments. The purchases of the mortgages
were funded by the issue of fixed and floating rate notes by the ERF companies.
All the shares in the ERF companies are held by independent companies, whose shares are held on trust. Although AER does not own,
directly or indirectly, any of the share capital of the ERF companies or their parent companies, it has control of the securitisation
companies, and they have therefore been treated as subsidiaries in the consolidated financial statements. AER has no right to repurchase
the benefit of any of the securitised mortgage loans, other than in certain circumstances where AER is in breach of warranty or loans are
substituted in order to effect a further advance.
AER has purchased subordinated notes and granted subordinated loans to some of the ERF companies. In addition, Group companies have
invested £239 million (2017: £231 million) in loan notes issued by the ERF companies. These have been eliminated on consolidation through
offset against the borrowings of the ERF companies in the consolidated statement of financial position.
In all of the above transactions, the Company and its subsidiaries are not obliged to support any losses that may be suffered by the note
holders and do not intend to provide such support. Additionally, the notes were issued on the basis that note holders are only entitled to
obtain payment, of both principal and interest, to the extent that the available resources of the respective special purpose securitisation
companies, including funds due from customers in respect of the securitised loans, are sufficient and that note holders have no recourse
whatsoever to other companies in the Aviva Group.
(b) Carrying values
The following table summarises the securitisation arrangements:
Securitised mortgage loans (note 24) and loan notes issued
Other securitisation assets/(liabilities)
Loan notes held by third parties are as follows:
Total loan notes issued, as above
Less: Loan notes held by Group companies
Loan notes held by third parties (note 52(c)(i))
Securitised
assets
£m
2,437
266
2,703
2018
Securitised
liabilities
£m
(1,464)
(1,239)
(2,703)
Securitised
assets
£m
2,463
265
2,728
2017
Securitised
liabilities
£m
(1,411)
(1,317)
(2,728)
2018
£m
1,464
(239)
1,225
2017
£m
1,411
(231)
1,180
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
26 – Interests in structured entities
A structured entity is defined as an entity that has been designed so that voting or similar rights are not the dominant factor in deciding
who controls the entity, such as when any voting rights relate to administrative tasks only, or when the relevant activities are directed by
means of contractual arrangements. The Group has interests in both consolidated and unconsolidated structured entities as described
below.
The Group holds redeemable shares or units in investment vehicles, which consist of:
• Debt securities comprising securitisation vehicles that Aviva does not originate. These investments are comprised of a variety of debt
instruments, including asset-backed securities and other structured securities.
• Investment funds which include: hedge funds, liquidity funds, private equity funds, unit trusts, mutual funds and Private Finance
Initiatives (PFIs).
• Specialised investment vehicles include Open Ended Investment Companies (OEICs), Property Limited Partnerships (PLPs), Sociétés
d’Investissement a Capital Variable (SICAVs), Tax Transparent Funds (TTFs) and other investment vehicles.
The Group’s holdings in investment vehicles are subject to the terms and conditions of the respective investment vehicle’s offering
documentation and are susceptible to market price risk arising from uncertainties about future values of those investment vehicles. The
investment manager makes investment decisions after extensive due diligence of the underlying investment vehicle including
consideration of its strategy and the overall quality of the underlying investment vehicle’s manager.
All of the investment vehicles in the investment portfolio are managed by portfolio managers who are compensated by the respective
investment vehicles for their services. Such compensation generally consists of an asset-based fee and a performance-based incentive fee,
and is reflected in the valuation of the investment vehicles.
(a) Interests in consolidated structured entities
The Group has determined that where it has control over investment vehicles, these investments are consolidated structured entities. As at
31 December 2018 the Group has granted loans to consolidated PLPs for a total of £84 million (2017: £82 million). The purpose of these
loans is to assist the consolidated PLPs to purchase or construct properties. The Group has also provided support, without having a
contractual obligation to do so, to certain consolidated PLPs via letters of support amounting to £51 million (2017: £72 million). The Group
has no commitments to provide funding to consolidated structured entities (2017: £nil).
The Group has also given support to five special purpose securitisation companies (the ERF companies) that are consolidated structured
entities. As set out in note 25, at the inception of the securitisation vehicles, the UK subsidiary, Aviva Equity Release UK Limited (AER), has
granted subordinated loan facilities to some of the ERF companies. AER receives various fees in return for the services provided to the
entities. AER receives cash management fees based on the outstanding loan balance at the start of each quarter for the administration of
the loan note liabilities. AER receives portfolio administration fees as compensation for managing the mortgage assets. Refer to note 25 for
details of securitised mortgages and related assets as at 31 December 2018.
As at the reporting date, the Group has no intentions to provide financial or other support in relation to any other investment vehicles.
Aviva plc Annual report and accounts 2018
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Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
26 – Interests in structured entities continued
(b) Interests in unconsolidated structured entities
As part of its investment activities, the Group invests in unconsolidated structured entities. As at 31 December 2018, the Group’s total
interest in unconsolidated structured entities was £59.0 billion (2017 : £57.5 billion) on the Group’s statement of financial position. The
Group’s total interest in unconsolidated structured entities is classified as ‘Interests in and loans to joint ventures and associates’ and
‘financial investments held at fair value through profit or loss’. The Group does not sponsor any of the unconsolidated structured entities.
As at 31 December 2018, a summary of the Group’s interest in unconsolidated structured entities is as follows:
2018
£m
2017
£m1
Interest in,
and loans
to, joint
ventures
Interest in,
and loans
to,
associates
Financial
investments
Loans
Total
assets
Interest in,
and loans
to, joint
ventures
Interest in,
and loans
to,
associates
Structured debt securities2
Other investments and equity securities
Analysed as:
Unit trust and other investment vehicles
PLPs and property funds
Other (Including other funds and equity securities)
Loans3
Total
—
797
—
797
—
—
797
—
3,434
217 47,663
—
3,434
— 48,677
— 45,212
1,975
476
— 45,212
—
2,989
—
476
— 6,886
6,886
217
—
—
217 51,097 6,886 58,997
—
820
—
820
—
—
820
—
326
—
326
—
—
326
Financial
investments
3,482
47,609
Loans
Total
assets
—
3,482
— 48,755
45,666
1,435
508
—
— 45,666
2,581
—
508
—
5,283
5,283
51,091
5,283 57,520
1 Following a review of the Group’s investment classifications, comparative amounts in respect of structured debt securities have been amended from those previously reported to include certain government and corporate
debt securities that meet the definition of structured entities. The effect of this change is to increase the reported 2017 structured debt securities by £424 million.
2 Primarily reported within ‘other debt securities’ in note 27a.
3 Loans include Healthcare, infrastructure & PFI other loans along with certain non-securitised mortgage loans.
The Group’s maximum exposure to loss related to the interests in unconsolidated structured entities is £59.0 billion (2017: £57.5 billion).
The majority of debt securities above are investment grade securities held by the UK business. In some cases, the Group may be required to
absorb losses from an unconsolidated structured entity before other parties when and if Aviva’s interest is more subordinated with respect
to other owners of the same security.
For commitments to property management joint ventures and associates, please refer to notes 19 and 20, respectively. The Group has not
provided any other financial or other support in addition to that described above as at the reporting date, and there are no intentions to
provide support in relation to any other unconsolidated structured entities in the foreseeable future.
In relation to risk management, disclosures on debt securities and investment vehicles are given in note 59(b)(ii) ‘Risk management’. In
relation to other guarantees and commitments that the Group provides in the course of its business, please refer to note 55(f) ‘Contingent
liabilities and other risk factors’.
Aviva’s interest in unconsolidated structured entities that it also manages at 31 December 2018 is £2.1 billion (2017: £1.9 billion) and the
total funds under management relating to these investments at 31 December 2018 is £16.8 billion (2017: £16.2 billion).
(c) Other interests in unconsolidated structured entities
The Group receives management fees and other fees in respect of its asset management businesses. The Group does not sponsor any of
the funds or investment vehicles from which it receives fees. Management fees received for investments that the Group manages but does
not have a holding in also represent an interest in unconsolidated structured entities. As these investments are not held by the Group, the
investment risk is borne by the external investors and therefore the Group’s maximum exposure to loss relates to future management fees.
The table below shows the assets under management of entities that the Group manages but does not have a holding in and the fees
earned from those entities.
Investment funds1
Specialised investment vehicles:
Analysed as:
OEICs
PLPs
SICAVs
Total
1
Investment funds relate primarily to the Group’s Polish pension funds.
2018
Investment
Management
Fees
£m
Assets Under
Management
£m
2017
Investment
Management
Fees
£m
Assets Under
Management
£m
7,473
3,541
944
2,597
—
11,014
38
6
1
5
—
44
9,411
3,877
1,177
2,666
34
13,288
67
12
3
9
—
79
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Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
27 – Financial investments
This note analyses our financial investments by type and shows their cost and fair value. These will change from one period to the next as a
result of new business written, claims paid and market movements.
(a) Carrying amount
Financial investments comprise:
Fixed maturity securities
Debt securities
UK government
UK local authorities
Non-UK government (note 27(d))
Corporate bonds
Public utilities
Other corporate
Convertibles and bonds with warrants attached
Other
Certificates of deposit
Equity securities
Ordinary shares
Public utilities
Banks, trusts and insurance companies1
Industrial miscellaneous and all other1
Non-redeemable preference shares
2018
At fair value
through profit
or loss
Other than
trading
£m
Trading
£m
Available
for sale
£m
Total
£m
Trading
£m
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
27,665
191
52,799
10,786
65,151
—
10,291
—
—
1,287
17
291
—
—
27,665
191
54,086
10,803
65,442
—
10,291
166,883
1,123
1,595 168,478
1,208
85
168,006
1,680 169,686
2,383
18,039
61,719
82,141
196
82,337
45,211
—
155
1,975
475
1
—
1
—
1
—
1
1
—
—
—
—
—
1
2,383
18,040
61,719
82,142
196
82,338
45,212
4,994
155
1,975
475
1
52,812
4,994
47,817
At fair value
through profit
or loss
Other than
trading
£m
30,242
19
51,399
11,105
69,700
9
10,801
173,275
947
174,222
2,402
18,852
68,656
89,910
244
90,154
45,665
—
161
1,435
507
1
47,769
2017
Total
£m
30,242
19
52,741
11,129
69,981
9
10,801
Available
for sale
£m
—
—
1,342
24
281
—
—
1,647
79
174,922
1,026
1,726
175,948
—
1
8
9
—
9
1
—
—
—
—
—
1
2,402
18,853
68,664
89,919
244
90,163
45,666
5,507
161
1,435
507
1
53,277
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5,507
—
—
—
—
5,507
Other investments
Unit trusts and other investment vehicles
Derivative financial instruments (note 60)
Deposits with credit institutions
Minority holdings in property management undertakings
Other investments – long-term
Other investments – short-term
—
4,994
—
—
—
—
Total financial investments
Less: assets classified as held for sale
Fixed maturity securities
Equity securities
Other investments
4,994 298,160
1,682 304,836
5,507
312,145
1,736
319,388
—
—
—
—
(397)
(210)
(6,644)
(7,251)
—
—
—
—
(397)
(210)
(6,644)
(7,251)
—
—
(8)
(8)
(1,140)
(195)
(6,963)
(8,298)
—
—
—
—
(1,140)
(195)
(6,971)
(8,306)
4,994 290,909
1,682 297,585
5,499
303,847
1,736
311,082
1 Following a review of the Group’s investment classifications, comparative amounts in the table have been revised. This review has resulted in a reclassification of £5,443 million in Equity securities previously classified as
Banks, trusts and insurance companies to Industrial miscellaneous and all other. There is no impact on total Equity securities.
Of the above total, £144,001 million (2017: £154,835 million) is due to be recovered in more than one year after the statement of financial
position date.
Other debt securities of £10,291 million (2017: £10,801 million) include residential and commercial mortgage-backed securities, as well as
other structured credit securities.
Aviva plc Annual report and accounts 2018
164
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Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
27 – Financial investments continued
(b) Cost, unrealised gains and fair value
The following is a summary of the cost/amortised cost, gross unrealised gains and losses and fair value of financial investments:
Fixed maturity securities
Equity securities
Other investments
2018
Cost/amortised
cost
£m
Unrealised
gains
£m
Unrealised
losses and
impairments
£m
Fair value
£m
Cost/amortised
cost
£m
162,254
80,917
15,784
7,763
(8,352) 169,686
(6,342)
82,338
162,092
75,060
Unit trusts and other investment vehicles
Derivative financial instruments
Deposits with credit institutions
Minority holdings in property management undertakings
Other investments – long-term
Other investments – short-term
41,703
1,274
155
1,784
473
1
6,841
4,697
—
241
33
—
(3,332)
(977)
—
(50)
(31)
—
45,212
4,994
155
1,975
475
1
34,271
1,328
161
1,332
477
1
Unrealised
losses and
impairments
£m
2017
Fair value
£m
(6,388)
(1,716)
175,948
90,163
275
(390)
—
(77)
(31)
—
45,666
5,507
161
1,435
507
1
Unrealised
gains
£m
20,244
16,819
11,120
4,569
—
180
61
—
These are further analysed as follows:
At fair value through profit or loss
Available for sale
288,561
35,359
(19,084) 304,836
274,722
52,993
(8,327)
319,388
286,959
1,602
35,274
85
(19,079) 303,154
1,682
(5)
273,087
1,635
288,561
35,359
(19,084) 304,836
274,722
52,891
102
52,993
(8,326)
(1)
317,652
1,736
(8,327)
319,388
All unrealised gains and losses and impairments on financial investments classified as fair value through profit or loss have been recognised
in the income statement.
Unrealised gains and losses on financial investments classified as at fair value through profit or loss, recognised in the income statement in
the year, were a net loss of £28,001 million (2017: £6,880 million net gain). Of this net loss, £27,197 million net loss (2017: £6,955 million net
gain) related to investments designated as other than trading and £804 million net loss (2017: £75 million net loss) related to financial
investments designated as trading.
The movement in the unrealised gain/loss position reported in the statement of financial position during the year, shown in the table
above, includes foreign exchange movements on the translation of unrealised gains and losses on financial investments held by foreign
subsidiaries, which are recognised in other comprehensive income, as well as transfers due to the realisation of gains and losses on
disposal and the recognition of impairment losses.
(c) Financial investment arrangements
(i) Stock lending arrangements
The Group has entered into stock lending arrangements in the UK and overseas in accordance with established market conventions.
The majority of the Group’s stock lending transactions occur in the UK, where investments are lent to EEA-regulated, locally domiciled
counterparties and governed by agreements written under English law.
The Group receives collateral in order to reduce the credit risk of these arrangements, either in the form of securities or cash. See note 61
for further discussion regarding collateral positions held by the Group.
(ii) Other arrangements
In carrying on its bulk purchase annuity business, the Group’s UK Life operation is required to place certain investments in trust on behalf
of the policyholders. Amounts become payable from the trust funds to the trustees if the Group were to be in breach of its payment
obligations in respect of policyholder benefits. At 31 December 2018, £2,313 million (2017: £2,402 million) of financial investments were
restricted in this way.
Certain financial investments are also required to be deposited under local laws in various overseas countries as security for the holders
of policies issued in those countries. Other investments are pledged as security collateral for bank letters of credit.
Aviva plc Annual report and accounts 2018
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Other information
Notes to the consolidated financial statements
Continued
27 – Financial investments continued
(d) Non-UK Government Debt Securities (gross of non-controlling interests)
The following is a summary of non-UK government debt by issuer as at 31 December 2018, analysed by policyholder, participating and
shareholder funds.
Policyholder
Participating
Shareholder
Non-UK Government Debt Securities
Austria
Belgium
France
Germany
Ireland
Italy
Netherlands
Poland
Portugal
Spain
European Supranational debt
Other European countries
Europe
Canada
United States
North America
Singapore
Other
Asia Pacific and other
Total
Assets of operations classified as held for sale
2018
£m
10
27
128
126
3
177
32
749
23
84
151
245
1,755
29
813
842
5
2,282
2,287
4,884
9
2017
£m
5
22
133
127
3
183
43
845
2
87
213
176
1,839
23
1,443
1,466
14
2,396
2,410
5,715
1
2018
£m
572
863
13,992
1,685
840
9,526
605
687
135
514
1,733
1,426
32,578
118
294
412
658
3,567
4,225
2017
£m
550
967
13,454
1,437
679
8,223
88
790
136
314
1,841
2,104
30,583
53
661
714
558
3,520
4,078
2018
£m
167
268
2,036
490
138
772
340
538
—
94
1,759
639
7,241
2,947
719
3,666
342
738
1,080
2017
£m
127
314
2,093
615
84
823
322
598
—
233
1,777
917
7,903
2,512
531
3,043
297
408
705
2018
£m
749
1,158
16,156
2,301
981
10,475
977
1,974
158
692
3,643
2,310
41,574
3,094
1,826
4,920
1,005
6,587
7,592
Total
2017
£m
682
1,303
15,680
2,179
766
9,229
453
2,233
138
634
3,831
3,197
40,325
2,588
2,635
5,223
869
6,324
7,193
37,215
35,375
11,987
11,651
54,086
52,741
—
—
1
531
10
532
Total (excluding assets held for sale)
4,875
5,714
37,215
35,375
11,986
11,120
54,076
52,209
At 31 December 2018, the Group’s total government (non-UK) debt securities stood at £54.1 billion (2017: £52.7 billion). The significant
majority of these holdings are within our participating funds where the risk to our shareholders is governed by the nature and extent of our
participation within those funds.
Our direct shareholder asset exposure to government (non-UK) debt securities amounts to £12.0 billion (2017: £11.7 billion). The primary
exposures, relative to total shareholder (non-UK) government debt exposure, are to Canadian (25%), French (17%), Italian (6%), US (6%),
Polish (4%) and German (4%) government debt securities.
The participating funds exposure to (non-UK) government debt amounts to £37.2 billion (2017: £35.4 billion). The primary exposures, relative
to total (non-UK) government debt exposures included within our participating funds, are to the (non-UK) government debt securities of
France (38%), Italy (26%), Germany (5%), Belgium (2%), Ireland (2%) and Poland (2%).
Aviva plc Annual report and accounts 2018
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
27 – Financial investments continued
(e) Exposure to worldwide banks – debt securities
Direct shareholder and participating fund assets exposures to worldwide bank debt securities (net of non-controlling interests,
excluding policyholder assets)
2018
Australia
Denmark
France
Germany
Italy
Netherlands
Spain
Sweden
Switzerland
United Kingdom
United States
Other
Total
Assets of operations classified as held for sale
Total (excluding assets held for sale)
2017 Total
Shareholder assets
Participating fund assets
Total senior
debt
£bn
Total
subordinated
debt
£bn
Total senior
debt
£bn
Total
subordinated
debt
£bn
Total debt
£bn
Total debt
£bn
0.2
—
0.5
—
—
0.3
0.4
0.1
—
1.3
1.0
0.4
4.2
—
4.2
4.4
—
—
0.1
—
—
0.2
—
—
—
0.4
0.2
0.1
1.0
—
1.0
1.0
0.2
—
0.6
—
—
0.5
0.4
0.1
—
1.7
1.2
0.5
5.2
—
5.2
5.4
0.8
0.5
2.6
0.6
0.1
1.4
0.5
0.3
0.7
1.1
1.5
1.8
11.9
—
11.9
12.1
0.2
—
0.4
0.2
—
0.2
0.1
0.1
—
0.5
0.1
0.2
2.0
—
2.0
2.5
1.0
0.5
3.0
0.8
0.1
1.6
0.6
0.4
0.7
1.6
1.6
2.0
13.9
—
13.9
14.6
Net of non-controlling interests, our direct shareholder assets exposure to worldwide bank debt securities is £5.2 billion (2017: £5.4 billion).
The majority of our holding (81%) is in senior debt. The primary exposures are to UK (33%), US (23%), French (12%) and Dutch (10%) banks.
Net of non-controlling interests, the participating fund exposures to worldwide bank debt securities, where the risk to our shareholders is
governed by the nature and extent of our participation within those funds, is £13.9 billion (2017: £14.6 billion). The majority of the exposure
(86%) is in senior debt. Participating funds are the most exposed to French (22%), UK (12%), Dutch (12%) and US (12%) banks.
Direct shareholder and participating fund assets exposures to worldwide bank debt securities (gross of non-controlling interests,
excluding policyholder assets)
2018
Australia
Denmark
France
Germany
Italy
Netherlands
Spain
Sweden
Switzerland
United Kingdom
United States
Other
Total
Assets of operations classified as held for sale
Total (excluding assets held for sale)
2017 Total
Shareholder assets
Participating fund assets
Total senior
debt
£bn
Total
subordinated
debt
£bn
Total senior
debt
£bn
Total
subordinated
debt
£bn
Total debt
£bn
Total debt
£bn
0.2
—
0.5
—
—
0.3
0.4
0.1
—
1.3
1.0
0.4
4.2
—
4.2
4.4
—
—
0.1
—
—
0.2
—
—
—
0.4
0.2
0.1
1.0
—
1.0
1.0
0.2
—
0.6
—
—
0.5
0.4
0.1
—
1.7
1.2
0.5
5.2
—
5.2
5.4
0.8
0.5
2.7
0.7
0.2
1.5
0.5
0.3
0.7
1.2
1.6
1.9
12.6
—
12.6
12.5
0.2
—
0.4
0.2
—
0.2
0.1
0.1
—
0.5
0.1
0.2
2.0
—
2.0
2.5
1.0
0.5
3.1
0.9
0.2
1.7
0.6
0.4
0.7
1.7
1.7
2.1
14.6
—
14.6
15.0
Gross of non-controlling interests, our direct shareholder assets exposure to worldwide bank debt securities is £5.2 billion (2017: £5.4
billion). The majority of our holding (81%) is in senior debt. The primary exposures are to UK (33%), US (23%), French (12%) and Dutch (10%)
banks.
Gross of non-controlling interests, the participating fund exposures to worldwide bank debt securities, where the risk to our shareholders is
governed by the nature and extent of our participation within those funds, is £14.6 billion (2017: £15.0 billion). The majority of the exposure
(86%) is in senior debt. Participating funds are most exposed to French (21%), UK (12%), Dutch (12%) and US (12%) banks.
Aviva plc Annual report and accounts 2018
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Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
28 – Receivables
This note analyses our total receivables.
Amounts owed by contract holders
Amounts owed by intermediaries
Deposits with ceding undertakings
Amounts due from reinsurers
Amounts due from brokers for investment sales
Amounts receivable for collateral pledged
Amounts due from government, social security and taxes
Other receivables
Total
Less: Amounts classified as held for sale
Expected to be recovered in less than one year
Expected to be recovered in more than one year
2018
£m
2,142
1,318
93
311
295
2,752
762
1,217
8,890
2017
£m
2,154
1,235
103
348
206
2,515
744
1,018
8,323
(11)
(38)
8,879
8,855
35
8,890
8,285
8,278
45
8,323
Concentrations of credit risk with respect to receivables are limited due to the size and spread of the Group’s trading base. No further credit
risk provision is therefore required in excess of provisions already recognised for doubtful receivables.
29 – Deferred acquisition costs
(a) Deferred acquisition costs – carrying amount
The carrying amount of deferred acquisition costs was as follows:
Deferred acquisition costs in respect of:
Insurance contracts – Long-term business
Insurance contracts – General insurance and health business
Participating investment contracts – Long-term business
Non-participating investment contracts – Long-term business
Retail fund management business
Total
Less: Amounts classified as held for sale
2018
£m
2017
£m
931
1,088
101
1,036
—
3,156
(191)
2,965
858
1,110
33
1,071
2
3,074
(168)
2,906
Deferred acquisition costs (DAC) on long-term business are generally recoverable in more than one year whereas such costs on general
insurance and health business are generally recoverable within one year. Of the above total, £1,879 million (2017: £1,521 million) is expected
to be recovered in more than one year after the statement of financial position date. For long-term business where amortisation of the DAC
balance depends on projected profits, the amount expected to be recovered is estimated and actual experience will differ.
(b) Deferred acquisition costs – movements in the year
The movements in deferred acquisition costs during the year were:
2018
Carrying amount at 1 January
Acquisition costs deferred during the year
Amortisation
Impact of assumption changes
Effect of portfolio transfers, acquisitions and disposals
Foreign exchange rate movements
Other movements1
Carrying amount at 31 December
Less: Amounts classified as held for sale
Long-term business
Insurance
contracts
£m
Participating
investment
contracts
£m
Non-
participating
investment
contracts
£m
General
insurance
and health
business
£m
Retail fund
management
business
£m
858
265
(141)
14
(5)
2
(62)
931
—
931
33
13
(9)
1
—
1
62
101
—
101
1,071
87
(140)
16
—
2
—
1,036
(191)
845
1,110
2,279
(2,282)
—
(10)
(9)
—
1,088
—
1,088
2
—
(2)
—
—
—
—
—
—
—
Total
£m
3,074
2,644
(2,574)
31
(15)
(4)
—
3,156
(191)
2,965
1 Following the adoption of IFRS 15, the categorisation of DAC balances has been analysed resulting in a transfer of £62m from insurance contracts to participating investment contracts.
Aviva plc Annual report and accounts 2018
168
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
29 – Deferred acquisition costs continued
2017
Carrying amount at 1 January
Acquisition costs deferred during the year
Amortisation
Impact of assumption changes
Effect of portfolio transfers, acquisitions and disposals
Foreign exchange rate movements
Other movements
Carrying amount at 31 December
Less: Amounts classified as held for sale
Long-term business
Insurance
contracts
£m
Participating
investment
contracts
£m
Non-
participating
investment
contracts
£m
General
insurance
and health
business
£m
Retail fund
management
business
£m
694
200
(76)
—
26
14
—
858
(34)
824
19
—
14
—
—
—
—
33
—
33
861
106
(92)
192
—
4
—
1,071
(124)
947
1,037
2,418
(2,369)
—
25
1
(2)
1,110
(10)
1,100
3
—
(1)
—
—
—
—
2
—
2
Total
£m
2,614
2,724
(2,524)
192
51
19
(2)
3,074
(168)
2,906
DAC for long-term business increased over 2018 mainly due to new business sales across various European markets. DAC for general
insurance and health business decreased slightly over 2018 mainly due to the disposal of Avipop in Italy.
Where amortisation of the DAC balance depends on projected profits, changes to economic conditions may lead to a movement in the DAC
balance and a corresponding impact on profit. It is estimated that the movement in the DAC balance would reduce profit by £40 million
(2017: £38 million) if market yields on fixed income investments were to increase by 1% and increase profit by £39 million (2017: £29 million)
if yields were to reduce by 1%. At both 31 December 2018 and 31 December 2017 the DAC balance has been restricted by the value of
projected future profits and hence is more sensitive to changes in the value of those projected profits.
30 – Pension surpluses, other assets, prepayments and accrued income
(a) Pension surpluses and other assets – carrying amount
The carrying amount comprises:
Surpluses in the staff pension schemes (note 51(a))
Other assets
Total
Less: Amounts classified as held for sale
2018
£m
3,256
85
3,341
—
2017
£m
3,399
71
3,470
(2)
3,341
3,468
Surpluses in the staff pension schemes and £1 million (2017: £9 million) of other assets are recoverable more than one year after the
statement of financial position date.
(b) Prepayments and accrued income
Prepayments and accrued income of £2,951 million (2017: £2,876 million) include assets classified as held for sale of £4 million (2017: £16
million) and £9 million (2017: £7 million) that is expected to be recovered more than one year after the statement of financial position date.
31 – Assets held to cover linked liabilities
Certain unit-linked products have been classified as investment contracts, while some are included within the definition of an insurance
contract. The assets backing these unit-linked liabilities are included within the relevant balances in the consolidated statement of financial
position, while the liabilities are included within insurance and investment contract provisions. This note analyses the carrying values of
assets backing these liabilities.
Loans
Debt securities
Equity securities
Reinsurance assets
Cash and cash equivalents
Units trusts and other investment vehicles
Other
Total
Less: Assets classified as held for sale
2018
£m
9
29,472
67,152
4,099
14,455
41,954
8,043
2017
£m
8
30,987
74,110
6,103
12,000
42,368
7,059
165,184
172,635
(7,784)
(8,013)
157,400
164,622
The reinsurance assets balance in the table above includes £4,009 million (2017: £6,094 million) of non-participating investment contracts,
which are legally reinsurance but do not meet the definition of a reinsurance contract under IFRS. These assets are financial instruments
measured at fair value through profit and loss and are classified as Level 1 assets.
Aviva plc Annual report and accounts 2018
169
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
32 – Ordinary share capital
This note gives details of Aviva plc’s ordinary share capital and shows the movements during the year.
(a) Details of the Company’s ordinary share capital are as follows:
The allotted, called up and fully paid share capital of the Company at 31 December 2018 was:
3,902,352,211 (2017: 4,012,682,691) ordinary shares of 25 pence each
2018
£m
2017
£m
975
1,003
At the 2018 Annual General Meeting, the Company was authorised to allot up to a further maximum nominal amount of:
• £668,883,564 of which £334,441,782 can be in connection with an offer by way of a rights issue
• £100 million of new ordinary shares in relation to any issue of Solvency II compliant capital instruments
(b) During 2018, a total of 119,491,188 ordinary shares of 25 pence each were cancelled and 9,160,708 were allotted and issued by the
Company as follows:
At 1 January
Shares issued under the Group’s Employee and
Executive Share Option Schemes
Shares cancelled through buy-back
At 31 December
Number of
shares
Share capital
£m
4,012,682,691
1,003
9,160,708
(119,491,188)
3,902,352,211
2
(30)
975
Capital
redemption
reserve
£m
2018
Share
premium
£m
Number of
shares
Share capital
£m
Capital
redemption
reserve
£m
14
—
30
44
1,207
4,061,539,206
1,015
7
—
8,867,985
(57,724,500)
2
(14)
1,214
4,012,682,691
1,003
—
—
14
14
2017
Share
premium
£m
1,197
10
—
1,207
Ordinary shares in issue in the Company rank pari passu with any new ordinary shares issued in the Company. All the ordinary shares in
issue carry the same right to receive all dividends and other distributions declared, made or paid by the Company.
On 18 September 2018, the Company announced that it had successfully completed the share buy-back programme (the 2018 programme)
which was notified to the market on 1 May 2018. As a result of the 2018 programme, Aviva acquired 119,491,188 shares at an average price
of £5.0213 per share. These shares with a nominal value of £30 million were bought back and subsequently cancelled during the year, giving
rise to a capital redemption reserve of an equivalent amount as required by the Companies Act 2006. The aggregate consideration paid was
£600 million which is reflected in retained earnings (see note 39).
On 20 September 2017, the Company announced that it had successfully completed the share buy-back programme (the 2017 programme)
which was notified to the market on 25 May 2017. As a result of the 2017 programme, Aviva acquired 57,724,500 shares at an average price
of £5.20 per share. These shares with a nominal value of £14 million were bought back and subsequently cancelled during the year, giving
rise to a capital redemption reserve of an equivalent amount as required by the Companies Act 2006. The aggregate consideration paid was
£300 million which is reflected in retained earnings (see note 39).
Aviva plc Annual report and accounts 2018
170
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
33 – Group’s share plans
This note describes various equity compensation plans operated by the Group, and shows how the Group values the options and awards of
shares in the Company.
(a) Description of the plans
The Group maintains a number of active share option and award plans and schemes (the Group’s share plans). These are as follows:
(i) Savings-related options
These are options granted under the tax-advantaged Save As You Earn (SAYE) share option scheme in the UK and Irish revenue-approved
SAYE share option scheme in Ireland. The SAYE allows eligible employees to acquire options over the Company’s shares at a discount of up
to 20% of their market value at the date of grant.
Options are normally exercisable during the six month period following either the third or fifth anniversary of the start of the relevant
savings contract. Seven year contracts were offered prior to 2012. Savings contracts are subject to the statutory savings limits of £500 per
month in the UK and €500 per month in Ireland. A limit of £250 per month was applied to contracts in the UK prior to 2016.
(ii) Aviva long-term incentive plan awards
These awards have been made under the Aviva Long-Term Incentive Plan 2011 (LTIP), and are described in section (b) below and in the
directors’ remuneration report.
(iii) Aviva annual bonus plan awards
These awards have been made under the Aviva Annual Bonus Plan 2011 (ABP), and are described in section (b) below and in the directors’
remuneration report.
(iv) Aviva recruitment and retention share plan awards
These are conditional awards granted under the Aviva Recruitment and Retention Share Award plan (RRSAP) in relation to the recruitment
or retention of senior managers excluding executive directors. The awards vest in tranches on various dates and vesting is conditional upon
the participant being employed by the Group on the vesting date and not having served notice of resignation. Some awards can be subject
to performance conditions. If a participant’s employment is terminated due to resignation or dismissal, any tranche of the award which has
vested within the 12 months prior to the termination date will be subject to clawback and any unvested tranches of the award will lapse in
full.
(v) Aviva Investors deferred share award plan awards
These awards have been made under the Aviva Investors Deferred Share Award Plan (AI DSAP), where employees can choose to have the
deferred element of their bonus deferred into awards over Aviva shares. The awards vest in three equal tranches on the second, third and
fourth year following the year of grant.
(vi) Aviva Investors long-term incentive plan awards
These awards have been made under the Aviva Investors Long-Term Incentive Plan 2015 (AI LTIP)
(vii) Various all employee share plans
The Company maintains a number of active stock option and share award voluntary schemes:
a) The global matching share plan
b) Aviva Group employee share ownership scheme
c) Aviva France employee profit sharing scheme.
No new Aviva plc ordinary shares will be issued to satisfy awards made under plans iv, v, vi, vii b) or vii c).
(b) Outstanding options and awards
(i) Share options
At 31 December 2018, options to subscribe for ordinary shares of 25 pence each in the Company were outstanding as follows:
Aviva savings related share option
scheme
Option price
p
Aviva Ireland savings related share
option scheme (in euros)
268
312
380
419
Option price
c
369
518
527
Number
of shares
145,323
267,209
3,856,295
400,885
Number
of shares
8,259
107,293
11,489
Normally
exercisable
2018
2018
2018 or 2020
2019
Normally
exercisable
2018
2018 or 2020
2019
Option price
p
351
409
387
Option price
c
418
447
432
Number
of shares
10,508,734
4,694,393
7,563,395
Number
of shares
436,262
233,305
425,184
Normally
exercisable
2019 or 2021
2020 or 2022
2021 or 2023
Normally
exercisable
2019 or 2021
2020 or 2022
2021 or 2023
Aviva plc Annual report and accounts 2018
171
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
33 – Group’s share plans continued
The following table summarises information about options outstanding at 31 December 2018:
Range of exercise prices
£2.66 – £3.16
£3.17 – £3.67
£3.68 – £4.19
The comparative figures as at 31 December 2017 were:
Range of exercise prices
£2.66 – £3.16
£3.17 – £3.67
£3.68 – £4.19
Outstanding
options
Number
420,791
10,944,996
17,292,239
Outstanding
options
Number
960,378
12,227,442
11,908,758
Weighted average
remaining
contractual life
Years
1
2
2
Weighted average
remaining
contractual life
Years
1
3
3
Weighted average
exercise price
p
296.80
351.00
392.43
Weighted average
exercise price
p
288.10
351.00
397.83
(ii) Share awards
At 31 December 2018, awards issued under the Company’s executive incentive plans over ordinary shares of 25 pence each in the Company
were outstanding as follows:
Aviva long-term incentive plan 2011
Aviva annual bonus plan 2011
Number of shares
Year of vesting
9,151,821
6,745,024
7,898,212
2019
2020
2021
Number of shares
Year of vesting
5,452,009
2,764,620
2,008,514
2019
2020
2021
Aviva recruitment and retention share award plan
Number of shares
Year of vesting
Aviva Investors deferred share award plan
Aviva Investors long-term incentive plan 2015
The global matching share plan
706,643
268,812
83,855
17,269
2019
2020
2021
2022
Number of shares
Year of vesting
101,695
86,024
50,300
2019
2020
2021
Number of shares
313,419
Year of vesting
2020
Number of shares
Year of vesting
20,421
682,944
629,422
2019
2020
2021
The vesting of awards under the LTIP is subject to the attainment of performance conditions as described in the directors’ remuneration
report.
No performance conditions are attached to the awards under the ABP, AI DSAP or some of the awards under the RRSAP except as outlined
below. There are no performance conditions attached to LTIP awards granted since 2017, with the exception of grants made to the Group
Executive.
Under the RRSAP, some shares are subject to the attainment of the same performance conditions that apply to the LTIP grants as follows:
• Shares which vest in 2019:
– 102,602 are subject to the same performance conditions that apply to the 2016 LTIP grant
– 144,980 are subject to the performance conditions relating to the performance of the participant’s previous employer
• Shares which vest in 2020:
– 53,246 are subject to the performance conditions relating to the performance of the participant’s previous employer
• Shares which vest in 2021:
– 5,305 are subject to the performance conditions relating to the performance of the participant’s previous employer
These performance conditions are as outlined in the relevant year’s directors’ remuneration report. Shares which do not vest will lapse.
Aviva plc Annual report and accounts 2018
172
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
33 – Group’s share plans continued
(iii) Shares to satisfy awards and options
New issue shares are now generally used to satisfy all awards and options granted under plans that have received shareholder approval
and where local regulations permit. Further details are given in note 32.
(c) Movements in the year
A summary of the status of the option plans as at 31 December 2017 and 2018, and changes during the years ended on those dates, is
shown below.
Outstanding at 1 January
Granted during the year
Exercised during the year
Forfeited during the year
Cancelled during the year
Expired during the year
Outstanding at 31 December
Exercisable at 31 December
2018
Weighted
average
exercise price
p
370.81
387.00
361.96
385.00
364.93
381.97
Number of options
25,096,578
8,139,367
(2,111,514)
(1,855,638)
(495,646)
(115,121)
2017
Weighted
average
exercise price
p
355.08
409.00
327.04
364.03
361.90
355.32
Number of options
24,253,209
5,998,098
(3,094,372)
(944,431)
(1,004,017)
(111,909)
28,658,026
375.20
3,457,732
369.88
25,096,578
911,019
370.81
366.51
(d) Expense charged to the income statement
The total expense recognised for the year arising from equity compensation plans were as follows:
Equity-settled expense
Cash-settled expense
Total (note 11(b))
2018
£m
64
—
64
2017
£m
77
—
77
(e) Fair value of options and awards granted after 7 November 2002
The weighted average fair values of options and awards granted during the year, estimated by using the Binomial option pricing model and
Monte Carlo Simulation model, were £0.78 and £4.84 (2017: £1.00 and £4.94) respectively.
(i) Share options
The fair value of the options was estimated on the date of grant, based on the following weighted average assumptions:
Weighted average assumption
Share price
Exercise price
Expected volatility
Expected life
Expected dividend yield
Risk-free interest rate
2018
2017
480p
387p
24.85%
506p
409p
26.04%
3.67 years 3.70 years
4.61%
0.55%
5.88%
1.05%
The expected volatility used was based on the historical volatility of the share price over a period equivalent to the expected life of the
option prior to its date of grant. The risk-free interest rate was based on the yields available on UK government bonds as at the date of
grant. The bonds chosen were those with a similar remaining term to the expected life of the options. 2,111,514 options granted after 7
November 2002 were exercised during the year (2017: 3,094,372).
(ii) Share awards
The fair value of the awards was estimated on the date of grant based on the following weighted average assumptions:
Weighted average assumption
Share price
Expected volatility1
Expected volatility of comparator companies’ share price1
Correlation between Aviva and comparator competitors’ share price1
Expected life1
Expected dividend yield2
Risk-free interest rate1
2018
2017
500p
25%
25%
64%
523p
28%
26%
59%
2.64 years 2.76 years
0.00%
0.59%
0.00%
0.80%
1 For awards with market-based performance conditions only.
2 Expected dividend yield assumption was only used to fair value LTIP awards issued in France. In 2017, LTIP awards with no market performance conditions were issued in France therefore this assumption was not used in the
year.
The expected volatility used was based on the historical volatility of the share price over a period equivalent to the expected life of the share
award prior to its date of grant. The risk-free interest rate was based on the yields available on UK government bonds as at the date
of grant. The bonds chosen were those with a similar remaining term to the expected life of the share awards.
Aviva plc Annual report and accounts 2018
173
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
34 – Treasury shares
The following table summarises information about treasury shares at 31 December 2018:
Shares held by employee trusts
Shares held by subsidiary companies
Number
455,986
2,435,983
2,891,969
2018
£m
Number
2
295,906
13 2,471,599
15 2,767,505
2017
£m
1
13
14
(a) Shares held by employee trusts
Prior to 2014, we satisfied awards and options granted under the Group’s share plans primarily through shares purchased in the market and
held by employee share trusts. From 2014 we primarily issue new shares except where it is necessary to use shares held by an employee
share trust. This note gives details of the shares held in these trusts. Movements in the carrying value of shares held by employee trusts
comprise:
Cost debited to shareholders’ funds
At 1 January
Acquired in the year
Distributed in the year
Balance at 31 December
Number
295,906
765,582
(605,502)
455,986
2018
£m
Number
1 1,127,473
4
236,585
(3) (1,068,152)
2
295,906
2017
£m
1
1
(1)
1
The shares are owned by employee share trusts with an undertaking to satisfy awards of shares in the Company under the Company’s share
plans and schemes. Details of the features of the plans can be found in the directors’ remuneration report and/or in note 33.
These shares were either purchased in the market or, in 2015, new shares were issued to the trust and are carried at weighted average cost.
At 31 December 2018, they had an aggregate nominal value of £113,997 (2017: £73,977) and a market value of £1,712,227 (2017: £1,498,764).
The trustees have waived their rights to dividends on the shares held in the trusts.
(b) Shares held by subsidiary companies
At 31 December 2018, the balance of shares held by subsidiary companies of 2,435,983 (2017: 2,471,599 shares) had an aggregate nominal
value of £608,996 (2017: £617,900) and a market value of £9,148,336 (2017: £13,295,284).
35 – Preference share capital
This note gives details of Aviva plc’s preference share capital.
The preference share capital of the Company at 31 December was:
Issued and paid up
100,000,000 8.375% cumulative irredeemable preference shares of £1 each
100,000,000 8.75% cumulative irredeemable preference shares of £1 each
2018
£m
100
100
200
2017
£m
100
100
200
The issued preference shares are non-voting except where their dividends are in arrears, on a winding up or where their rights are altered.
On a winding up, they carry a preferential right of return of capital ahead of the ordinary shares. Holders are entitled to receive dividends
out of the profits available for distribution and resolved to be distributed in priority to the payment of dividends to holders of ordinary
shares. The Company does not have a contractual obligation to deliver cash or other financial assets to the preference shareholders and
therefore the directors may make dividend payments at their discretion.
At the end of 2018 the fair value of Aviva plc’s preference share capital was £264 million (2017: £348 million).
Following our statement at the full year 2017 results that we “have the ability to cancel our preference shares”, Aviva listened to the views of
investors, who expressed concerns, and as a result Aviva subsequently announced on 23 March 2018 that it had decided to take “no action
to cancel its preference shares”. Under current regulation the preference shares will no longer count as regulatory capital in 2026. Aviva will
work towards obtaining regulatory approval for the preference shares, or a suitable substitute, to qualify as capital from 2026 onwards. If as
we approach 2026 Aviva needs to reconsider this position, it will do so after taking into account the fair market value of the preference
shares at that time.
On 30 April 2018 Aviva announced a charge of £14 million relating to a provision for the goodwill payment scheme to those preference
shareholders who sold preference shares in the period from 8 and 22 March (inclusive) at a share price that was lower than the price that
the preference shares returned to following the announcement on 23 March 2018. The total cost of the goodwill payment scheme was
£10 million relating to the goodwill payments to preference shareholders, and associated administration costs, against our initial estimate
of £14 million. The nature of these costs and the restricted time-period that defines eligibility to receive a payment demonstrates that they
are non-recurrent and are not reflective of the Group’s ongoing financial performance.
At the 2015 Annual General Meeting, the Company was authorised to allot sterling new preference shares, as defined in the Company’s
articles of association, up to a maximum nominal value of £500 million.
Aviva plc Annual report and accounts 2018
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Other information
Notes to the consolidated financial statements
Continued
36 – Direct capital instrument and tier 1 notes
Notional amount
5.9021% £500 million direct capital instrument – Issued November 2004
6.875% £210 million STICS – Issued November 2003
Total
2018
£m
500
231
731
2017
£m
500
231
731
The direct capital instrument (the DCI) was issued on 25 November 2004. The DCI has no fixed redemption date but the Company may, at
its sole option, redeem all (but not part) of the principal amount on 27 July 2020, at which date the interest rate changes to a variable rate,
or on any respective coupon payment date thereafter. The variable rate will be the six month sterling deposit rate plus margin.
The Step-up Tier one Insurance Capital Securities (‘STICS’) were issued on 21 November 2003 by Friends Life Holdings plc, substituted as
issuer by Aviva plc on 1 October 2015. The STICS are irrevocably guaranteed on a subordinated basis by Aviva Life & Pensions UK Limited.
Prior to the Part VII transfer of the Friends Life business into UK Life on 1 October 2017 the guarantor for the STICS was Friends Life Limited.
The STICS have no fixed redemption date but the Company may, at its sole option, redeem the instrument (in whole or in part) on
21 November 2019, or on the coupon payment date falling on successive fifth anniversaries from this date. For each coupon period
beginning 21 November 2019, the STICS will bear interest reset every five years at the rate per annum which is the aggregate of 2.97%
and the Gross Redemption Yield of the Benchmark Gilt.
The Company has the option to defer coupon payments on the DCI and the STICS on any relevant payment date.
In relation to the DCI, deferred coupons shall only be satisfied should the Company exercise its sole option to redeem the instruments.
In relation to the STICS, deferred coupons may be satisfied at any time, at the sole option of the Company. The Company is required to
satisfy deferred coupons upon the earliest of the following:
• Resumption of payment of coupons on the STICS; or
• Redemption; or
• The commencement of winding up of the issuer.
No interest will accrue on any deferred coupon on the DCI. Interest will accrue on deferred coupons on the STICS at the then current rate of
interest on the STICS.
Deferred coupons on the DCI and the STICS will be satisfied by the issue and sale of ordinary shares in the Company at their prevailing
market value, to a sum as near as practicable to (and at least equal to) the relevant deferred coupons. In the event of any coupon deferral,
the Company will not declare or pay any dividend on its ordinary or preference share capital. These instruments have been treated as
equity. Please refer to accounting policy AE.
At the end of 2018 the fair value of the DCI and the STICS was £722 million (2017: £778 million).
37 – Merger reserve
Prior to 1 January 2004, certain significant business combinations were accounted for using the ‘pooling of interests method’ (or merger
accounting), which treats the merged groups as if they had been combined throughout the current and comparative accounting periods.
Merger accounting principles for these combinations gave rise to a merger reserve in the consolidated statement of financial position,
being the difference between the nominal value of new shares issued by the Parent Company for the acquisition of the shares of the
subsidiary and the subsidiary’s own share capital and share premium account.
The merger reserve is also used where more than 90% of the shares in a subsidiary are acquired and the consideration includes the issue
of new shares by the Company, thereby attracting merger relief under the Companies Act 1985 and, from 1 October 2009, the Companies
Act 2006.
The balance of the merger reserve at 31 December 2018 is £8,974 million (2017: £8,974 million).
Aviva plc Annual report and accounts 2018
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Other information
Notes to the consolidated financial statements
Continued
38 – Currency translation and other reserves
This note gives details of the currency translation and other reserves forming part of the Group’s consolidated equity and shows the
movements during the year net of non-controlling interests:
Balance at 1 January 2017
Arising in the year through other comprehensive income:
Fair value losses
Fair value gains transferred to profit on disposals
Share of other comprehensive income of joint ventures and associates
Foreign exchange rate movements1
Aggregate tax effect – shareholders’ tax
Total other comprehensive income for the year
Fair value gains transferred to retained earnings on disposals
Transfer to profit on disposal of subsidiaries, joint ventures and associates
Changes in non-controlling interests in subsidiaries
Reserves credit for equity compensation plans
Shares issued under equity compensation plans
Balance at 31 December 2017
Arising in the year through other comprehensive income:
Fair value gains
Fair value gains transferred to profit on disposals
Share of other comprehensive income of joint ventures and associates
Foreign exchange rate movements1
Aggregate tax effect – shareholders’ tax
Total other comprehensive income for the year
Fair value gains transferred to retained earnings on disposals
Transfer to profit on disposal of subsidiaries, joint ventures and associates
Changes in non-controlling interests in subsidiaries
Reserves credit for equity compensation plans
Shares issued under equity compensation plans
Other reserves
Currency
translation
reserve (see
accounting
policy E)
£m
Owner
occupied
properties
reserve (see
accounting
policy P)
£m
Investment
valuation
reserve (see
accounting
policy T)
£m
Hedging
instruments
reserve (see
accounting
policy U)
£m
Equity
compensation
reserve (see
accounting
policy AB)
£m
1,146
28
59
(514)
78
—
—
—
125
(4)
121
—
(126)
—
—
—
(1)
—
—
—
2
1
(2)
(1)
—
—
—
(7)
(2)
6
—
9
6
—
—
—
—
—
—
—
—
(100)
—
(100)
—
138
—
—
—
—
—
—
—
—
—
—
—
—
77
(44)
Total
£m
(349)
(8)
(2)
6
(100)
11
(93)
(2)
137
—
77
(44)
1,141
26
65
(476)
111
(274)
—
—
—
27
1
28
—
(40)
(7)
—
—
1
—
—
—
—
1
—
—
—
—
—
57
(78)
(10)
—
7
(24)
—
(1)
—
—
—
40
—
—
—
(27)
—
(27)
—
37
—
—
—
—
—
—
—
—
—
—
—
—
64
(55)
58
(78)
(10)
(27)
7
(50)
—
36
—
64
(55)
(466)
120
(279)
Balance at 31 December 2018
1,122
27
1 Foreign exchange rate movements recorded in the consolidated statement of comprehensive income of £5 million (2017: £68 million) relate to the currency translation reserve of £27 million (2017: £125 million), the hedging
instrument reserve of £(27) million (2017: £(100) million) and non-controlling interests (refer to note 40) of £5 million (2017: £43 million).
39 – Retained earnings
This note analyses the movements in the consolidated retained earnings during the year.
Balance at 1 January
Profit for the year attributable to equity shareholders
Remeasurements of pension schemes1 (note 51)
Dividends and appropriations (note 16)
Shares purchased in buy-back (note 32)
Net shares issued under equity compensation plans
Effect of changes in non-controlling interests in existing subsidiaries
Forfeited dividend income2
Transfer from other reserves on disposal of subsidiaries, joint ventures and associates (note 38)
Reclassification of tier 1 notes to financial liabilities (note 36)
Fair value gains realised from other reserves (note 38)
Aggregate tax effect
Balance at 31 December
2018
£m
4,918
1,568
(279)
(1,189)
(600)
49
1
4
—
—
—
51
4,523
2017
£m
4,835
1,497
(5)
(1,081)
(300)
42
—
—
1
(92)
2
19
4,918
1 Net remeasurements of pension schemes recorded in the consolidated statement of comprehensive income of £279 million loss (2017: £5 million loss) includes £280 million of remeasurement losses (2017: £5 million losses) on
the main pension schemes (refer to note 51) with a small amount of gains in relation to other schemes.
2 The Group has commenced a shareholder forfeiture programme, where the shares of shareholders with whom Aviva has lost contact over the last 12 years will be forfeited and sold on. Any associated unclaimed dividends will
be reclaimed by the Group. After covering administration costs, the majority of the money will be put into a charitable foundation.
The Group’s regulated subsidiaries are required to hold sufficient capital to meet acceptable solvency levels based on applicable local
regulations. Their ability to transfer retained earnings to the UK parent companies is therefore restricted to the extent these earnings form
part of local regulatory capital.
Aviva plc Annual report and accounts 2018
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
40 – Non-controlling interests
This note gives details of the Group’s non-controlling interests and shows the movements during the year.
Non-controlling interests at 31 December comprised:
Equity shares in subsidiaries
Share of earnings
Share of other reserves
Preference shares in General Accident plc
Movements in the year comprised:
Balance at 1 January
Profit for the year attributable to non-controlling interests
Foreign exchange rate movements
Total comprehensive income attributable to non-controlling interests
Capital contributions from non-controlling interests
Non-controlling interests share of dividends declared in the year
Changes in non-controlling interests in subsidiaries1
Balance at 31 December
2018
£m
288
415
13
716
250
966
2018
£m
1,235
119
5
124
3
(90)
(306)
966
2017
£m
423
288
274
985
250
1,235
2017
£m
1,425
149
43
192
36
(103)
(315)
1,235
1 Changes in non-controlling interests in 2018 primarily relate to the sale of the Group’s shareholdings in Avipop (Italy), the sale of the life insurance and pension joint ventures Caja Murcia Vida and Caja Granada Vida (Spain)
and the change in control status of Hong Kong. Refer to note 4 for more information. Changes in non-controlling interests in 2017 primarily relate to Aviva’s sale of its 50% shareholding in Antarius (France), the sale of its 50%
shareholding in life insurance and pension partnerships Unicorp Vida and Caja España Vida (Spain) and the consolidation of joint venture insurance operations in Poland, effective 1 January 2017, as a result of changes to the
shareholders’ agreement.
The Group has no subsidiaries whose non-controlling interest is material on the basis of their share of profit or loss.
41 – Contract liabilities and associated reinsurance
The Group’s liabilities for insurance and investment contracts it has sold, and the associated reinsurance, is covered in the following notes:
• Note 42 covers insurance liabilities
• Note 43 covers the methodology and assumptions used in calculating the insurance liabilities
• Note 44 covers liabilities for investment contracts
• Note 45 details the financial guarantees and options on certain contracts
• Note 46 details the associated reinsurance assets on these liabilities
• Note 47 shows the effects of changes in the assumptions on the liabilities
(a) Carrying amount
The following is a summary of the contract liabilities and related reinsurance assets as at 31 December.
Long-term business
Insurance liabilities
Liabilities for participating investment contracts
Liabilities for non-participating investment contracts
Outstanding claims provisions
General insurance and health
Outstanding claims provisions
Provisions for claims incurred but not reported
Provision for unearned premiums
Provision arising from liability adequacy tests1
Total
Less: Amounts classified as held for sale
Gross
provisions
£m
Reinsurance
assets
£m
2018
Net
£m
Gross
provisions
£m
Reinsurance
assets
£m
2017
Net
£m
(125,829)
(90,455)
(120,354)
(336,638)
(2,001)
5,836 (119,993)
(90,454)
4,009 (116,345)
1
(130,972)
(87,654)
(124,995)
5,469
2
6,094
(125,503)
(87,652)
(118,901)
9,846 (326,792)
(1,912)
89
(343,621)
(1,798)
11,565
64
(332,056)
(1,734)
(338,639)
9,935 (328,704)
(345,419)
11,629
(333,790)
(9,046)
(2,360)
(11,406)
(4,946)
(16)
789
822
1,611
254
—
(8,257)
(1,538)
(9,795)
(4,692)
(16)
(8,964)
(2,837)
(11,801)
(4,980)
(13)
845
884
1,729
257
—
(8,119)
(1,953)
(10,072)
(4,723)
(13)
(16,368)
1,865
(14,503)
(16,794)
1,986
(14,808)
(355,007)
11,800 (343,207)
(362,213)
13,615
(348,598)
8,462
(45)
8,417
9,577
(123)
9,454
(346,545)
11,755 (334,790)
(352,636)
13,492
(339,144)
1 Provision arising from liability adequacy tests relates to general insurance business only. Liability adequacy test provisions for life operations, where applicable, are included in other line items. At 31 December 2018 this
provision is nil for the life operations.
Aviva plc Annual report and accounts 2018
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
41 – Contract liabilities and associated reinsurance continued
(b) Change in contract liabilities, net of reinsurance, recognised as an expense
The purpose of the following table is to reconcile the change in insurance liabilities, net of reinsurance, shown on the income statement
(note 7), to the change in insurance liabilities recognised as an expense in the relevant movement tables in the following notes. The
components of the reconciliation are the change in provision for outstanding claims on long-term business (which is not included in a
separate movement table), and the unwind of discounting on general insurance reserves (which is included within finance costs in the
income statement). For general insurance and health, the change in the provision for unearned premiums is not included in the
reconciliation as, within the income statement, this is included within earned premiums.
2018
Long-term business
Change in insurance liabilities (note 42(b)(iii))
Change in provision for outstanding claims
General insurance and health
Change in insurance liabilities (note 42(c)(iii) and 46(c)(ii))1
Less: Unwind of discount
Total change in insurance liabilities (note 7)
Gross
£m
Reinsurance
£m
Net
£m
(6,284)
190
(6,094)
(313)
(8)
(321)
(6,415)
61
(11)
50
111
8
119
169
(6,223)
179
(6,044)
(202)
—
(202)
(6,246)
1
Includes £(190) million in the UK General Insurance and health business relating to a change in the discount rate used for estimating lump sum payments in the settlement of bodily injury claims.
2017
Long-term business
Change in insurance liabilities (note 42(b)(iii))
Change in provision for outstanding claims
General insurance and health
Change in insurance liabilities (note 42(c)(iii) and 46(c)(ii))
Less: Unwind of discount
Total change in insurance liabilities (note 7)
Gross
£m
Reinsurance
£m
624
(65)
559
73
(9)
64
623
315
(11)
304
138
9
147
451
Net
£m
939
(76)
863
211
—
211
1,074
For non-participating investment contracts, deposits collected and amounts withdrawn are not shown on the income statement, but are
accounted for directly through the statement of financial position as an adjustment to the gross liabilities for investment contracts. The
associated change in investment contract provisions shown on the income statement consists of the attributed investment return. For
participating investment contracts, the change in investment contract provisions on the income statement primarily consists of the
movement in participating investment contract liabilities (net of reinsurance) over the reporting period.
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
42 – Insurance liabilities
This note analyses the Group’s gross insurance contract liabilities for the long-term and general insurance and health business, describes
how the Group calculates these liabilities and presents the movement in these liabilities during the year.
(a) Carrying amount
Insurance liabilities (gross of reinsurance) at 31 December comprised:
Long-term business
Participating insurance liabilities
Unit-linked non-participating insurance liabilities
Other non-participating insurance liabilities
Outstanding claims provisions
General insurance and health
Outstanding claims provisions
Provision for claims incurred but not reported
Provision for unearned premiums
Provision arising from liability adequacy tests1
Total
Less: Amounts classified as held for sale
2018
£m
2017
£m
40,840
14,480
70,509
49,928
16,040
65,004
125,829
2,001
130,972
1,798
127,830
132,770
9,046
2,360
11,406
4,946
16
8,964
2,837
11,801
4,980
13
16,368
16,794
144,198
149,564
(121)
(914)
144,077
148,650
1 Provision arising from liability adequacy tests relates to general insurance business only. Liability adequacy test provisions for life operations, where applicable, are included in other line items. At 31 December 2018 this
provision is nil for the life operations.
(b) Long-term business liabilities
(i) Business description
The Group underwrites long-term business in a number of countries as follows:
• In the UK, long-term business is mainly written in the ‘Non-Profit’ fund and in a number of ‘With-Profits’ sub-funds. In the ‘Non-Profit’ fund
shareholders are entitled to 100% of the distributed profits. In the ‘With-Profits’ sub-funds the with-profits policyholders are entitled to
between 40% and 100% of distributed profits, depending on the fund rules. There is also the Reattributed Inherited Estate External
Support Account (RIEESA), which does not itself underwrite any business, but provides capital support to one of the with-profits sub-
funds and receives any surplus or deficit emerging from it. In the RIEESA, shareholders are entitled to 100% of the distributed profits, but
these cannot be distributed until the ‘lock-in’ criteria set by the Reattribution Scheme have been met
• In France, the majority of policyholders’ benefits are determined by investment performance, subject to certain guarantees, and
shareholders’ profits are derived largely from management fees. In addition, a substantial number of policies participate in investment
returns, with the balance being attributable to shareholders
• In other operations in Europe and Asia, a range of long-term insurance and savings products are written
(ii) Group practice
The long-term business liabilities are calculated separately for each of the Group’s life operations. The provisions for overseas subsidiaries
have generally been included on the basis of local regulatory requirements, modified where necessary to reflect the requirements of the
Companies Act 2006.
Material judgement is required in calculating the liabilities and is exercised particularly through the choice of assumptions where discretion
is permitted. In turn, the assumptions used depend on the circumstances prevailing in each of the life operations. Provisions are most
sensitive to assumptions regarding discount rates, mortality and morbidity rates. Where discount rate assumptions are based on current
market yields on fixed interest securities, allowance is made for default risk implicit in the yields on the underlying assets.
Bonuses paid during the year are reflected in claims paid, whereas those allocated as part of the bonus declaration are included in the
movements in the long-term business liabilities.
A description of the main methodology and most material valuation assumptions can be found in note 43.
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Other information
Notes to the consolidated financial statements
Continued
42 – Insurance liabilities continued
(iii) Movements
The following movements have occurred in the gross long-term business liabilities during the year:
Carrying amount at 1 January
Liabilities in respect of new business
Expected change in existing business
Variance between actual and expected experience
Impact of operating assumption changes
Impact of economic assumption changes
Other movements recognised as an expense1
Change in liability recognised as an expense (note 41(b))
Effect of portfolio transfers, acquisitions and disposals2
Foreign exchange rate movements
Other movements3
Carrying amount at 31 December
2018
£m
2017
£m
130,972
6,190
(7,952)
(1,844)
(1,456)
(959)
(263)
(6,284)
788
413
(60)
137,218
5,731
(7,747)
1,520
(1,175)
2,115
180
624
(8,124)
1,252
2
125,829
130,972
1 Other movements during 2017 and 2018 primarily relate to a special bonus distribution to with-profits policyholders in the UK.
2 The movement during 2018 includes the acquisition of Friends First in Ireland offset by the disposal of Spain and Avipop in Italy. The movement during 2017 primarily relates to the disposal of Antarius in France and a major
share of the business in Spain offset by the consolidation of the Poland and Vietnam joint ventures.
3 Other movements during 2018 include the reclassification in France from insurance to participating investment contracts (£(56) million).
For many types of long-term business, including unit-linked and participating insurance liabilities, movements in asset values are offset
by corresponding changes in liabilities, limiting the net impact on profit. The gross long-term business liabilities decreased by £5.1 billion
during 2018 (2017: £6.2 billion decrease) mainly driven by the variance between actual and expected experience of £(1.8) billion, which was
mainly due to adverse equity returns in France and the reduction in with-profits and unit-linked liabilities in the UK; the impact of non-
economic assumption changes of £(1.5) billion mainly due to updates to longevity assumptions (with the impact on profit partially offset by
a corresponding reduction in reinsurance assets) in the UK; and the economic assumption changes of £(1.0) billion, which reflects an
increase in valuation interest rates in response to widening credit spreads, primarily in respect of immediate annuity and participating
insurance contracts in the UK.
For participating insurance liabilities, a movement in liabilities is generally offset by a corresponding adjustment to the unallocated
divisible surplus and does not impact profit. Where assumption changes impact profit, these are included in the effect of changes in
assumptions and estimates during the year (shown in note 47), together with the impact of movements in related non-financial assets.
(c) General insurance and health liabilities
(i) Business description
The Group underwrites general insurance and health business in a number of countries as follows:
• In the UK, providing individual and corporate customers with a wide range of insurance products
• In Canada, providing a range of personal and commercial lines products
• In Europe and Asia, providing a range of general insurance and health products
(ii) Group practice
Delays occur in the notification and settlement of claims and a substantial measure of experience and judgement is involved in assessing
outstanding liabilities, the ultimate cost of which cannot be known with certainty at the statement of financial position date. The liabilities
for general insurance and health business are based on information currently available. However, it is inherent in the nature of the business
written that the ultimate liabilities may vary as a result of subsequent developments.
Provisions for outstanding claims are established to cover the outstanding expected ultimate liability for losses and loss adjustment
expenses (LAE) in respect of all claims that have already occurred. The provisions established cover reported claims and associated LAE, as
well as claims incurred but not yet reported and associated LAE.
The Group only establishes reserves for losses that have already occurred. The Group therefore does not establish catastrophe equalisation
reserves that defer a share of income in respect of certain lines of business from years in which a catastrophe does not occur to future
periods in which catastrophes may occur. When calculating reserves, the Group takes into account estimated future recoveries from
salvage and subrogation, and a separate asset is recorded for expected future recoveries from reinsurers after considering their
collectability.
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
42 – Insurance liabilities continued
The table below shows the total general insurance and health liabilities split by outstanding claim provisions and provision for claims
incurred but not reported (IBNR provisions), gross of reinsurance, by major line of business.
Motor
Property
Liability
Creditor
Other
As at 31
December
2018
As at 31
December
2017
Outstanding
claim
provisions
£m
IBNR
provisions
£m
Total claim
provisions
£m
Outstanding
claim
provisions
£m
IBNR
provisions
£m
Total claim
provisions
£m
5,019
1,833
1,856
4
334
9,046
963
104
1,164
7
122
5,982
1,937
3,020
11
456
2,360
11,406
5,039
1,734
1,814
24
353
8,964
1,339
114
1,270
11
103
2,837
6,378
1,848
3,084
35
456
11,801
Outstanding claims provisions are based on undiscounted estimates of future claim payments, except for the following classes of business
for which discounted provisions are held:
Class
Reinsured London Market business
Latent claims
Structured settlements
2018
1.0% to 2.9%
1.0% to 2.6%
1.0% to 3.0%
Discount rate
2017
0.7% to 2.6%
0.7% to 1.9%
0.5% to 3.0%
2018
10 years
11 to 18 years
9 to 37 years
Mean term of liabilities
2017
9 years
8 to 17 years
7 to 39 years
The gross outstanding claims provision before discounting was £10,955 million (2017: £11,346 million). The period of time which will elapse
before the liabilities are settled has been estimated by modelling the settlement patterns of the underlying claims.
The discount rate that has been applied to latent claims reserves and reinsured London Market business is based on the swap curve in the
relevant currency having regard to the expected settlement dates of the claims. The range of discount rates used depends on the duration
of the claims and is given in the table above. The duration of the claims span over 35 years, with the average duration being between 10 and
18 years depending on the geographical region.
Any change in discount rates between the start and the end of the accounting period is reflected outside of Group adjusted operating profit
as an economic assumption change.
(iii) Movements in general insurance and health claims liabilities
The following changes have occurred in the general insurance and health claims liabilities during the year:
Carrying amount at 1 January
Impact of changes in assumptions1
Claim losses and expenses incurred in the current year
Decrease in estimated claim losses and expenses incurred in prior periods
Incurred claims losses and expenses
Less:
Payments made on claims incurred in the current year
Payments made on claims incurred in prior periods
Recoveries on claim payments
Claims payments made in the period, net of recoveries
Unwind of discounting
Changes in claims reserve recognised as an expense (note 41(b))
Effect of portfolio transfers, acquisitions and disposals2
Foreign exchange rate movements
Carrying amount at 31 December
1 Shown gross of reinsurance. The impact of reinsurance was £23 million, resulting in a net impact of £1 million as per note 47.
2 The movement during 2018 relates to the disposal of Avipop in Italy.
(iv) Movements in general insurance and health unearned premiums
The following changes have occurred in the liabilities for unearned premiums (UPR) during the year:
Carrying amount at 1 January
Premiums written during the year
Less: Premiums earned during the year
Changes in UPR recognised as an expense/(income)
Gross portfolio transfers and acquisitions1
Foreign exchange rate movements
Carrying amount at 31 December
1 The movement during 2018 relates to the disposal of Avipop in Italy. The £46 million in respect of 2017 relates to the full consolidation of the Poland Joint Venture.
Aviva plc Annual report and accounts 2018
181
2018
£m
11,801
(22)
7,158
(544)
2017
£m
11,709
(7)
6,890
(172)
6,592
6,711
(3,927)
(3,343)
357
(6,913)
8
(313)
(29)
(53)
(3,642)
(3,283)
278
(6,647)
9
73
3
16
11,406
11,801
2018
£m
2017
£m
4,980
10,519
(10,421)
4,766
10,523
(10,365)
98
(103)
(29)
158
46
10
4,946
4,980
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
42 – Insurance liabilities continued
(v) Analysis of general insurance and health claims development
The tables that follow present the development of claims payments and the estimated ultimate cost of claims for the accident years 2009
to 2018. The upper half of the tables shows the cumulative amounts paid during successive years related to each accident year, while the
lower section of the tables shows the original estimated ultimate cost of claims and how these original estimates have increased or
decreased, as more information becomes known about the individual claims and overall claim frequency and severity.
Key elements of the development of prior accident year general insurance and health net provisions during 2018 were:
• £372 million release from the UK due to a change in the discount rate used for estimating lump sum payments in settlement of bodily
injury claims (for further details see note 43) and favourable claims experience in Personal and Commercial motor
• £78 million release from Canada primarily due to favourable claims experience on personal motor and aligning RBC claims practices with
that of the Aviva book
• £127 million release from Europe (including Ireland) mainly due to continued favourable development in France
Key elements of the development of prior accident year general insurance and health net provisions during 2017 were:
• £107 million release from UK due to favourable claims experience in Personal Motor offset by the less favourable experience in 2017 of
Commercial Liability claims and large claims in Personal and Commercial Property
• £2 million strengthening from Canada due to the better than expected claims experience following the 2010 Ontario auto reforms tailing
off, unfavourable development in the Ontario Accident Benefits coverage in the RBC book in 2017, deterioration of experience in Alberta
Auto Bodily Injury and Newfoundland Auto Bodily Injury
• £79 million release from Europe (including Ireland) mainly due to continued favourable development in France and Italy
Gross of reinsurance
Before the effect of reinsurance, the loss development table is:
All prior
years
£m
2009
£m
2010
£m
2011
£m
2012
£m
2013
£m
2014
£m
2015
£m
2016
£m
2017
£m
2018
£m
Total
£m
Accident year
Gross cumulative claim payments
At end of accident year
One year later
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Estimate of gross ultimate claims
At end of accident year
One year later
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Estimate of gross ultimate claims
Cumulative payments
Effect of discounting
Present value
Cumulative effect of foreign exchange
movements
Effect of acquisitions
Present value recognised in the
2,388
(411)
1,977
—
11
(3,780)
(5,464)
(6,102)
(6,393)
(6,672)
(6,836)
(6,958)
(7,043)
(7,078)
(7,100)
7,364
7,297
7,281
7,215
7,204
7,239
7,217
7,256
7,228
7,227
7,227
(7,100)
127
(14)
113
—
(1)
(3,502)
(5,466)
(5,875)
(6,163)
(6,405)
(6,564)
(6,649)
(6,690)
(6,718)
6,911
7,006
6,950
6,914
6,912
6,906
6,926
6,913
6,877
(3,420)
(4,765)
(5,150)
(5,457)
(5,712)
(5,864)
(5,978)
(6,032)
(3,055)
(4,373)
(4,812)
(5,118)
(5,376)
(5,556)
(5,635)
(3,068)
(4,476)
(4,916)
(5,221)
(5,467)
(5,645)
(3,102)
(4,295)
(4,681)
(4,974)
(5,244)
6,428
6,330
6,315
6,292
6,262
6,265
6,265
6,223
6,201
6,028
6,002
5,952
6,002
5,979
5,910
6,122
6,039
6,029
6,067
6,034
5,996
5,896
5,833
5,865
5,842
5,772
(2,991)
(4,285)
(4,710)
(4,997)
(3,534)
(4,972)
(5,435)
(3,517)
(4,952)
(3,769)
5,851
5,930
5,912
5,814
6,947
6,931
6,864
6,894
6,796
7,185
6,877
(6,718)
6,223
(6,032)
5,910
(5,635)
5,996
(5,645)
5, 772
(5,244)
5,814
(4,997)
6,864
(5,435)
6,796
(4,952)
7,185
(3,769)
159
(25)
134
(1)
2
191
(2)
189
2
12
275
—
275
6
15
351
(1)
350
12
17
528
—
528
31
38
817
—
817
101
57
1,429
—
1,429
1,844
—
1,844
3,416 11,525
(453)
—
3,416 11,072
(7)
51
(12)
—
—
—
132
202
statement of financial position
1,988
112
135
203
296
379
597
975
1,473
1,832
3,416 11,406
Aviva plc Annual report and accounts 2018
182
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
42 – Insurance liabilities continued
Net of reinsurance
After the effect of reinsurance, the loss development table is:
Accident year
Net cumulative claim payments
At end of accident year
One year later
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Estimate of net ultimate claims
At end of accident year
One year later
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Estimate of net ultimate claims
Cumulative payments
Effect of discounting
Present value
Cumulative effect of foreign exchange
movements
Effect of acquisitions
Present value recognised in the
statement of financial position
All prior
years
£m
2009
£m
2010
£m
2011
£m
2012
£m
2013
£m
2014
£m
2015
£m
2016
£m
2017
£m
2018
£m
Total
£m
(3,650)
(5,286)
(5,885)
(6,177)
(6,410)
(6,568)
(6,657)
(6,708)
(6,744)
(6,771)
7,115
7,067
7,036
6,978
6,940
6,977
6,908
6,897
6,896
6,901
6,901
(6,771)
130
(12)
118
—
(1)
907
(157)
750
—
12
(3,386)
(5,242)
(5,637)
(5,905)
(6,137)
(6,278)
(6,361)
(6,411)
(6,440)
6,650
6,751
6,685
6,644
6,634
6,614
6,624
6,615
6,590
(3,300)
(4,578)
(4,963)
(5,263)
(5,485)
(5,626)
(5,740)
(5,798)
(2,925)
(4,166)
(4,575)
(4,870)
(5,110)
(5,289)
(5,371)
(2,905)
(4,240)
(4,649)
(4,918)
(5,159)
(5,324)
(2,972)
(4,079)
(4,432)
(4,720)
(4,973)
6,202
6,103
6,095
6,077
6,034
6,005
6,003
5,967
5,941
5,765
5,728
5,683
5,717
5,680
5,631
5,838
5,745
5,752
5,733
5,689
5,653
5,613
5,575
5,591
5,559
5,490
(2,867)
(4,061)
(4,452)
(4,725)
(3,309)
(4,591)
(5,012)
(3,483)
(4,843)
(3,718)
5,548
5,635
5,608
5,517
6,489
6,458
6,377
6,714
6,591
6,997
6,590
(6,440)
5,967
(5,798)
5,631
(5,371)
5,653
(5,324)
5,490
(4,973)
5,517
(4,725)
6,377
(5,012)
6,591
(4,843)
6,997
(3,718)
150
(21)
129
(1)
2
169
3
172
1
12
260
—
260
6
15
329
4
333
11
17
517
—
517
30
39
792
—
792
99
57
1,365
—
1,748
—
3,279
—
9,646
(183)
1,365
1,748
3,279
9,463
(6)
51
(12)
—
—
—
128
204
762
117
130
185
281
361
586
948
1,410
1,736
3,279
9,795
In the loss development tables shown above, the cumulative claim payments and estimates of cumulative claims for each accident year are
translated into sterling at the exchange rates that applied at the end of that accident year. The impact of using varying exchange rates is
shown at the bottom of each table. Disposals are dealt with by treating all outstanding and IBNR claims of the disposed entity as ‘paid’ at
the date of disposal.
The loss development tables above include information on asbestos and environmental pollution claims provisions from business written
before 2008. The undiscounted claim provisions, net of reinsurance, in respect of this business at 31 December 2018 were £94 million (2017:
£95 million). The movement in the year reflects a reduction of £6 million due to favourable claims development, claim payments net of
reinsurance recoveries and foreign exchange movements.
Aviva plc Annual report and accounts 2018
183
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
43 – Insurance liabilities methodology and assumptions
(a) Long-term business
The main method used for the actuarial valuation of long-term insurance liabilities is the gross premium method which involves the
discounting of projected future cash flows. The cash flows are calculated using the contractual premiums payable together with explicit
assumptions for investment returns, discount rates, inflation, mortality, morbidity, persistency and future expenses. These assumptions can
vary by contract type and reflect current and expected future experience with an allowance for prudence.
The methodology and assumptions described below relate to the UK and France insurance businesses only.
(i) UK
Non-profit business
The valuation of non-profit business is based on grandfathered regulatory requirements under IFRS 4 prior to the adoption of Solvency II,
adjusted to remove certain regulatory reserves and margins in assumptions, notably for annuity business. Conventional non-profit
contracts, including those written in the with-profits funds, are valued using the gross premium method. For non-profit business in the ex.
Friends Life with-profits funds, the liabilities are measured on a realistic basis with implicit recognition of the present value of future profits.
For unit-linked and some unitised with-profits business, the provisions are valued by adding a prospective non-unit reserve to the bid value
of units. The prospective non-unit reserve is calculated by projecting the future non-unit cash flows using prudent assumptions and on the
assumption that future premiums cease, unless it is more onerous to assume that they continue.
Discount rates
Valuation discount rate assumptions are set with regard to yields on the supporting assets and the general level of long-term interest rates
as measured by gilt yields. An explicit allowance for risk is included by making an explicit deduction from the yields on corporate bonds,
mortgages and deposits, based on historical default experience of each asset class. For equity release assets, the risk allowances are
consistent with those used in the fair value asset methodology, as described in note 23. A further margin for risk is then deducted for all
asset classes.
Valuation discount rates for business in the non-profit funds are as follows:
Valuation discount rates
(Gross of investment expenses)
Assurances
Life conventional non-profit
Pensions conventional non-profit
Annuities
Conventional immediate and deferred annuities
Non-unit reserves on unit-linked business
Life
Pensions
Income Protection
Active lives
Claims in payment (level and index linked)
2018
2017
0.9% to 2.6%
1.1% to 2.1%
0.8% to 2.5%
1.0% to 2.4%
1.2% to 3.0%
1.0% to 2.8%
0.9% to 1.3%
0.9% to 1.6%
0.8% to 1.2%
0.8% to 1.5%
1.1% to 2.6%
1.3% to 1.6%
1.0% to 2.5%
1.0% to 1.5%
The valuation discount rates are after a reduction for risk, but before allowance for investment expenses. For conventional immediate
annuity business, the allowance for risk comprises long-term assumptions on a prudent basis for defaults or (in the case of equity release
assets) expected losses arising from the No-Negative-Equity Guarantee. These allowances vary by asset category and for some asset classes
by rating.
The risk allowances made for corporate bonds, mortgages (including healthcare mortgages, commercial mortgages and infrastructure
assets), and equity release equated to 50 bps, 39-41 bps, and 112 bps respectively at 31 December 2018 (2017: 47-48 bps, 33- 40 bps, and 102
bps respectively).
The total valuation allowance in respect of corporate bonds and mortgages, including healthcare mortgages but excluding equity release,
was £1.9 billion (2017: £1.8 billion) over the remaining term of the portfolio at 31 December 2018. The total valuation allowance in respect of
equity release assets was £1.3 billion at 31 December 2018 (2017: £1.2 billion). Total liabilities for the annuity business were £53.7 billion at
31 December 2018 (2017: £52.0 billion).
Expenses
Maintenance expense assumptions for non-profit business are generally expressed as a ‘per policy’ charge set with regards to an allocation
of current year expense levels by broad category of business and using the policy counts for in-force business. The assumptions also
include an allowance for prudence and increase by future expense inflation over the lifetime of each contract. Expense inflation is assumed
to be in line with RPI, and in line with external agreements for business administered externally. An additional liability is held if projected
per-policy expenses in future years are expected to exceed current assumptions. Further, explicit project expense liabilities are held for non-
discretionary project costs that typically relate to mandatory requirements. Expense-related liabilities are only held where expenses are not
covered by anticipated future profits in the liability methodology, notably for unit-linked contracts. Investment expense assumptions are
generally expressed as a proportion of the assets backing the liabilities.
Aviva plc Annual report and accounts 2018
184
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
43 – Insurance liabilities methodology and assumptions continued
Mortality
Mortality assumptions for non-profit business are set with regard to recent Company experience and general industry trends. The mortality
tables used in the valuation are summarised below:
Mortality tables used
Assurances
Non-profit
Pure endowments and deferred annuities before vesting
Annuities in payment
Pensions business and general annuity business
Bulk purchase annuities
2018
2017
AM00/AF00 or TM08/TF08 adjusted
for smoker status and age/sex
specific factors
AM00/AF00 or TM00/TF00 adjusted
for smoker status and age/sex
specific factors
AM00/AF00 adjusted
AM00/AF00 adjusted
PMA08 HAMWP/PFA08 HAMWP
adjusted plus allowance for future
mortality improvement
CV2
PCMA00/PCFA00 adjusted plus
allowance for future mortality
improvement
PCMA00/PCFA00/CV2
For the largest portfolio of pensions annuity business, the underlying mortality assumptions for males are 105.8% of PMA08 HAMWP
adjusted (2017: 104.0% of PCMA00 adjusted) with base year 2008; for females the underlying mortality assumptions are 99.0% of PFA08
HAMWP adjusted (2017: 94.5% of PCFA00 adjusted) with base year 2008.
Improvements are based on ‘CMI_2017 (S=7.5) Advanced with adjustments’ (2017: ‘CMI_2016 (S=7.5) Advanced with adjustments’) with a
long-term improvement rate of 1.75% (2017: 1.75%) for males and 1.5% (2017: 1.5%) for females, both with an additional improvement for
prudence of 0.5% (2017: 0.5%) to all future annual improvement adjustments. The CMI_2017 tables have been adjusted by adding 0.25%
(2017: 0.25%) and 0.35% (2017: 0.35%) to the initial rate of mortality improvements for males and females respectively (to allow for greater
mortality improvements in the annuitant population relative to the general population on which CMI_2017 is based), and uses the
advanced parameters to taper the long-term improvement rates to zero between ages 90 and 115 (the ‘core’ parameters taper the long-
term improvement rates to zero between ages 85 and 110). In addition, on a significant proportion of individual annuity business, year-
specific adjustments are made to allow for potential selection effects due to the development of the Enhanced Annuity market and
covering possible selection effects from pension freedom reforms.
With-profits business
The Group’s UK with-profits funds are evaluated by reference to FRS 27, which was grandfathered under IFRS 4, prior to the adoption of
Solvency II. This uses an approach of calculating the realistic liabilities for the contracts. The realistic liabilities include the with-profits
benefit reserve (WPBR), and an additional provision for the expected cost of any guarantees and options in excess of the WPBR.
The WPBR for an individual contract is generally calculated on a retrospective basis, and represents the accumulation of the premiums paid
on the contract, allowing for investment return, taxation, expenses and any other charges levied on the contract.
Provisions for guarantees and options within realistic liabilities are measured using market-consistent stochastic models. A stochastic
approach includes measuring the time value of guarantees and options, which represents the additional cost arising from uncertainty
surrounding future economic conditions. Non-market-related assumptions (for example, persistency, mortality and expenses) are assessed
on a best estimate basis with reference to Company and wider industry experience, adjusted to take into account future trends.
The with-profits business is valued by adjusting Solvency II Best Estimate Liabilities and results in a valuation in accordance with FRS 27.
Future investment return
A ‘risk-free’ rate equal to the spot yield on UK swaps is used for the valuation of with-profits business. The rates vary according to the
outstanding term of the policy, with a typical rate as at 31 December 2018 of 1.44% (2017: 1.29%) for a policy with ten years outstanding.
Volatility of investment return
Volatility assumptions are set with reference to implied volatility data on traded market instruments, where available, or on a best estimate
basis where not.
Volatility
Equity returns
Property returns
2018
2017
18.0%
15.8%
20.9%
16.4%
The equity volatility used depends on term, money-ness and region. The figure shown is for a sample UK equity, at the money, with a ten-
year term.
Aviva plc Annual report and accounts 2018
185
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
43 – Insurance liabilities methodology and assumptions continued
Future regular bonuses
Annual bonus assumptions for 2019 have been set consistently with the year-end 2018 declaration. Future annual bonus rates reflect
the principles and practices of each fund. In particular, the level is set with regard to the projected margin for final bonus and the change
from one year to the next is limited to a level consistent with past practice.
Mortality
Mortality assumptions for with-profits business are set with regard to recent Company experience and general industry trends.
The mortality tables used in the valuation are summarised below:
Mortality table used
2018
2017
Assurances, pure endowments and deferred annuities before vesting
Nil or Axx00 adjusted
Nil or Axx00 adjusted
Pensions business after vesting and pensions annuities in payment
PMA08 HAMWP/PFA08 HAMWP
adjusted plus allowance for future
mortality improvement
PCMA00/PCFA00 adjusted plus
allowance for future mortality
improvement
Allowance for future mortality improvement is in line with the rates for non-profit business.
Expenses
Maintenance expense assumptions for with-profits business are generally expressed as a fixed ‘per policy’ charge in line with agreements
between Aviva Life Services UK Limited (UKLS) and Aviva Life & Pensions UK Limited (AVLAP). The assumptions increase by a future inflation
charge over the lifetime of each contract, which is 50% RPI, 100% RPI or 100% RPI + 1% depending on product type. Any excess of expenses
charged by UKLS to AVLAP over the charges specified by the agreements is borne by the non-profit business.
Guarantees and options
The provisions held in respect of guaranteed annuity options for the with-profits and the non-profit business are a prudent assessment of
the additional liability incurred under the option on a basis and method consistent with that used to value basic policy liabilities, and
includes a prudent assessment of the proportion of policyholders who will choose to exercise the option. For further details see note 45.
(ii) France
The majority of reserves arise from single premium savings products and are based on the accumulated fund values, adjusted to maintain
consistency with the value of the assets backing the policyholder liabilities. For traditional business, the net premium method is used for
prospective valuations, in accordance with local regulation, where the valuation assumptions depend on the date of issue of the contract.
The valuation discount rate also depends on the original duration of the contract and mortality rates are based on industry tables.
Life assurances
Annuities
Valuation discount rates
Mortality tables used
2018
2017
2018 and 2017
TD73-77,TD88-90,TH00-02
TF00-02,
H_AVDBS,F_AVDBS
H_SSDBS, F_SSDBS
TGF05/TGH05
0% to 4.5%
0% to 2%
0% to 4.5%
0% to 2%
(b) General insurance and health
Outstanding claims provisions are estimated based on known facts at the date of estimation. Case estimates are set by skilled claims
technicians and established case setting procedures. Claims above certain limits are referred to senior claims handlers for estimate
authorisation.
No adjustments are made to the claims technicians’ case estimates included in booked claim provisions, except for rare occasions when
the estimated ultimate cost of individual large or unusual claims may be adjusted, subject to internal reserve committee approval, to allow
for uncertainty regarding, for example, the outcome of a court case. The ultimate cost of outstanding claims is then estimated by using a
range of standard actuarial claims projection techniques, such as the Chain Ladder and Bornhuetter-Ferguson methods. Historical claims
development is mainly analysed by accident period, although underwriting or notification period is also used where this is considered
appropriate.
The assumptions used in most non-life actuarial projection techniques, including future rates of claims inflation or loss ratio assumptions,
are implicit in the historical claims development data on which the projections are based. Additional qualitative judgement is used to
assess the extent to which past trends may not apply in the future in order to arrive at a point estimate for the ultimate cost of claims that
represents the likely outcome, from a range of possible outcomes, taking account of all the uncertainties involved. The range of possible
outcomes does not, however, result in the quantification of a reserve range. The following explicit assumptions are made which could
materially impact the level of booked net reserves:
Aviva plc Annual report and accounts 2018
186
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
43 – Insurance liabilities methodology and assumptions continued
UK mesothelioma claims
The level of uncertainty associated with latent claims is considerable due to the relatively small number of claims and the long-tail nature
of the liabilities. UK mesothelioma claims account for a large proportion of the Group’s latent claims. The key assumptions underlying the
estimation of these claims include claim numbers, the base average cost per claim, future inflation in the average cost of claims and legal
fees.
The best estimate of the liabilities reflects the latest available market information and studies. Many different scenarios can be derived by
flexing these key assumptions and applying different combinations of these assumptions. An upper and lower scenario can be derived by
making reasonably likely changes to these assumptions, resulting in an estimate of £20 million (2017: £35 million) greater than the best
estimate, or £30 million (2017: £40 million) lower than the best estimate. These scenarios do not, however, constitute an upper or lower
bound on these liabilities.
Interest rates used to discount latent claim liabilities and structured settlements
The discount rates used in determining our latent claim liabilities and structured settlements are based on the swap curve in the relevant
currency at the reporting date, having regard to the duration of the expected settlement of claims. The range of discount rates used (for
further details see note 42(c)(ii)) depends on the duration of the claim and the reporting date. At 31 December 2018, it is estimated that
a 1% fall in the discount rates used would increase net claim reserves by approximately £104 million (2017: £110 million), excluding the
offsetting effect on asset values as assets are not hypothecated across classes of business.
Allowance for risk and uncertainty
The uncertainties involved in estimating loss reserves are allowed for in the reserving process and by the estimation of explicit reserve
uncertainty distributions. The reserve estimation basis requires all non-life businesses to calculate booked claim provisions as the best
estimate of the cost of future claim payments, plus an explicit allowance for risk and uncertainty. The allowance for risk and uncertainty is
calculated by each business unit in accordance with the requirements of the Group non-life reserving policy, taking into account the risks
and uncertainties specific to each line of business and type of claim in that territory. The requirements of the Group non-life reserving policy
also seek to ensure that the allowance for risk and uncertainty is set consistently across both business units and reporting periods.
Lump sum payments in settlement of bodily injury claims that are decided by the UK courts are calculated in accordance with the Ogden
Tables and discount rate. The Ogden discount rate is set by the Lord Chancellor and is applied when calculating the present value of future
care costs and loss of earnings for claims settlement purposes. Following the announcement by the Ministry of Justice on 27 February 2017
to decrease the Ogden rate from 2.75% to -0.75%, balance sheet reserves have been calculated using a rate of -0.75%. On 20 March 2018,
the Government announced that it will introduce the Civil Liability Bill (the Bill), which includes provisions to amend the discount rate. In
December 2018 the Bill became an Act of Parliament, meaning that a new Ogden discount rate will be set by the Lord Chancellor in 2019.
Based upon this, there is certainty that there will be a change in the Ogden rate in 2019, but uncertainty remains around the amount and
timing of the final rate. At December 2018, the claim reserves in the UK have been calculated using a discount rate of 0.00% (2017: -0.75%)
resulting in a release of £190 million, though the rate to be announced by the Lord Chancellor later this year may result in a different
discount rate. By way of illustration, should the Ogden discount rate announced in the future be 0.50% then this would be expected to
reduce reserves by approximately £80 million with an equivalent positive impact on profit before tax. Alternatively, should the Ogden
discount rate announced in the future be -0.50% then this would be expected to increase reserves by approximately £110 million with an
equivalent negative impact on profit before tax.
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Other information
Notes to the consolidated financial statements
Continued
44 – Liabilities for investment contracts
This note analyses our gross liabilities for investment contracts by type of product and describes the calculation of these liabilities.
(a) Carrying amount
The liabilities for investment contracts (gross of reinsurance) at 31 December comprised:
Long-term business
Liabilities for participating investment contracts
Liabilities for non-participating investment contracts
Total
Less: Amounts classified as held for sale
2018
£m
2017
£m
90,455
120,354
87,654
124,995
210,809
212,649
(8,341)
(8,663)
202,468
203,986
(b) Group practice
Investment contracts are those that do not transfer significant insurance risk from the contract holder to the issuer, and are therefore
treated as financial instruments under IFRS.
Many investment contracts contain a discretionary participation feature in which the contract holder has a contractual right to receive
additional benefits as a supplement to guaranteed benefits. These are referred to as participating contracts and are measured according
to the methodology for long-term business liabilities as described in note 43. They are not measured at fair value as there is currently no
agreed definition of fair valuation for discretionary participation features under IFRS. In the absence of such a definition, it is not possible
to provide a range of estimates within which a fair value is likely to fall. The IASB deferred consideration of participating contracts to the
IFRS 17 insurance standard, which is expected to be implemented on 1 January 2022.
For participating business, the discretionary participation feature is recognised separately from the guaranteed element and is classified as
a liability, referred to as unallocated divisible surplus, except for the with-profits sub-fund supported by the RIEESA. Guarantees on long-
term investment products are discussed in note 45.
Investment contracts that do not contain a discretionary participation feature are referred to as non-participating contracts and the liability
is measured at either fair value or amortised cost. We currently have no non-participating investment contracts measured at amortised
cost.
Of the non-participating investment contracts measured at fair value, £119,402 million at 31 December 2018 (2017: £123,916 million) are
unit-linked in structure and the fair value liability is equal to the current unit fund value, including any unfunded units, plus if required,
additional non-unit reserves based on a discounted cash flow analysis. These contracts are generally classified as ‘Level 1’ in the fair value
hierarchy, as the unit reserve is calculated as the publicly quoted unit price multiplied by the number of units in issue, and any non-unit
reserve is insignificant.
For unit-linked business, a deferred acquisition cost asset and deferred income reserve liability are recognised in respect of transaction
costs and front-end fees respectively, that relate to the provision of investment management services, and which are amortised on a
systematic basis over the contract term. The amount of the related deferred acquisition cost asset is shown in note 29 and the deferred
income liability is shown in note 54.
For non-participating investment contracts acquired in a business combination, an acquired value of in-force business asset is recognised
in respect of the fair value of the investment management services component of the contracts, which is amortised on a systematic basis
over the useful lifetime of the related contracts. The amount of the acquired value of in-force business asset is shown in note 18, which
relates primarily to the acquisition of Friends Life in 2015 and Friends First in 2018.
(c) Movements in the year
The following movements have occurred in the gross provisions for investment contracts in the year:
(i) Participating investment contracts
Carrying amount at 1 January
Liabilities in respect of new business
Expected change in existing business
Variance between actual and expected experience
Impact of operating assumption changes
Impact of economic assumption changes
Other movements recognised as an expense1
Change in liability recognised as an expense2
Effect of portfolio transfers, acquisitions and disposals3
Foreign exchange rate movements
Other movements4
Carrying amount at 31 December
2018
£m
87,654
6,301
(4,491)
(1,441)
59
(40)
152
540
427
774
1,060
2017
£m
89,739
5,193
(4,986)
2,072
10
411
(16)
2,684
(7,243)
2,452
22
90,455
87,654
1 Other movements during 2018 and 2017 primarily relate to a special bonus distribution to with-profits policyholders in UK Life.
2 Total interest expense for participating investment contracts recognised in profit or loss is £(419) million (2017: £2,489 million).
3 The movement during 2018 relates to the acquisition of Friends First in Ireland. The movement during 2017 relates to the disposal of Antarius in France.
4 The movement during 2018 relates to the reclassification in France from non- participating investment contracts to participating investment contracts (£151m) and from insurance to participating investment contracts (£56m)
and to a reclassification from non-participating investment contracts to participating investment contracts in the UK (£853m).
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Other information
Notes to the consolidated financial statements
Continued
44 – Liabilities for investment contracts continued
For many types of long-term business, including unit-linked and participating funds, movements in asset values are offset by corresponding
changes in liabilities, limiting the net impact on profit.
The variance between actual and expected experience in 2018 of £(1.4) billion is primarily driven by adverse equity returns in the UK and
France.
The impact of assumption changes in the analysis shows the resulting movement in the carrying value of participating investment contract
liabilities. For participating business, a movement in liabilities is generally offset by a corresponding adjustment to the unallocated divisible
surplus and does not impact profit. Where assumption changes do impact profit, these are included in the effect of changes in assumptions
and estimates during the year shown in note 47, together with the impact of movements in related non-financial assets.
(ii) Non-participating investment contracts
Carrying amount at 1 January
Liabilities in respect of new business
Expected change in existing business
Variance between actual and expected experience
Impact of operating assumption changes
Impact of economic assumption changes
Other movements recognised as an expense
Change in liability
Effect of portfolio transfers, acquisitions and disposals1
Foreign exchange rate movements
Other movements2
Carrying amount at 31 December
2018
£m
2017
£m
124,995
4,869
(5,509)
(5,539)
(10)
(81)
6
(6,264)
2,494
133
(1,004)
114,531
4,484
(4,427)
10,115
2
(1)
10
10,183
(4)
277
8
120,354
124,995
1 The movement during 2018 relates to the acquisition of Friends First in Ireland. The movement during 2017 relates to the disposal of Antarius in France.
2 The movement during 2018 relates to the reclassification in France from non- participating investment contracts to participating investment contracts (£(151)m) and to a reclassification from non-participating investment
contracts to participating investment contracts in the UK (£(853)m).
For unit-linked investment contracts, movements in asset values are offset by corresponding changes in liabilities, limiting the net impact
on profit. The variance between actual and expected experience in 2018 of £(5.5) billion is primarily driven by the impact of negative equity
returns in the UK and Ireland.
The impact of assumption changes in the above analysis shows the resulting movement in the carrying value of non-participating
investment contract liabilities. The impacts of assumption changes on profit are included in the effect of changes in assumptions and
estimates during the year shown in note 47, which combines participating and non-participating investment contracts together with the
impact of movements in related non-financial assets.
45 – Financial guarantees and options
This note details the financial guarantees and options inherent in some of our insurance and investment contracts.
As a part of their operating activities, various Group companies have provided guarantees and options, including investment return
guarantees, on certain long-term insurance and fund management products.
(a) UK non-profit business
The Group’s UK non-profit funds are evaluated by reference to statutory reserving rules, which are based on the UK regulatory requirements
(grandfathered under IFRS 4), prior to the adoption of Solvency II, adjusted to remove certain regulatory reserves and margins in
assumptions, notably for annuity business.
(i) Guaranteed annuity options
The Group’s UK non-profit funds have written contracts which contain guaranteed annuity rate options (GAOs), where the policyholder
has the option to take the benefits from a policy in the form of an annuity based on guaranteed conversion rates. Provision for these
guarantees do not materially differ from a provision based on a market-consistent stochastic model, and amounts to £87 million at
31 December 2018 (2017: £100 million).
(ii) Guaranteed unit price on certain products
Certain pension products linked to long-term life insurance funds provide policyholders with guaranteed benefits at retirement or death.
No additional provision is made for this guarantee as the investment management strategy for these funds is designed to ensure that the
guarantee can be met from the fund, mitigating the impact of large falls in investment values and interest rates.
(iii) Return of Premium guarantees
German pension products sold in Friends Life between 2006 and 2014 are subject to a Return of Premium guarantee whereby the product
guarantees to return the maximum of the unit fund value or total premiums paid (before deductions). Provisions for this guarantee are
calculated using a market-consistent stochastic model and amount to £153 million at 31 December 2018 (2017: £132 million).
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Other information
Notes to the consolidated financial statements
Continued
45 – Financial guarantees and options continued
(b) UK with-profits business
The Group’s UK with-profits liabilities are evaluated by reference to FRS 27, which was grandfathered under IFRS 4, prior to the adoption of
Solvency II. Under the PRA’s rules, provision for guarantees and options within realistic liabilities are measured using market-consistent
stochastic models. A stochastic approach includes measuring the time value of guarantees and options, which represents the additional
cost arising from uncertainty surrounding future economic conditions.
The material guarantees and options relating to this provision are:
(i) Maturity value and death benefit guarantees
Significant conventional and unitised with-profits business have minimum maturity (and in some cases death benefit) values reflecting the
sum assured plus declared annual bonus. In addition, maturity value guarantees are offered on certain unit-linked products. For some
unitised with-profits life contracts the amount paid after the fifth policy anniversary is guaranteed to be at least as high as the premium
paid increased in line with the rise in RPI or CPI.
(ii) No market valuation reduction (MVR) guarantees
For unitised business, there are circumstances where a ‘no MVR’ guarantee is applied, for example on certain policy anniversaries,
guaranteeing that no market value reduction will be applied to reflect the difference between the accumulated value of units and the
market value of the underlying assets.
(iii) Guaranteed annuity options
The Group’s UK with-profits funds have written individual and group pension contracts which contain GAOs, where the policyholder has the
option to take the benefits from a policy in the form of an annuity based on guaranteed conversion rates. The Group also has exposure to
GAOs and similar options on deferred annuities.
Realistic liabilities for GAOs in the UK with-profits funds were £1,644 million at 31 December 2018 (2017: £2,186 million). With the exception
of the with-profits sub-fund supported by the RIEESA, movements in the realistic liabilities in the with-profits funds are offset by a
corresponding movement in the unallocated divisible surplus, with no net impact on IFRS profit. Realistic liabilities for GAOs in the with-
profits sub-fund supported by the RIEESA were £155 million at 31 December 2018 (2017: £206 million).
(iv) Guaranteed minimum pension
The Group’s UK with-profits funds also have certain policies that contain a guaranteed minimum level of pension as part of the condition of
the original transfer from state benefits to the policy.
(v) Guaranteed minimum maturity payments on mortgage endowments
The with-profits funds made promises to certain policyholders in relation to their with-profits mortgage endowments. Top-up payments
will be made on these policies at maturity to meet the mortgage value up to a maximum of the 31 December 1999 illustrated shortfall.
(c) Overseas life businesses
In addition to guarantees written in the Group’s UK businesses, our overseas businesses have also written contracts containing guarantees
and options. Details of the significant guarantees and options provided by overseas life businesses are set out below.
(i) France
Guaranteed surrender value, guaranteed minimum bonuses and options
Aviva France has written a number of contracts with a guaranteed surrender value and guaranteed minimum bonuses. The guaranteed
surrender value is the accumulated value of the contract including accrued bonuses. Bonuses are based on accounting income from
amortised bond portfolios, where the duration of bond portfolios is set in relation to the expected duration of the policies, plus income and
releases from realised gains on equity-type investments. Policy reserves are equal to guaranteed surrender values. Local statutory
accounting envisages the establishment of a reserve, ‘Provision pour Aléas Financiers’ (PAF), when accounting income is less than 125% of
guaranteed minimum credited returns. No PAF was established at full year 2018 (2017: no PAF was established).
The most significant of these contracts is the AFER Eurofund which has total liabilities of £39 billion at 31 December 2018 (2017: £38 billion).
The guaranteed minimum bonus is agreed between Aviva France and the AFER association at the end of each year, in respect of the
following year. The bonus was 2.25% for 2018 (2017: 2.40%) compared with an accounting income from the fund of 2.74% (2017: 2.89%).
Non-AFER contracts with guaranteed surrender values had liabilities of £11 billion at 31 December 2018 (2017: £11 billion) and all
guaranteed annual bonus rates are between 0% and 4.5% (2017: 0% to 4.5%). For non-AFER business the accounting income return
exceeded guaranteed bonus rates in 2018 (2017: the accounting income return exceeded guaranteed bonus rates).
In addition, there are a small proportion of contracts with a switch-loss option. Consistent with previous years, the risks associated with
switch-loss options are allowed for in the liabilities in accordance with local regulations and IFRS 4.
Guaranteed death and maturity benefits
The Group has also sold a small proportion of unit-linked policies where the death and/or maturity benefit is guaranteed to be at least
equal to the premiums paid. The reserve held in the Group’s consolidated statement of financial position is calculated on a prudent basis
and is in excess of the economic liability.
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Other information
Notes to the consolidated financial statements
Continued
45 – Financial guarantees and options continued
(ii) Italy
Guaranteed investment returns and guaranteed surrender values
The Group has written contracts containing guaranteed investment returns and guaranteed surrender values in Italy. Liabilities are
generally taken as the face value of the contract plus, if required, an explicit provision for guarantees calculated in accordance with local
regulations and IFRS 4.
(iii) Ireland
Guaranteed annuity options and guaranteed maturity values
As in the UK, the Group’s with-profits liabilities in Ireland are measured on a realistic basis, including realistic liabilities for guarantees and
options. Guarantees and options in Ireland include GAOs, minimum maturity values on conventional with-profits business, guaranteed
minimum bonus rates on unitised with profits business, and a ‘no MVR’ guarantee that may apply at certain policy anniversaries.
46 – Reinsurance assets
This note details the reinsurance assets on our insurance and investment contract liabilities.
(a) Carrying amount
The reinsurance assets at 31 December comprised:
Long-term business
Insurance contracts
Participating investment contracts
Non-participating investment contracts1
Outstanding claims provisions
General insurance and health
Outstanding claims provisions
Provisions for claims incurred but not reported
Provisions for unearned premiums
Less: Amounts classified as held for sale
Total
2018
£m
2017
£m
5,836
1
4,009
9,846
89
9,935
789
822
1,611
254
1,865
5,469
2
6,094
11,565
64
11,629
845
884
1,729
257
1,986
11,800
(45)
13,615
(123)
11,755
13,492
1 Balances in respect of all reinsurance treaties are included under reinsurance assets, regardless of whether they transfer significant insurance risk. The reinsurance assets classified as non-participating investment contracts
are financial instruments measured at fair value through profit or loss. During 2018, £3,840 million of reinsurance assets have been reclassified as collective investments in unit-linked funds following a restructure of a
reinsurance treaty in UK Life. This is a continuation of activity undertaken in 2017 (£14,353 million).
Of the above total, £10,800 million (2017: £12,302 million) is expected to be recovered more than one year after this statement of financial
position.
(b) Assumptions
The assumptions, including discount rates, used for reinsurance contracts follow those used for insurance liabilities. Reinsurance assets are
valued net of an allowance for recoverability.
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
46 – Reinsurance assets continued
(c) Movements
The following movements have occurred in the reinsurance assets during the year:
(i) Long-term business liabilities
Carrying amount at 1 January
Assets in respect of new business
Expected change in existing business assets
Variance between actual and expected experience
Impact of non-economic assumption changes
Impact of economic assumption changes
Other movements1
Change in assets2
Effect of portfolio transfers, acquisitions and disposals3
Foreign exchange rate movements
Carrying amount at 31 December
2018
£m
11,565
1,766
(22)
431
(460)
21
(3,877)
(2,141)
399
23
2017
£m
24,554
1,004
(786)
2,264
(634)
94
(14,529)
(12,587)
(410)
8
9,846
11,565
1 The movement during 2018 includes £3,840 million of reinsurance assets being reclassified as collective investments in unit-linked funds following the restructure of a reinsurance treaty in UK Life. This is a continuation of
activity undertaken in 2017 (£14,353 million).
2 Change in assets does not reconcile with values in note 41(b) due to the inclusion of reinsurance assets classified as non-participating investment contracts where, for such contracts, deposit accounting is applied on the
income statement.
3 The movement during 2018 primarily relates to the acquisition of Friends First in Ireland. The movement during 2017 primarily relates to the disposal of Antarius in France.
The impact of assumption changes in the above analysis shows the resulting movement in the carrying value of reinsurance assets, with
corresponding movements in gross insurance contract liabilities. For participating businesses, a movement in reinsurance assets is
generally offset by a corresponding adjustment to the unallocated divisible surplus and does not impact profit. Where assumption changes
impact profit, these are included in the effect of changes in assumptions and estimates during the year (shown in note 47), together with
the impact of movements in related liabilities and other non-financial assets.
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Other information
Notes to the consolidated financial statements
Continued
46 – Reinsurance assets continued
(ii) General insurance and health claims liabilities
Carrying amount at 1 January
Impact of changes in assumptions
Reinsurers’ share of claim losses and expenses
Incurred in current year
Incurred in prior years
Reinsurers’ share of incurred claim losses and expenses
Less:
Reinsurance recoveries received on claims
Incurred in current year
Incurred in prior years
Reinsurance recoveries received in the year
Unwind of discounting
Change in reinsurance asset recognised as income (note 41(b))
Effect of portfolio transfers, acquisitions and disposals1
Foreign exchange rate movements
Carrying amount at 31 December
1 The movement during 2018 relates to the proportion of reinsurance assets held by Avipop sold by Italy GI.
(iii) General insurance and health unearned premiums
Carrying amount at 1 January
Premiums ceded to reinsurers in the year
Less: Reinsurers’ share of premiums earned during the year
Changes in reinsurance asset recognised as income
Reinsurers’ share of portfolio transfers and acquisitions1
Foreign exchange rate movements
Carrying amount at 31 December
1 The movement during 2018 relates to the proportion of Avipop sold by Italy GI that was ceded to reinsurers.
2018
£m
1,729
(22)
176
40
216
(54)
(259)
(313)
8
(111)
(9)
2
2017
£m
1,885
(15)
179
15
194
(32)
(293)
(325)
8
(138)
—
(18)
1,611
1,729
2018
£m
257
392
(375)
17
(21)
1
254
2017
£m
250
489
(484)
5
—
2
257
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Other information
Notes to the consolidated financial statements
Continued
47 – Effect of changes in assumptions and estimates during the year
Estimates and assumptions used in determining the liabilities for insurance and investment contracts were changed from 2017 to 2018,
affecting the liabilities with an equivalent impact on profit recognised during the year. This note analyses the impact of these changes on
liabilities for insurance and investment contracts, and related assets and liabilities, such as unallocated divisible surplus, reinsurance,
deferred acquisition costs and acquired value of in-force business, and does not allow for offsetting movements in the value of backing
financial assets.
Assumptions
Long-term insurance business
Interest rates
Expenses
Persistency rates
Mortality and morbidity for assurance contracts
Mortality for annuity contracts
Tax and other assumptions
Long-term investment business
Expenses
General insurance and health business
Change in discount rate assumptions
Total
Effect on profit 2018
£m
Effect on profit 2017
£m
1,061
9
23
24
780
18
(1)
1
(1,720)
(128)
(79)
113
779
2
—
(7)
1,915
(1,040)
The impact of interest rates on long-term business relates primarily to annuities in the UK (including any change in credit default and
reinvestment risk provisions), where an increase in the valuation interest rate in response to widening of credit spreads, has decreased
liabilities.
The impact of mortality for annuitant contracts on long-term business relates primarily to the UK. In 2018, there has been a reduction in
reserves due to longevity assumptions and modelling which include: updates to mortality to reflect recent experience including the 2008
series tables for individual annuities of £345 million, updates to the rate of mortality improvements including CMI 2017 of £251 million,
refinements to modelling of bulk purchase annuities together with a change to base mortality and improvements of £132 million and other
less significant movements of £24 million. In Ireland and Singapore there was a slight reduction in the reserves of £28 million following a
review of recent experience.
In 2017 the impact of mortality for annuitant contracts on long-term business relates primarily to the UK. This resulted in a reduction in
reserves due to recognition of benefits from changes in longevity assumptions including: the impact of completing our review of the
allowance for anti-selection risk of £170 million, updates reflecting our recent experience of £200 million, updates to the rate of historic and
future mortality improvements, including the adoption of CMI 2016, of £340 million, and other less significant movements of £31 million. In
Ireland there was a reduction of £38 million following a review of recent experience.
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Other information
Notes to the consolidated financial statements
Continued
48 – Unallocated divisible surplus
An unallocated divisible surplus (UDS) is established where the nature of policy benefits is such that the division between shareholder
reserves and policyholder liabilities is uncertain at the reporting date. Therefore, the expected duration for settlement of the UDS is
undefined.
This note shows the movements in the UDS during the year.
Carrying amount at 1 January
Change in participating fund assets
Change in participating fund liabilities
Other movements
Change in liability recognised as an expense
Effect of portfolio transfers, acquisition and disposals1
Foreign exchange rate movements
Less: Amounts classified as held for sale2
Carrying amount at 31 December
2018
£m
9,101
(4,139)
902
—
(3,237)
48
37
2017
£m
10,208
406
(710)
10
(294)
(1,076)
263
5,949
9,101
—
(19)
5,949
9,082
1 The movement during 2018 relates to the acquisition of Friends First (£66 million), and the disposal of the remainder of the Spanish business (£18 million). The movement during 2017 relates to the disposal of Antarius (£832
million) and majority of Spanish business (£244 million).
2 The amount classified as held for sale in 2017 relates to the remainder of the Spanish business (£19 million).
The amount of UDS at 31 December 2018 has decreased to £5.9 billion (2017: £9.1 billion). The decrease is mainly due to adverse market
movements in Europe with credit spreads widening and a reduction in equity markets.
Where the aggregate amount of participating assets is less than the participating liabilities within a fund then the shortfall may be held as
negative UDS, subject to recoverability testing as part of the liability adequacy requirements of IFRS 4. As at 31 December 2018 there is
negative UDS in five funds in Italy totalling £355 million (2017: no negative UDS). These balances were tested for recoverability and all but
one is considered to be recoverable by comparing the excess of IFRS participating liabilities net of any related DAC or AVIF over the adjusted
Solvency II best estimate liabilities for the relevant contracts. The Solvency II best estimate liabilities were adjusted where Solvency II does
not represent a best estimate of shareholders’ interests consistent with the impairment test for goodwill for long-term business (see note
17) and for AVIF on insurance contracts (see note 18). An impairment of £8 million was applied to one fund to reflect no recoverability.
49 – Tax assets and liabilities
This note analyses the tax assets and liabilities that appear in the statement of financial position and explains the movements in these
balances in the year.
(a) Current tax
Current tax assets recoverable and liabilities payable in more than one year are £24 million and £9 million (2017: £19 million and £14 million),
respectively.
Included within uncertain tax provisions is the impact on the Group as a party to the CFC & Dividend Group Litigation Order, of which
Prudential was the test case. The Supreme Court of the United Kingdom delivered its judgement on this case on 25 July 2018 which
confirmed the taxpayer had successfully challenged the tax treatment of portfolio dividends received from non-UK entities before 2009. The
Group is attempting to recover claims from HMRC covered by this judgement and is also pursuing connected claims in respect of a number
of other periods, but there remains significant uncertainty over their recoverability.
The successful claims predominately relate to policyholder funds, where the benefit is not expected to exceed £131 million. There is no
current expectation of a material future impact on profit before tax attributable to shareholders’ profits or the Group’s total equity.
The uncertainty in respect of the remaining claims has resulted in no recoverable amounts being recognised at either 31 December 2017 or
31 December 2018.
(b) Deferred tax
(i) The balances at 31 December comprise:
Deferred tax assets
Deferred tax liabilities
Net deferred tax liability
Less: Amounts classified as held for sale
2018
£m
185
(1,885)
(1,700)
—
2017
£m
146
(2,562)
(2,416)
183
(1,700)
(2,233)
There are no amounts classified as held for sale within deferred tax at 31 December 2018 (2017: deferred tax assets £2 million and deferred
tax liabilities £185 million).
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Other information
Notes to the consolidated financial statements
Continued
49 – Tax assets and liabilities continued
(ii) The net deferred tax liability arises on the following items:
Long-term business technical provisions and other insurance items
Deferred acquisition costs
Unrealised gains on investments
Pensions and other post-retirement obligations
Unused losses and tax credits
Subsidiaries, associates and joint ventures
Intangibles and additional value of in-force long-term business
Provisions and other temporary differences
Net deferred tax liability
Less: Amounts classified as held for sale
(iii) The movement in the net deferred tax liability was as follows:
Net liability at 1 January
Acquisition and disposal of subsidiaries1
Amounts credited/(charged) to income statement (note 14(a))
Amounts (charged) to other comprehensive income (note 14(b))
Foreign exchange rate movements
Other movements
Net liability at 31 December
1 The movement during 2018 relates mainly to the disposal of Avipop Assicurazioni SpA and Avipop Vita SpA.
2018
£m
663
(199)
(1,430)
(499)
147
(9)
(475)
102
(1,700)
—
2017
£m
1,582
(199)
(2,899)
(502)
166
(16)
(721)
173
(2,416)
183
(1,700)
(2,233)
2018
£m
(2,416)
184
545
(9)
(10)
6
(1,700)
2017
£m
(2,231)
(6)
(123)
(31)
(18)
(7)
(2,416)
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary
differences can be utilised. In countries where there is a history of tax losses, deferred tax assets are only recognised in excess of deferred
tax liabilities if there is convincing evidence that future taxable profits will be available. Where this is the case, the directors have relied on
business plans supporting future profits.
The Group has unrecognised gross tax losses (excluding capital losses) and other temporary differences of £798 million (2017: £787 million)
to carry forward against future taxable income of the necessary category in the companies concerned. Of these, trading losses of £34
million will expire within the next 20 years. The remaining losses have no expiry date.
In addition, the Group has unrecognised gross capital losses of £452 million (2017: £443 million). These have no expiry date.
There are no temporary differences in respect of unremitted overseas retained earnings for which deferred tax liabilities have not been
recognised at 31 December 2018 (2017: £nil).
Aviva plc Annual report and accounts 2018
196
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
50 – Pension deficits and other provisions
This note details the non-insurance provisions that the Group holds, and shows the movements in these during the year.
(a) Carrying amounts
Total IAS 19 obligations to main staff pension schemes (note 51(a))
Deficits in other staff pension schemes
Total IAS 19 obligations to staff pension schemes
Restructuring provisions
Other provisions
Total provisions
Less: Amounts classified as held for sale
2018
£m
693
65
758
64
577
2017
£m
764
64
828
92
515
1,399
1,435
—
(6)
1,399
1,429
Other provisions primarily include amounts set aside throughout the Group relating to product governance rectification and staff
entitlements.
(b) Movements on restructuring and other provisions
At 1 January
Additional provisions
Provisions released during the period
Change due to discounting
Charge to income statement
Utilised during the year
Acquisition/(disposal) of subsidiaries
Foreign exchange rate movements
At 31 December
Restructuring
provisions
£m
Other
provisions
£m
92
1
—
—
1
(29)
—
—
64
515
269
(128)
—
141
(89)
5
5
577
2018
Total
£m
607
270
(128)
—
142
(118)
5
5
641
Restructuring
provisions
£m
Other
provisions
£m
111
31
(1)
2
32
(53)
—
2
92
501
161
(37)
—
124
(98)
(3)
(9)
515
2017
Total
£m
612
192
(38)
2
156
(151)
(3)
(7)
607
Of the total restructuring and other provisions, £402 million (2017: £182 million) is expected to be settled more than one year after the
statement of financial position date.
Other provisions have increased during the period under review mainly due to an increase of £175 million in respect of a product
governance provision in the UK, which is in addition to the £75 million provision set aside at 31 December 2017. This provision relates to
a historical issue with over 90% of cases identified being pre-2002 and is limited to advised sales by Friends Provident, where a number of
external defined benefit pension arrangements transferred into Friends Provident pension arrangements. We are in the final stages of
completing a thorough and detailed review of the suitability of the advice given, and we will ensure that no affected customers are
financially disadvantaged. The valuation of this provision involves a high degree of judgement and estimation uncertainty due to the time
that has elapsed since the advice was given. The issue does not affect any other part of our business. The Group has notified its professional
indemnity insurers and intends to make a claim on its insurance to mitigate the financial impact. This impact on other provisions has been
partially offset by a £78 million release of a provision related to the sale of Aviva USA in 2013.
Aviva plc Annual report and accounts 2018
197
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
51 – Pension obligations
(a) Introduction
The Group operates a number of defined benefit and defined contribution pension schemes. The material defined benefit schemes are in
the UK, Ireland and Canada. The assets and liabilities of these defined benefit schemes as at 31 December 2018 are shown below.
Total fair value of scheme assets (see b(ii) below)
Present value of defined benefit obligation
Net IAS 19 surpluses/(deficits) in the schemes
Surpluses included in other assets (note 30)
Deficits included in provisions (note 50)
Net IAS 19 surpluses/(deficits) in the schemes
UK
£m
17,059
(14,246)
2,813
3,256
(443)
2,813
Ireland
£m
775
(950)
(175)
—
(175)
(175)
Canada
£m
2018
Total
£m
UK
£m
249
(324)
18,083
(15,520)
17,744
(14,824)
(75)
2,563
2,920
—
(75)
(75)
3,256
(693)
2,563
3,399
(479)
2,920
Ireland
£m
658
(847)
(189)
—
(189)
(189)
Canada
£m
276
(372)
(96)
2017
Total
£m
18,678
(16,043)
2,635
—
(96)
(96)
3,399
(764)
2,635
This note relates to the defined benefit pension schemes included in the table above. There are a number of smaller schemes that are also
measured under IAS 19. These are included as a total within Deficits in other staff pension schemes (see note 50). Similarly, while the
charges to the income statement for the main schemes are shown in section (b)(i) below, the total charges for all pension schemes are
disclosed in section (d) below.
Under the IAS 19 valuation basis, the Group applies the principles of IFRIC 14, ‘IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction’, whereby a surplus is only recognised to the extent that the Company is able to access the surplus either
through an unconditional right of refund to the surplus or through reduced future contributions relating to ongoing service, which have
been substantively enacted or contractually agreed. The Group has determined that it can derive economic benefit from the surplus in the
ASPS via a reduction to future employer contributions for DC members, which could theoretically be paid from the surplus funds in the
ASPS. In the RAC and FPPS, the Group has determined that the rules set out in the schemes’ governing documentation provide for an
unconditional right to a refund from any future surplus funds in the schemes.
The assets of the UK, Irish and Canadian schemes are held in separate trustee-administered funds to meet long-term pension liabilities to
past and present employees. In all schemes, the appointment of trustees of the funds is determined by their trust documentation and they
are required to act in the best interests of the schemes’ beneficiaries. The long-term investment objectives of the trustees and the
employers are to limit the risk of the assets failing to meet the liabilities of the schemes over the long term, and to maximise returns
consistent with an acceptable level of risk so as to control the long-term costs of these schemes.
A funding actuarial valuation of each of the defined benefit schemes is carried out at least every three years for the benefit of scheme
trustees and members. Actuarial reports have been submitted for each scheme within this period, using appropriate methods for the
respective countries on local funding bases.
The number of scheme members was as follows:
Deferred members
Pensioners
Total members
United Kingdom
2018
Number
47,977
38,433
86,410
2017
Number
50,737
37,840
88,577
2018
Number
2,544
897
3,441
Ireland
2017
Number
1,855
801
2,656
2018
Number
519
1,318
1,837
Canada
2017
Number
581
1,334
1,915
All schemes are closed to future accrual. Closure of the schemes has removed the volatility associated with additional future accrual for
active members.
(i) UK schemes
In the UK, the Group operates three main pension schemes, the Aviva Staff Pension Scheme (ASPS), the smaller RAC (2003) Pension Scheme
which was retained after the sale of RAC Limited in September 2011 and the Friends Provident Pension Scheme (FPPS) which was acquired
as part of the Friends Life acquisition in 2015. As the defined benefit section of the UK schemes are now closed to both new members and
future accrual, existing deferred members in active service and new entrants participate in the defined contribution section of the ASPS.
The UK schemes operate within the UK pensions’ regulatory framework.
(ii) Other schemes
In Ireland, the Group operates two main pension schemes, the Aviva Ireland Staff Pension Fund (AISPF) and the Friends First Group
Retirement and Death Benefits Scheme (FFPS) which was acquired as part of the Friends First acquisition in June 2018 (see note 3). Future
accruals for the AISPF and FFPS schemes ceased with effect from 30 April 2013 and 1 April 2014 respectively. The Irish schemes are
regulated by the Pensions Authority in Ireland.
The Canadian defined benefit schemes ceased with effect from 31 December 2011. The main Canadian plan is a Registered Pension Plan in
Canada and as such is registered with the Canada Revenue Agency and Financial Services Commission of Ontario and is required to comply
with the Income Tax of Canada and the various provincial Pension Acts within Canada.
Aviva plc Annual report and accounts 2018
198
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
51 – Pension obligations continued
(b) IAS 19 disclosures
Disclosures under IAS 19 for the material defined benefit schemes in the UK, Ireland and Canada, are given below. Where schemes provide both
defined benefit and defined contribution pensions, the assets and liabilities shown exclude those relating to defined contribution pensions.
(i) Movements in the scheme surpluses and deficits
Movements in the pension schemes’ surpluses and deficits comprise:
2018
Net IAS 19 surplus in the schemes at 1 January
Past service costs – amendments1
Administrative expenses2
Total pension cost charged to net operating expenses
Net interest credited/(charged) to investment income/(finance costs)3
Total recognised in income
Remeasurements:
Actual return on these assets
Less: Interest income on scheme assets
Return on scheme assets excluding amounts in interest income
Gains from change in financial assumptions
Losses from change in demographic assumptions
Experience losses
Total recognised in other comprehensive income
Acquisitions
Employer contributions
Plan participant contributions
Benefits paid
Administrative expenses paid from scheme assets2
Foreign exchange rate movements
Net IAS 19 surplus in the schemes at 31 December
Fair Value of
Scheme Assets
£m
Present Value
of defined
benefit
obligation
£m
IAS 19
Pensions net
surplus/
(deficits)
£m
18,678
—
—
(16,043)
(63)
(19)
—
442
442
(182)
(442)
(624)
—
—
—
(624)
87
236
9
(724)
(23)
2
(82)
(375)
(457)
—
—
—
622
(185)
(93)
344
(96)
—
(9)
724
19
(2)
2,635
(63)
(19)
(82)
67
(15)
(182)
(442)
(624)
622
(185)
(93)
(280)
(9)
236
—
—
(4)
—
18,083
(15,520)
2,563
1 Past service costs include a charge of £63 million relating to the estimated additional liability arising in the UK defined benefit pension schemes as a result of the requirement to equalise members’ benefits for the effects of
Guaranteed Minimum Pension (GMP). This additional liability has arisen following the High Court judgement in October 2018 in the case involving Lloyds Banking Group.
2 Administrative expenses are expensed as incurred.
3 Net interest income of £89 million has been credited to investment income and net interest expense of £22 million has been charged to finance costs (see note 8).
The present value of unfunded post-retirement benefit obligations included in the table above is £115 million at 31 December 2018
(2017: £129 million).
The decrease in the surplus during the period is primarily due to remeasurements recognised in other comprehensive income relating to
updated demographic assumptions in the ASPS, partially offset by employer contributions paid into the schemes.
2017
Net IAS 19 surplus in the schemes at 1 January
Past service costs – amendments
Administrative expenses1
Total pension cost charged to net operating expenses
Net interest credited/(charged) to investment income/(finance costs)2
Total recognised in income
Remeasurements:
Actual return on these assets
Less: Interest income on scheme assets
Return on scheme assets excluding amounts in interest income
Losses from change in financial assumptions
Losses from change in demographic assumptions
Experience losses
Total recognised in other comprehensive income
Employer contributions
Plan participant contributions
Benefits paid
Administrative expenses paid from scheme assets1
Foreign exchange rate movements
Net IAS 19 surplus in the schemes at 31 December
1 Administrative expenses are expensed as incurred.
2 Net interest income of £87 million has been credited to investment income and net interest expense of £24 million has been charged to finance costs (see note 8).
Aviva plc Annual report and accounts 2018
199
Fair Value of
Scheme Assets
£m
Present Value
of defined
benefit
obligation
£m
IAS 19
Pensions net
surplus/
(deficits)
£m
19,694
—
—
(17,347)
(1)
(18)
—
470
470
740
(470)
270
—
—
—
270
(19)
(407)
(426)
—
—
—
(182)
(30)
(63)
(275)
259
9
(2,021)
(21)
18
—
(9)
2,021
18
(25)
2,347
(1)
(18)
(19)
63
44
740
(470)
270
(182)
(30)
(63)
(5)
259
—
—
(3)
(7)
18,678
(16,043)
2,635
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
51 – Pension obligations continued
(ii) Scheme assets
Scheme assets are stated at their fair values at 31 December 2018.
Total scheme assets are comprised by scheme as follows:
UK
£m
Ireland
£m
Canada
£m
Bonds
Fixed interest
Index-linked
Equities
Property
Pooled investment vehicles
Derivatives
Cash and other1
Total fair value of scheme assets
Less: consolidation elimination for non-transferable Group
insurance policy2
Total IAS 19 fair value of scheme assets
6,121
10,409
—
353
4,738
(65)
(3,877)
17,679
(620)
17,059
493
293
—
—
555
4
(570)
775
—
775
UK
£m
Ireland
£m
Canada
£m
2018
Total
£m
6,762
10,702
—
353
5,393
(61)
(4,446)
6,925
11,744
129
365
4,955
(34)
(5,710)
148
—
—
—
100
—
1
249
18,703
18,374
—
(620)
(630)
249
18,083
17,744
2017
Total
£m
7,496
12,036
129
365
5,300
(30)
(5,988)
19,308
(630)
18,678
408
292
—
—
238
4
(284)
658
—
658
163
—
—
—
107
—
6
276
—
276
1 Cash and other assets comprise cash at bank, insurance policies, receivables, payables and repurchase agreements. At 31 December 2018, cash and other assets primarily consist of repurchase agreements of £3,741 million
(2017: £5,386 million).
2 As at 31 December 2018, the FPPS’s cash and other balances include an insurance policy of £620 million (2017: £630 million) issued by a Group company that is not transferable under IAS 19 and is consequently eliminated
from the Group’s IAS 19 scheme assets.
Total scheme assets are analysed by those that have a quoted market price in an active market and other as follows:
Total
Quoted
£m
Total
Unquoted
£m
Bonds
Fixed interest
Index-linked
Equities
Property
Pooled investment vehicles
Derivatives
Cash and other1
Total fair value of scheme assets
Less: consolidation elimination for non-transferable Group insurance policy2
Total IAS 19 fair value of scheme assets
3,569
10,278
—
—
478
(9)
(1,195)
13,121
—
13,121
3,193
424
—
353
4,915
(52)
(3,251)
5,582
(620)
4,962
18,083
2018
Total
£m
6,762
10,702
—
353
5,393
(61)
(4,446)
18,703
(620)
Total
Quoted
£m
Total
Unquoted
£m
4,334
11,627
35
—
167
4
(1,801)
14,366
—
14,366
3,162
409
94
365
5,133
(34)
(4,187)
4,942
(630)
4,312
2017
Total
£m
7,496
12,036
129
365
5,300
(30)
(5,988)
19,308
(630)
18,678
1 Cash and other assets comprise cash at bank, insurance policies, receivables, payables and repurchase agreements. At 31 December 2018, cash and other assets primarily consist of repurchase agreements of £3,741 million
(2017: £5,386 million).
2 As at 31 December 2018, the FPPS’s cash and other balances includes an insurance policy of £620 million (2017: £630 million) issued by a Group company that is not transferable under IAS 19 and is consequently eliminated
from the Group’s IAS 19 scheme assets.
IAS 19 plan assets include investments in Group-managed funds in the consolidated statement of financial position of £2,730 million (2017:
£2,091 million) and transferable insurance policies with other Group companies of £156 million (2017: £172 million) in the ASPS. Where the
investment and insurance policies are in segregated funds with specific asset allocations, they are included in the appropriate line in the
table above, otherwise they appear in ‘Cash and other’. There are no significant judgements involved in the valuation of the scheme assets.
(iii) Assumptions on scheme liabilities
The valuations used for accounting under IAS 19 have been based on the most recent funding actuarial valuations, updated to take
account of the standard’s requirements in order to assess the liabilities of the material schemes at 31 December 2018.
The projected unit credit method
The inherent uncertainties affecting the measurement of scheme liabilities require these to be measured on an actuarial basis. This
involves discounting the best estimate of future cash flows to be paid out by the scheme using the projected unit credit method. This is an
accrued benefits valuation method which calculates the past service liability to members and makes allowance for their projected future
earnings. It is based on a number of actuarial assumptions, which vary according to the economic conditions of the countries in which the
relevant businesses are situated, and changes in these assumptions can materially affect the measurement of the pension obligations.
Aviva plc Annual report and accounts 2018
200
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
51 – Pension obligations continued
Financial assumptions
The main financial assumptions used to calculate scheme liabilities under IAS 19 are:
Inflation rate1
General salary increases2
Pension increases3
Deferred pension increases3
Discount rate4, 5
Basis of discount rate
2018
UK
2017
3.3%/2.2%
5.1%
3.3%/2.2%
3.3%/2.2%
2.7%/
2.6%(pensioners)/
2.7%(deferred)
3.2%/2.1%
5.0%
3.2%/2.1%
3.2%/2.1%
2.4%/
2.4%(pensioners)/
2.4%(deferred)
AA-rated corporate bonds
2018
1.6%
3.1%
0.4%
1.6%
1.8%/1.9%
Ireland
2017
1.7%
3.2%
0.4%
1.7%
1.9%
2018
2.0%
2.5%
1.25%
—
3.75%
Canada
2017
2.0%
2.5%
1.25%
—
3.25%
AA-rated corporate bonds
AA-rated corporate bonds
1 For the UK schemes, assumptions provided for RPI/CPI. In the UK, the assumptions for the ASPS and RAC schemes are the single rates for RPI/CPI; for FPPS, relevant RPI/CPI swap curves are used, which are broadly equivalent
to these single rates.
In the UK, the only remaining linkage between pension benefits and general salary increases is in respect of a small amount of Guaranteed Minimum Pension benefits, in line with National Average Earnings.
2
3 For the UK schemes, assumptions provided for RPI/CPI. In the UK, the assumptions for the ASPS and RAC schemes are single rates for RPI/CPI; for FPPS, relevant RPI/CPI swap curves are used, which are broadly equivalent to
these single rates. The assumptions are also adjusted to reflect the relevant caps/floors and the inflation volatility.
4 To calculate scheme liabilities in the UK, a single discount rate is used in ASPS/RAC, whereas in FPPS, separate discount rates are used for the defined benefit obligation for pensioners and deferred.
5 For the Irish schemes, a discount rate of 1.8% and 1.9% is used for AISPF and FFPS respectively, reflecting the differences in the duration of the liabilities between the two schemes.
The discount rate and pension increase rate are the two assumptions that have the largest impact on the value of the liabilities, with the
difference between them being known as the net discount rate. For each country, the discount rate is based on current average yields of
high-quality debt instruments taking account of the maturities of the defined benefit obligations.
Mortality assumptions
Mortality assumptions are material in measuring the Group’s obligations under its defined benefit schemes. The assumptions used are
summarised in the table below and have been selected to reflect the characteristics and experience of the membership of these schemes.
The mortality tables, average life expectancy and pension duration used at 31 December 2018 for scheme members are as follows:
Mortality table
UK – ASPS
Club Vita pooled experience, including an allowance for future improvements
– RAC
SAPS, including allowances for future improvement
– FPPS
SAPS, including allowances for future improvement
Ireland – AISPF 89% PNA00 with allowance for future improvements
– FFPS
88%/91% ILT15 with allowance for future improvements
Canada
Canadian Pensioners’ Mortality 2014 Private Table, including allowance for future
improvements
Life expectancy/(pension
duration) at NRA of a male
Life expectancy/(pension
duration) at NRA of a female
Normal
retirement age
(NRA)
Currently aged
NRA
20 years
younger than
NRA
Currently aged
NRA
20 years
younger than
NRA
60
65
60
61
68
65
88.8
(28.8)
87.1
(22.1)
87.9
(27.9)
88.6
(27.6)
86.8
(18.8)
87.0
(22.0)
90.7
(30.7)
89.0
(24.0)
90.4
(30.4)
92.0
(31.0)
89.1
(21.1)
88.4
(23.4)
90.2
(30.2)
89.0
(24.0)
90.5
(30.5)
91.5
(30.5)
89.1
(21.1)
89.5
(24.5)
92.5
(32.5)
90.6
(25.6)
92.6
(32.6)
94.8
(33.8)
91.1
(23.1)
90.8
(25.8)
The assumptions above are based on commonly used mortality tables. The tables make allowance for observed variations in such factors
as age, gender, pension amount, salary and postcode-based lifestyle group, and have been adjusted to reflect recent research into
mortality experience. However, the extent of future improvements in longevity is subject to considerable uncertainty and judgement is
required in setting this assumption. For the ASPS, which is the most material scheme to the Group, the allowance for mortality
improvement is per the actuarial profession’s ‘CMI_2017 (S=7.5) Advanced with adjustments’ model (2017: ‘CMI_2016 (S=7.5) Advanced with
adjustments’), with a long-term improvement rate of 1.75% (2017: 1.75%) for males and 1.5% (2017: 1.5%) for females. The CMI_2017 tables
have been adjusted by adding 0.25% (2017: 0.25%) and 0.35% (2017: 0.35%) to the initial rate of mortality improvements for males and
females respectively (to allow for greater mortality improvements in the pension scheme membership relative to the general population on
which CMI_2017 is based), and uses the advanced parameters to taper the long-term improvement rates to zero between ages 90 and 115
(the ‘core’ parameters taper the long-term improvement rates to zero between ages 85 and 110).
Sensitivity analysis
Significant actuarial assumptions for the determination of the defined benefit obligation are discount rate, inflation rate and mortality. The
sensitivity analysis below has been determined by changing the respective assumptions whilst holding all other assumptions constant. The
following table summarises how the defined benefit obligation would have increased/(decreased) as a result of the change in the
respective assumptions:
Impact on present value of defined benefit obligation
Impact on present value of defined benefit obligation at 31 December 2018
Impact on present value of defined benefit obligation at 31 December 2017
1 The effect of assuming all members in the schemes were one year younger.
Aviva plc Annual report and accounts 2018
201
Increase in
discount rate
+1%
£m
Decrease in
discount rate
-1%
£m
Increase in
inflation rate
+1%
£m
Decrease in
inflation rate
-1%
£m
(2,502)
(2,680)
3,317
3,576
2,275
2,526
(1,788)
(1,929)
1 year
younger1
£m
536
565
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
51 – Pension obligations continued
It is unlikely that the changes in assumptions would occur in isolation of one another as some of the assumptions may be correlated.
Furthermore, the present value of the defined benefit obligation has been calculated using the projected unit credit method, which is the
same as that applied in calculating the defined benefit obligation recognised within the consolidated statement of financial position. In
addition, the sensitivities shown are for liabilities only and ignore the impact on assets, which would significantly mitigate the net interest
rate and inflation sensitivity impact on the net surplus.
Maturity profile of the defined benefit obligation
The discounted scheme liabilities have an average duration of 19 years in ASPS, 20 years in FPPS, 18 years in the RAC scheme, 19 years in
AISPF, 28 years in FFPS and 11 years in the Canadian scheme. The expected undiscounted benefits payable from the main UK defined
benefit scheme, ASPS, is shown in the chart below:
Undiscounted benefit payments (£m)
(iv) Risk management and asset allocation strategy
As noted above, the long-term investment objectives of the trustees and the employers are to limit the risk of the assets failing to meet the
liabilities of the schemes over the long-term, and to maximise returns consistent with an acceptable level of risk so as to control the long-
term costs of these schemes. To meet these objectives, the schemes’ assets are invested in a portfolio, consisting primarily of debt
securities as detailed in section (b)(ii). The investment strategy will continue to evolve over time and is expected to match the liability
profile increasingly closely with swap overlays to improve interest rate and inflation matching. The schemes are generally matched to
interest rate risk relative to the funding bases.
Main UK scheme
The Company works closely with the trustee, who is required to consult with the Company on the investment strategy.
Interest rate and inflation rate risks are managed using a combination of liability-matching assets and swaps. Exposure to equity risk has
been reducing over time and credit risk is managed within risk appetite. Currency risk is relatively small and is largely hedged. The other
principal risk is longevity risk. This risk has reduced due to the ASPS entering into a longevity swap in 2014 covering approximately £5 billion
of pensioner in payment scheme liabilities.
Other schemes
The other schemes are considerably less material but their risks are managed in a similar way to those in the main UK scheme. In 2015, the
RAC pension scheme entered into a longevity swap covering approximately £600 million of pensioner in payment scheme liabilities.
(v) Funding
Formal actuarial valuations normally take place every three years and where there is a deficit, the Group and the trustees would agree a
deficit recovery plan. The assumptions adopted for triennial actuarial valuations are determined by the trustees and agreed with the Group
and are normally more prudent than the assumptions adopted for IAS19 purposes, which are best estimate.
For the ASPS, following the latest formal actuarial valuation (with an effective date of 31 March 2015) a schedule of contributions was
agreed with the trustees, even though the ASPS was fully funded on its technical provisions basis consistent with the requirements of the
UK pension regulations. The ASPS is currently undergoing a triennial actuarial valuation as at 31 March 2018.
Total employer contributions for all schemes in 2019 are currently expected to be £0.2 billion.
(c) Defined contribution (money purchase) section of the ASPS
The trustees have responsibility for selecting a range of suitable funds in which the members can choose to invest in and for monitoring the
performance of the available investment funds. Members are responsible for reviewing the level of contributions they pay and the choice of
investment fund to ensure these are appropriate to their risk appetite and their retirement plans. Members of this section contribute at
least 2% of their pensionable salaries, and depending on the percentage chosen, the Group contributes up to a maximum 14%, together
with the cost of the death-in-service benefits. These contribution rates remained unchanged until June 2017. From 1 July 2017, for every 1%
additional employee contribution, the Group will contribute an additional 0.1% employer contribution. The amount recognised as an
expense for defined contribution schemes is shown in section (d) below.
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Notes to the consolidated financial statements
Continued
51 – Pension obligations continued
(d) Charge to staff costs in the income statement
The total pension charge to staff costs for all of the Group’s defined benefit and defined contribution schemes were:
Continuing operations
UK defined benefit schemes
Overseas defined benefit schemes
Total defined benefit schemes (note 11(b))
UK defined contribution schemes
Overseas defined contribution schemes
Total defined contribution schemes (note 11(b))
Total charge for pension schemes
2018
£m
22
1
23
143
20
163
186
2017
£m
22
1
23
121
25
146
169
There were no significant contributions payable or prepaid in the consolidated statement of financial position as at either 31 December
2018 or 2017.
52 – Borrowings
Our borrowings are classified as either core structural borrowings, which are included within the Group’s capital employed, or operational
borrowings drawn by operating subsidiaries. This note shows the carrying values and contractual maturity amounts of each type, and
explains their main features and movements during the year.
(a) Analysis of total borrowings
Total borrowings comprise:
Core structural borrowings, at amortised cost
Operational borrowings, at amortised cost
Operational borrowings, at fair value
(b) Core structural borrowings
(i) The carrying amounts of these borrowings are:
Subordinated debt
6.125% £700 million subordinated notes 2036
6.125% £800 million undated subordinated notes
6.875% £600 million subordinated notes 2058
6.875% €500 million subordinated notes 2038
12.000% £162 million subordinated notes 2021
8.250% £500 million subordinated notes 2022
6.625% £450 million subordinated notes 2041
7.875% $575 million undated subordinated notes
6.125% €650 million subordinated notes 2043
3.875% €700 million subordinated notes 2044
5.125% £400 million subordinated notes 2050
3.375% €900 million subordinated notes 2045
4.500% C$450 million subordinated notes 2021
4.375% £400 million subordinated notes 2049
Senior notes
0.100% €350 million senior notes 2018
0.625% €500 million senior notes 2023
1.875% €750 million senior notes 2027
Commercial paper
Less: Amount held by Group companies
Total
Aviva plc Annual report and accounts 2018
203
2018
£m
7,699
496
1,225
1,721
9,420
2017
£m
8,640
466
1,180
1,646
10,286
2018
£m
694
797
594
—
191
563
449
—
582
625
395
799
257
394
2017
£m
694
796
594
444
202
581
448
437
575
618
394
789
264
394
6,340
7,230
—
446
667
1,113
251
310
441
—
751
668
7,704
8,649
(5)
(9)
7,699
8,640
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
52 – Borrowings continued
In 2018 the Group redeemed two subordinated debt instruments in full at their first call date, reduced the outstanding commercial paper
balance and issued further senior debt. Further details are set out below:
• On 22 May 2018, the Group redeemed its €500 million 6.875% subordinated notes in full at first call date
• On 8 November 2018, the Group redeemed its $575 million 7.875% undated subordinated notes in full at first call date
• On 13 November 2018, Aviva plc issued €750 million of senior notes at 1.875% which mature in 2027
• On 13 December 2018, the Group’s €350 million 0.100% senior notes matured
• The outstanding commercial paper balance was reduced to £251 million (2017: £668 million) during 2018
All the above borrowings are stated at amortised cost.
(ii) The contractual maturity dates of undiscounted cash flows for these borrowings are:
Within one year
1 to 5 years
5 to 10 years
10 to 15 years
Over 15 years
Total contractual undiscounted cash flows
Principal
£m
251
1,370
673
—
5,365
7,659
Interest
£m
376
1,353
1,490
1,441
2,923
2018
Total
£m
627
2,723
2,163
1,441
8,287
7,583
15,241
Principal
£m
978
928
444
—
6,216
8,566
Interest
£m
427
1,627
1,759
1,756
3,282
8,851
2017
Total
£m
1,405
2,555
2,203
1,756
9,498
17,417
Borrowings are considered current if the contractual maturity dates are within a year. Where subordinated debt is undated or loan notes
are perpetual, the interest payments have not been included beyond 15 years. Annual interest payments in future years for these
borrowings are £49 million (2017: £82 million).
Contractual undiscounted interest payments are calculated based on underlying fixed interest rates or prevailing market floating rates as
applicable. Year end exchange rates have been used for interest projections on loans in foreign currencies.
(c) Operational borrowings
(i) The carrying amounts of these borrowings are:
Amounts owed to financial institutions
Loans
Securitised mortgage loan notes
UK lifetime mortgage business (note 25(b))
Total
2018
£m
2017
£m
496
466
1,225
1,721
1,180
1,646
All the above borrowings are stated at amortised cost, except for the loan notes issued in connection with the UK lifetime mortgage
business of £1,225 million (2017: £1,180 million). These loan notes are carried at fair value, their values are modelled on risk-adjusted cash
flows for defaults discounted at a risk-free rate plus a market-determined liquidity premium, and are therefore classified as ‘Level 3’ in the
fair value hierarchy. The risk allowances are consistent with those used in the fair value asset methodology, as described in note 23. These
have been designated at fair value through profit and loss in order to present the relevant mortgages, borrowings and derivative financial
instruments at fair value, since they are managed as a portfolio on a fair value basis. This presentation provides more relevant information
and eliminates any accounting mismatch.
The securitised mortgage loan notes are at various fixed, floating and index-linked rates. Further details about these notes are given in
note 25.
(ii) The contractual maturity dates of undiscounted cash flows for these borrowings are:
Within one year
1 to 5 years
5 to 10 years
10 to 15 years
Over 15 years
Total contractual undiscounted cash flows
Principal
£m
Interest
£m
257
535
555
180
136
1,663
49
185
163
142
154
693
2018
Total
£m
306
720
718
322
290
Principal
£m
Interest
£m
174
547
548
325
208
52
202
178
140
144
716
2017
Total
£m
226
749
726
465
352
2,518
2,356
1,802
Contractual undiscounted interest payments are calculated based on underlying fixed interest rates or prevailing market floating rates as
applicable. Year-end exchange rates have been used for interest projections on loans in foreign currencies.
Aviva plc Annual report and accounts 2018
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Other information
Notes to the consolidated financial statements
Continued
52 – Borrowings continued
(d) Description and features
(i) Subordinated debt
A description of each of the subordinated notes is set out in the table below:
Notional amount
£700 million
£800 million
£600 million
£162 million
£500 million
£450 million
€650 million
€700 million
£400 million
€900 million
C$450 million
£400 million
Issue date
14 Nov 2001
29 Sep 2003
20 May 2008
21 May 2009
21 April 2011
26 May 2011
5 July 2013
3 July 2014
4 June 2015
4 June 2015
9 May 2016
12 September 2016
Redemption date
14 Nov 2036
Undated
20 May 2058
21 May 2021
21 April 2022
3 June 2041
5 July 2043
3 July 2044
4 June 2050
4 December 2045
10 May 2021
12 September 2049
Callable at par at option of the
Company from
16 Nov 2026
29 Sep 2022
20 May 2038
N/A
N/A
3 June 2021
5 July 2023
3 July 2024
4 December 2030
4 December 2025
N/A
12 September 2029
In the event the Company does not call the notes,
the coupon will reset at each applicable
reset date to
5 year Benchmark Gilt + 2.85%
5 year Benchmark Gilt + 2.40%
3 month LIBOR + 3.26%
N/A
N/A
6 Month LIBOR + 4.136%
5 year EUR mid-swaps + 5.13%
5 year EUR mid-swaps + 3.48%
3 month Euribor + 4.022%
3 month Euribor + 3.55%
N/A
3 month LIBOR + 4.721%
Subordinated notes issued by the Company rank below its senior obligations and ahead of its preference shares and ordinary share capital.
The dated subordinated notes rank ahead of the undated subordinated notes. The fair value of notes at 31 December 2018 was £6,610
million (2017: £8,348 million), calculated with reference to quoted prices.
(ii) Senior notes
All senior notes are at fixed rates and their total fair value at 31 December 2018 was £1,113 million (2017: £756 million).
(iii) Commercial paper
The commercial paper consists of £251 million issued by the Company (2017: £668 million) and is considered core structural funding. The
fair value of the commercial paper is considered to be the same as its carrying value and all issuances are repayable within one year.
(iv) Loans
Loans owed to financial institutions comprise:
Non-recourse
Loans to property partnerships
UK Life reassurance
Other non-recourse loans
Other loans
2018
£m
61
177
52
290
206
496
2017
£m
61
111
58
230
236
466
As explained in accounting policy D, the UK long-term business policyholder funds have invested in a number of property funds and
structures (the ‘Property Funds’), some of which have raised external debt, secured on the relevant Property Fund’s property portfolio. The
lenders are only entitled to obtain payment of interest and principal to the extent there are sufficient resources in the relevant Property
Fund and they have no recourse whatsoever to the policyholder or shareholders’ funds of any companies in the Group. Loans of £61 million
(2017: £61 million) included in the table above relate to Property Funds.
At 31 December 2018 the obligations to repay third parties arising out of financial reinsurance operations were £177 million (2017: £111
million).
Other non-recourse loans primarily include external debt raised by special purpose vehicles in the UK long-term business. The lenders have
no recourse whatsoever to the shareholders’ funds of any companies in the Group. The outstanding balance of these loans at 31 December
2018 was £52 million (2017: £58 million).
Other loans of £206 million (2017: £236 million) include external debt raised by overseas long-term businesses to fund operations.
(v) Securitised mortgage loan notes
Loan notes have been issued by special purpose securitisation companies in the UK. Details are given in note 25.
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Notes to the consolidated financial statements
Continued
52 – Borrowings continued
(e) Movements during the year
Movements in borrowings during the year were:
New borrowings drawn down, excluding commercial paper, net of expenses
Repayment of borrowings, excluding commercial paper1
Movement in commercial paper2
Net cash outflow
Foreign exchange rate movements
Borrowings reclassified/(loans repaid) for non-cash consideration
Fair value movements
Amortisation of discounts and other non-cash items
Movements in debt held by Group companies3
Movements in the year
Balance at 1 January
Balance at 31 December
Core
Structural
£m
649
(1,178)
(419)
(948)
42
—
—
(35)
—
(941)
8,640
7,699
Operational
£m
126
(211)
—
(85)
6
65
89
—
—
75
1,646
1,721
2018
Total
£m
775
(1,389)
(419)
(1,033)
48
65
89
(35)
—
(866)
10,286
9,420
Core
Structural
£m
Operational
£m
2017
Total
£m
55
(639)
—
(584)
87
471
108
(53)
(38)
55
(151)
—
(96)
(17)
(13)
108
(16)
(38)
(72)
1,718
1,646
(9)
10,295
10,286
—
(488)
—
(488)
104
484
—
(37)
—
63
8,577
8,640
1 On 28 September 2017, notification was given that the Group would redeem the $650 million fixed rate tier 1 notes. At that date, the instrument was reclassified as a financial liability of £484 million, representing its fair value
on translation into Sterling at that date. On 3 November 2017 the instrument was redeemed in full at a cost of £488 million.
2 Gross issuances of commercial paper were £2,372 million in 2018 (2017: £1,265 million), offset by repayments of £2,791 million (2017: £1,265 million).
3 Certain subsidiary companies have purchased issued subordinated notes and securitised loan notes as part of their investment portfolios. In the consolidated statement of financial position, borrowings are shown net of
these holdings but movements in such holdings over the year are reflected in the tables above.
All movements in fair value in 2017 and 2018 on securitised mortgage loan notes designated as fair value through profit or loss were
attributable to changes in market conditions.
(f) Undrawn borrowings
The Group has the following undrawn committed central borrowing facilities available to them, which are used to support the commercial
paper programme:
Expiring within one year
Expiring beyond one year
53 – Payables and other financial liabilities
This note analyses our payables and other financial liabilities at the end of the year.
Payables arising out of direct insurance
Payables arising out of reinsurance operations
Deposits and advances received from reinsurers
Bank overdrafts (see below)
Derivative liabilities (note 60)
Amounts due to brokers for investment purchases
Obligations for repayment of cash collateral received
Other financial liabilities
Total
Less: Amounts classified as held for sale
Expected to be settled within one year
Expected to be settled in more than one year
2018
£m
—
1,650
1,650
2017
£m
—
1,650
1,650
2018
£m
1,374
464
129
563
5,571
240
6,714
1,853
2017
£m
1,276
304
129
499
5,766
112
6,817
1,598
16,908
16,501
(26)
(42)
16,882
16,459
10,800
6,108
11,460
5,041
16,908
16,501
Bank overdrafts amount to £153 million (2017: £115 million) in life business operations and £410 million (2017: £384 million) in general
insurance business and other operations.
All payables and other financial liabilities are carried at cost, which approximates to fair value, except for derivative liabilities, which are
carried at their fair values.
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Notes to the consolidated financial statements
Continued
54 – Other liabilities
This note analyses our other liabilities at the end of the year.
Deferred income
Reinsurers’ share of deferred acquisition costs
Accruals
Other liabilities
Total
Less: Amounts classified as held for sale
Expected to be settled within one year
Expected to be settled in more than one year
2018
£m
138
19
1,266
1,653
3,076
2017
£m
133
17
1,236
1,440
2,826
(33)
(35)
3,043
2,451
625
3,076
2,791
2,276
550
2,826
55 – Contingent liabilities and other risk factors
This note sets out the main areas of uncertainty over the calculation of our liabilities.
(a) Uncertainty over claims provisions
Note 43 gives details of the estimation techniques used by the Group to determine the general insurance business outstanding claims
provisions and of the methodology and assumptions used in determining the long-term business provisions. These approaches are designed
to allow for the appropriate cost of policy-related liabilities, with a degree of prudence, to give a result within the normal range of outcomes.
However, the actual cost of settling these liabilities may differ, for example because experience may be worse than that assumed, or future
general insurance business claims inflation may differ from that expected, and hence there is uncertainty in respect of these liabilities.
(b) Asbestos, pollution and social environmental hazards
In the course of conducting insurance business, various companies within the Group receive general insurance liability claims, and become
involved in actual or threatened related litigation arising therefrom, including claims in respect of pollution and other environmental
hazards. Amongst these are claims in respect of asbestos production and handling in various jurisdictions, including Europe, Canada and
Australia. Given the significant delays that are experienced in the notification of these claims, the potential number of incidents they cover
and the uncertainties associated with establishing liability, the ultimate cost cannot be determined with certainty. However, on the basis of
current information having regard to the level of provisions made for general insurance claims and substantial reinsurance cover now in
place, the directors consider that any additional costs arising are not likely to have a material impact on the financial position of the Group.
(c) Guarantees on long-term savings products
As a normal part of their operating activities, various Group companies have given guarantees and options, including interest rate guarantees,
in respect of certain long-term insurance and investment products. Note 45 gives details of these guarantees and options. In providing these
guarantees and options, the Group’s capital position is sensitive to fluctuations in financial variables including foreign currency exchange rates,
interest rates, property values and equity prices. Interest rate guaranteed returns, such as those available on guaranteed annuity options, are
sensitive to interest rates falling below the guaranteed level. Other guarantees, such as maturity value guarantees and guarantees in relation to
minimum rates of return, are sensitive to fluctuations in the investment return below the level assumed when the guarantee was made. The
directors continue to believe that the existing provisions for such guarantees and options are sufficient.
(d) Regulatory compliance
The Group’s insurance and investment business is subject to local regulation in each of the countries in which it operates. A number of the
Group’s UK subsidiaries are dual regulated (directly authorised by both the PRA (for prudential regulation) and the FCA (for conduct
regulation) while others are solo regulated (regulated solely by the FCA for both prudential and conduct regulation). Between them, the
PRA and FCA have broad powers including the authority to grant, vary the terms of, or cancel a regulated firm’s authorisation; to investigate
marketing and sales practices; and to require the maintenance of adequate financial resources. The Group’s regulators outside the UK
typically have similar powers, but in some cases they also operate a system of ‘prior product approval’.
The Group’s regulated businesses have compliance resources to respond to regulatory enquiries in a constructive way, and take corrective
action when warranted. However, all regulated financial services companies face the risk that their regulator could find that they have failed
to comply with applicable regulations or have not undertaken corrective action as required.
The impact of any such finding (whether in the UK or overseas) could have a negative impact on the Group’s reported results or on its
relations with current and potential customers. Regulatory action against a member of the Group could result in adverse publicity for, or
negative perceptions regarding, the Group, or could have a material adverse effect on the business of the Group, its results, operations
and/or financial condition and divert management’s attention from the day-to-day management of the business.
(e) Structured settlements
The Group has purchased annuities from licensed Canadian life insurers to provide for fixed and recurring payments to claimants. As a
result of these arrangements, the Group is exposed to credit risk to the extent that any of the life insurers fail to fulfill their obligations. The
Group’s maximum exposure to credit risk for these types of arrangements is approximately CAD$1,235 million as at 31 December 2018
(2017: CAD$1,213 million). Credit risk is managed by acquiring annuities from a diverse portfolio of life insurers with proven financial stability.
This risk is reduced to the extent of coverage provided by Assuris, the Canadian life insurance industry compensation plan. As at
31 December 2018, no information has come to the Group’s attention that would suggest any weakness or failure in life insurers from which
it has purchased annuities and consequently no provision for credit risk is required.
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Notes to the consolidated financial statements
Continued
55 – Contingent liabilities and other risk factors continued
(f) Other
In the course of conducting insurance and investment business, various Group companies receive liability claims, and become involved in
actual or threatened related litigation. In the opinion of the directors, adequate provisions have been established for such claims and no
material loss will arise in this respect.
In addition, in line with standard business practice, various Group companies have given guarantees, indemnities and warranties in
connection with disposals in recent years of subsidiaries and associates to parties outside the Aviva Group. In the opinion of the directors,
no material unprovisioned loss will arise in respect of these guarantees, indemnities and warranties.
There are a number of charges registered over the assets of Group companies in favour of other Group companies or third parties. In
addition, certain of the Company’s assets are charged in favour of certain of its subsidiaries as security for intra-Group loans.
56 – Commitments
This note gives details of our commitments to capital expenditure and under operating leases.
(a) Capital commitments
Contractual commitments for acquisitions or capital expenditures of infrastructure loans, equity funds, investment property and property
and equipment, which have not been recognised in the financial statements, are as follows:
Infrastructure loan advances
Investment property
Property and equipment
Other investment vehicles1
2018
£m
898
42
77
266
2017
£m
782
42
53
265
1,283
1,142
1 Represents commitments for further investment in certain private equity vehicles. Such commitments do not expose the Group to the risk of future losses in excess of its investment.
Contractual obligations for future repairs and maintenance on investment properties are £nil (2017: £nil). Notes 19 and 20 set out the
commitments the Group has to its joint ventures and associates.
(b) Operating lease commitments
(i) Future contractual aggregate minimum lease rentals receivable under non-cancellable operating leases are as follows:
Within 1 year
Later than 1 year and not later than 5 years
Later than 5 years
(ii) Future contractual aggregate minimum lease payments under non-cancellable operating leases are as follows:
Within 1 year
Later than 1 year and not later than 5 years
Later than 5 years
Total future minimum sub-lease payments expected to be received under non-cancellable sub-leases
2018
£m
294
921
1,430
2,645
2017
£m
317
980
1,408
2,705
2018
£m
94
321
313
728
33
2017
£m
101
339
413
853
44
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Other information
Notes to the consolidated financial statements
Continued
57 – Group capital management
(a) Introduction
Group capital is represented by Solvency II own funds1. At 31 December 2018, the estimated Solvency II shareholder own funds amounts to
£23.6 billion (2017: £24.7 billion). The Solvency II position disclosed is based on a ‘shareholder view’. The shareholder view is considered by
management to be more representative of the shareholders’ risk exposure and the Group’s ability to cover the Solvency Capital
Requirement (SCR) with eligible own funds and aligns with management’s approach to dynamically manage its capital position.
In arriving at the shareholder position, the following adjustments are typically made to the regulatory Solvency II own funds:
• The contribution to the Group’s own funds of the most material fully ring fenced with-profits funds of £2.6 billion at 31 December 2018
(2017: £3.3 billion) and staff pension schemes in surplus of £1.1 billion at 31 December 2018 (2017: £1.5 billion) are excluded. These
exclusions have no impact on Solvency II surplus. The most material fully ring fenced with-profit funds and staff pension schemes are self-
supporting on a Solvency II capital basis with any surplus capital above Solvency Capital Requirements (‘SCR’) not recognised in the
Group position.
• A notional reset of the transitional measure on technical provisions (TMTP), calculated using the same method as used for formal TMTP
resets. This presentation avoids step changes to Solvency II own funds that arise only when the formal TMTP reset points are triggered.
The 31 December 2018 Solvency II own funds include a notional reset (£0.1 billion decrease in own funds) while the 31 December 2017
Solvency II own funds included a formal, rather than notional, reset of the TMTP in line with the regulatory requirement to reset the TMTP
at least every two years or in the event of a material change in the risk profile. The TMTP is amortised on a straight-line basis over 16 years
from 1 January 2016 in line with the Solvency II rules.
• Pro forma adjustments are made if the Solvency II shareholder cover ratio does not fully reflect the effect of transactions or capital
actions that are known as at each reporting date. Such adjustments may be required in respect of planned acquisitions and disposals,
group reorganisations and adjustments to the Solvency II valuation basis arising from changes to the underlying regulations or updated
interpretations provided by EIOPA. The 31 December 2018 Solvency II own funds include two pro forma adjustments to reflect known or
highly likely events that could materially impact the Group’s solvency position post 31 December 2018. These pro forma adjustments
relate to the disposal of FPI (£0.1 billion reduction in own funds) and the potential impact of an expected change to Solvency II
regulations on the treatment of equity release mortgages (£nil impact on own funds as at 31 December 2018). The 31 December 2017
Solvency II own funds included the pro forma impact of the disposals of FPI (£0.1 billion reduction in own funds) and Avipop in Italy (£0.1
billion increase in own funds).
Solvency II own funds are comprised of a combination of shareholders’ funds, preference share capital, direct capital instrument, tier 1
notes, subordinated debt, and deferred tax assets measured on a Solvency II basis. Refer to note 57(c) for further details on Solvency II.
Management also considers a capital employed metric prepared on an IFRS basis in managing capital and measuring business unit
performance. The total capital employed comprises of similar items to Solvency II own funds but measured in accordance with IFRS and
includes senior debt. In particular, analysis of return on equity calculated based on the capital employed has been used as one of the
inputs to management’s decision making process for capital allocation purposes.
The primary objective of capital management is to maintain an efficient capital structure, in a manner consistent with our risk profile and
the regulatory and market requirements of our business.
Capital is a primary consideration across a wide range of business activities, including product development, pricing, business planning,
merger and acquisition transactions and asset and liability management. A Capital Management Standard, applicable Group-wide, sets out
minimum standards and guidelines over responsibility for capital management including considerations for capital management decisions
and requirements for management information, capital monitoring, reporting, forecasting, planning and overall governance.
1 Own funds is capital available to cover the Solvency Capital Requirement (SCR) and Minimum Capital Requirement (MCR) under Solvency II.
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Other information
Notes to the consolidated financial statements
Continued
57 – Group capital management continued
The Group manages capital in conjunction with solvency capital requirements, and seeks to, on a consistent basis:
• Match the profile of our assets and liabilities, taking into account the risks inherent in each business
• Maintain sufficient, but not excessive, financial strength in accordance with risk appetite, to support new business growth and satisfy the
requirements of our regulators and other stakeholders giving both our customers and shareholders assurance of our financial strength.
Refer to note 59 for more information about the Group’s risk management approach
• Retain financial flexibility by maintaining strong liquidity, access to a range of capital markets and significant unutilised committed credit
lines
• Allocate capital rigorously to support value adding growth and repatriate excess capital where appropriate
• Declare dividends with reference to factors including growth in cash flow and earnings
(b) IFRS basis
The table below shows how our capital is deployed by market and how that capital is funded.
Life business
United Kingdom1
France
Poland
Italy
Other Europe
Europe
Asia
General insurance & health
United Kingdom General Insurance1,2
United Kingdom Health1
Canada
France
Poland
Italy
Other Europe
Europe
Asia
Fund management
Corporate and other business1,2,3
Total capital employed
Financed by
Equity shareholders’ funds
Non-controlling interests
Direct capital instrument and tier 1 notes
Preference shares
Subordinated debt4
Senior debt
Total capital employed5
2018 Capital
employed
£m
2017 Capital
employed
£m
10,266
2,885
319
686
380
4,270
1,691
16,227
1,509
122
1,290
585
131
148
185
1,049
—
3,970
545
5,412
26,154
16,558
966
731
200
6,335
1,364
26,154
11,493
2,704
352
954
422
4,432
1,558
17,483
1,872
106
1,364
589
140
319
203
1,251
10
4,603
520
5,169
27,775
16,969
1,235
731
200
7,221
1,419
27,775
1 Non-insurance operations relating to the UK have been reclassified to their respective market segments to better reflect the management of the underlying businesses consistent with the segmental analysis shown in note 5.
2 Capital employed for United Kingdom General Insurance excludes c.£0.9 billion (2017: c.£0.9 billion) of goodwill which does not support the general insurance business for capital purposes and is included in Corporate and
other business.
3 Corporate and other business includes centrally held tangible net assets, the main UK staff pension scheme surplus and also reflects internal lending arrangements. These internal lending arrangements, which net out on
consolidation, include the formal loan arrangement between Aviva Group Holdings Limited and Aviva Insurance Limited.
4 Subordinated debt excludes amounts held by Group companies of £5 million (2017: £9 million).
5 Goodwill, AVIF and other intangibles are maintained within the capital base. Goodwill includes goodwill in subsidiaries of £1,872 million (2017: £1,876 million), goodwill in joint ventures of £13 million (2017: £17 million) and
goodwill in associates of £nil (2017: £nil). AVIF and other intangibles comprise £3,201 million (2017: £3,455 million) of intangibles in subsidiaries, £33 million (2017: £40 million) of intangibles in joint ventures and £nil (2017: £nil) of
intangibles in associates, net of deferred tax liabilities of £(475) million (2017: £(721) million) and the non-controlling interest share of intangibles of £(31) million (2017: £(254) million).
Total capital employed is financed by a combination of equity shareholders’ funds, preference capital, subordinated debt and other
borrowings. At 31 December 2018, the Group had £26.2 billion (2017: £27.8 billion) of total capital employed in our trading operations
measured on an IFRS basis.
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Other information
Notes to the consolidated financial statements
Continued
57 – Group capital management continued
During 2018, Aviva has undertaken a number of actions to deploy its excess capital.
On 1 May 2018, the Group announced a share buy-back of ordinary shares, which was completed for an aggregate purchase price of £600
million. Shares totalling 119,491,188 (2017: 57,724,500 shares) were purchased and subsequently cancelled bringing the total cancelled
under the programme to 177,215,688 shares, completing the share buy-back programme for an aggregate price of £900 million.
During the year, the Group also redeemed two subordinated debt instruments in full at their first call date, reduced the outstanding
commercial paper balance and issued one senior debt. Further details are set out below:
• On 22 May 2018, the Group redeemed its €500 million 6.875% subordinated notes in full at first call date
• On 8 November 2018, the Group redeemed its $575 million 7.875% undated subordinated notes in full at first call date
• On 13 November 2018, Aviva plc issued €750 million of senior notes at 1.875% which mature in 2027
• On 13 December 2018, the Group’s €350 million 0.100% senior notes matured
• The outstanding commercial paper balance was reduced to £251 million (2017: £668 million)
At 31 December 2018, the market value of our external debt (subordinated debt and senior debt), preference shares (including both Aviva
plc preference shares of £200 million and General Accident plc preference shares, within non-controlling interests, of £250 million), and
direct capital instrument and tier 1 notes was £9,278 million (2017: £11,311 million).
(c) Solvency II basis
Solvency II is the Europe-wide prudential regulatory framework that came into force on 1 January 2016 and put in place a consistent
solvency framework for insurers across Europe. This capital regime requires insurers to calculate regulatory capital adequacy at both
individual regulated subsidiaries and an aggregate Group level. Non-EEA entities have been included in Group solvency in line with
Solvency II requirements. Other financial sector entities (including fund management) are included at their proportional share of the capital
requirement according to the relevant sectoral values.
Solvency II surplus at the Group level represents the excess of eligible Solvency II own funds over the Group’s solvency capital requirements
calculated in accordance with Solvency II requirements. The Group maintained capital in excess of the solvency capital requirement (SCR)
at all times during 2018. Further information on the Group’s Solvency II position, including details of available capital resources and
solvency surplus, determined using the shareholder view of Solvency II, can be found in the Other information section. This information is
estimated and is therefore subject to change. It is also unaudited.
In addition, non-EEA businesses including Canada, Hong Kong and Singapore, are subject to the locally applicable capital requirements in
the jurisdictions in which they operate.
All regulated subsidiaries complied with their capital requirements throughout the year.
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
58 – Statement of cash flows
This note gives further detail behind the figures in the statement of cash flows.
(a) The reconciliation of profit before tax to the net cash inflow from operating activities is:
Profit before tax
Adjustments for:
Share of profits of joint ventures and associates
Dividends received from joint ventures and associates
(Profit)/loss on sale of:
Investment property
Property and equipment
Subsidiaries, joint ventures and associates
Investments
Fair value (gains)/losses on:
Investment property
Investments
Borrowings
Depreciation of property and equipment
Equity compensation plans, equity settled expense
Impairment and expensing of:
Goodwill on subsidiaries
Financial investments, loans and other assets
Acquired value of in-force business and intangibles
Non-financial assets
Amortisation of:
Premium/discount on debt securities
Premium/discount on borrowings
Premium/discount on non-participating investment contracts
Financial instruments
Acquired value of in-force business and intangibles
Change in unallocated divisible surplus
Interest expense on borrowings
Net finance income on pension schemes
Foreign currency exchange (gains)/losses
Changes in working capital
Decrease in reinsurance assets
(Increase) in deferred acquisition costs
(Decrease)/increase in insurance liabilities and investment contracts
(Increase)/decrease in other assets
Net purchases of operating assets
Net purchases of investment property
Net proceeds on sale of investment property
Net sales of financial investments
Total cash generated from operating activities
2018
£m
2017
£m
1,652
2,374
(112)
43
(41)
51
(69)
1
(102)
(6,434)
(6,604)
(307)
27,909
89
27,691
40
64
13
10
—
—
23
587
(35)
243
16
392
1,203
(3,237)
551
(67)
(164)
(30)
—
(135)
(6,711)
(6,876)
(481)
(6,983)
108
(7,356)
35
77
2
6
15
7
30
720
(53)
262
26
392
1,347
(294)
610
(63)
61
2,191
(98)
(11,808)
(1,708)
(11,423)
12,707
(389)
13,658
2,174
28,150
(791)
959
(3,423)
(3,255)
(672)
1,065
(10,137)
(9,744)
6,405
8,361
The cash flows presented in this statement cover all the Group’s activities and include flows from both policyholder and shareholder
activities. Operating cash flows reflect the movement in both policyholder and shareholder controlled cash and cash equivalent balances.
During the year the net operating cash inflow reflects a number of factors, including the level of premium income, payments of claims,
creditors and surrenders and purchases and sales of operating assets including financial investments. It also includes changes in the size
and value of consolidated cash investment funds and changes in the Group participation in these funds.
(b) Cash flows in respect of the acquisition of, and additions to, subsidiaries, joint ventures and associates comprised:
Cash consideration for subsidiaries, joint ventures and associates acquired and additions
Less: Cash and cash equivalents acquired with subsidiaries
Total cash flow on acquisitions and additions
2018
£m
(165)
357
192
2017
£m
(32)
57
25
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Other information
Notes to the consolidated financial statements
Continued
58 – Statement of cash flows continued
(c) Cash flows in respect of the disposal of subsidiaries, joint ventures and associates comprised:
Cash proceeds from disposal of subsidiaries, joint ventures and associates
Less: Net cash and cash equivalents divested with subsidiaries
Total cash flow on disposals
The above figures form part of cash flows from investing activities.
(d) Cash and cash equivalents in the statement of cash flows at 31 December comprised:
Cash at bank and in hand
Cash equivalents
Bank overdrafts
Cash and cash equivalents reconciles to the statement of financial position as follows:
Cash and cash equivalents (excluding bank overdrafts)
Less: Assets classified as held for sale
2018
£m
441
(60)
381
2017
£m
861
(910)
(49)
2018
£m
7,615
39,557
47,172
(563)
2017
£m
6,293
37,793
44,086
(499)
46,609
43,587
2018
£m
2017
£m
47,172
(688)
44,086
(739)
46,484
43,347
59 – Risk management
This note sets out the major risks our businesses and our shareholders face and describes the Group’s approach to managing these. It also
gives sensitivity analysis around the major economic and non-economic assumptions that can cause volatility in the Group’s earnings and
capital position.
(a) Risk management framework
The risk management framework in Aviva forms an integral part of the management and Board processes and decision-making framework
across the Group. The key elements of our risk management framework comprise risk appetite; risk governance, including risk policies and
business standards, risk oversight committees and roles and responsibilities; and the processes we use to identify, measure, manage,
monitor and report risks, including the use of our risk models and stress and scenario testing.
For the purposes of risk identification and measurement, and aligned to Aviva’s risk policies, risks are usually grouped by risk type: credit,
market, liquidity, life insurance (including long-term health), general insurance (including short-term health), asset management and
operational risk. Risks falling within these types may affect a number of metrics including those relating to balance sheet strength, liquidity
and profit. They may also affect the performance of the products we deliver to our customers and the service to our customers and
distributors, which can be categorised as risks to our brand and reputation or as conduct risk.
To promote a consistent and rigorous approach to risk management across all businesses we have a set of risk policies and business
standards which set out the risk strategy, appetite, framework and minimum requirements for the Group’s worldwide operations. The
business chief executive officers make an annual declaration supported by an opinion from the business chief risk officers that the system
of governance and internal controls was effective and fit for purpose for their business throughout the year.
A regular top-down key risk identification and assessment process is carried out by the risk function. This includes the consideration of
emerging risks and is supported by deeper thematic reviews. This process is replicated at the business unit level. The risk assessment
processes are used to generate risk reports which are shared with the relevant risk committees.
Risk models are an important tool in our measurement of risks and are used to support the monitoring and reporting of the risk profile and
in the consideration of the risk management actions available. We carry out a range of stress (where one risk factor, such as equity returns,
is assumed to vary) and scenario (where combinations of risk factors are assumed to vary) tests to evaluate their impact on the business
and the management actions available to respond to the conditions envisaged. For those risk types managed through the holding of
capital, being our principal risk types except for liquidity risk, we measure and monitor our risk profile on the basis of the Solvency II
solvency capital requirement.
Roles and responsibilities for risk management in Aviva are based around the ‘three lines of defence model’ where ownership for risk is
taken at all levels in the Group. Line management in the business is accountable for risk management, including the implementation of the
risk management framework and embedding of the risk culture. The risk function is accountable for quantitative and qualitative oversight
and challenge of the risk identification, measurement, monitoring, management and reporting processes and for developing the risk
management framework. Internal Audit provides an independent assessment of the risk framework and internal control processes.
Board oversight of risk and risk management across the Group is maintained on a regular basis through its Risk Committee and Governance
Committee. The Board has overall responsibility for determining risk appetite, which is an expression of the risk the business is willing to
take. Risk appetites are set relative to capital and liquidity at Group and in the business units.
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
59 – Risk management continued
Risk appetites, requiring management action if breached, are also set for interest rate and foreign exchange risk (calculated on the basis of
the Solvency II solvency capital requirement), and liquidity risk (based on stressing forecast central liquid assets and cash inflows and
outflows over a specified time horizon). For other risk types the Group sets Solvency II capital tolerances. The Group’s position against risk
appetite and capital tolerances is monitored and reported to the Board on a regular basis. Long-term sustainability depends upon the
protection of franchise value and good customer relationships. As such, Aviva has a risk preference that we will not accept risks that
materially impair the reputation of the Group and requires that customers are always treated with integrity. The oversight of risk and risk
management at the Group level is supported by the Asset Liability Committee, which focuses on business and financial risks, and the
Operational Risk Committee which focuses on operational and reputational risks. Similar committee structures with equivalent terms of
reference exist in the business units.
The risk management framework of a small number of our joint ventures and strategic equity holdings differs from the Aviva framework
outlined in this note. We work with these entities to understand how their risks are managed and to align them, where possible, with Aviva’s
framework.
Further information on the types and management of specific risk types is given in sections (b) to (j) below.
(b) Credit risk
Credit risk is the risk of financial loss as a result of the default or failure of third parties to meet their payment obligations to Aviva, or
variations in market values as a result of changes in expectations related to these risks. Credit risk is taken so that we can provide the
returns required to satisfy policyholder liabilities and to generate returns for our shareholders. In general we prefer to take credit risk over
equity and property risks, due to the better expected risk adjusted return, our credit risk analysis capability and the structural investment
advantages conferred to insurers with long-dated, relatively illiquid liabilities.
Our approach to managing credit risk recognises that there is a risk of adverse financial impact resulting from fluctuations in credit quality
of third parties including default, rating transition and credit spread movements. Our credit risks arise principally through exposures to debt
security investments, structured asset investments, bank deposits, derivative counterparties, mortgage lending and reinsurance
counterparties.
The Group manages its credit risk at business unit and Group level. All business units are required to implement credit risk management
processes (including limits frameworks), operate specific risk management committees, and ensure detailed reporting and monitoring of
their exposures against pre-established risk criteria. At Group level, we manage and monitor all exposures across our business units on a
consolidated basis, and operate a Group limit framework that must be adhered to by all.
A detailed breakdown of the Group’s current credit exposure by credit quality is shown below.
(i) Financial exposures by credit ratings
Financial assets are graded according to current external credit ratings issued. AAA is the highest possible rating. Investment grade financial
assets are classified within the range of AAA to BBB ratings. Financial assets which fall outside this range are classified as sub-investment
grade. The following table provides information regarding the aggregated credit risk exposure of the Group for financial assets with external
credit ratings. ‘Not rated’ assets capture assets not rated by external ratings agencies.
As at 31 December 2018
Debt securities
Reinsurance assets
Other investments
Loans
Total
As at 31 December 2017
Debt securities
Reinsurance assets
Other investments
Loans
Total
AAA
AA
A
BBB
Below BBB
Not rated
Carrying value
including held
for sale
£m
Less: Amounts
classified as
held for sale
£m
Carrying value
£m
10.3%
—
0.2%
—
33.6%
83.1%
0.1%
5.6%
18.2%
10.0%
0.3%
—
25.1%
2.7%
0.1%
—
6.5%
—
—
—
6.3% 169,686
11,800
4.2%
52,812
99.3%
28,785
94.4%
(397) 169,289
11,755
46,168
28,785
(45)
(6,644)
—
AAA
AA
A
BBB
Below BBB
Not rated
263,083
(7,086) 255,997
Carrying value
including held
for sale
£m
Less: Amounts
classified as
held for sale
£m
Carrying value
£m
10.6%
—
—
—
32.5%
87.3%
0.2%
7.1%
20.0%
8.2%
0.3%
—
23.3%
1.9%
0.1%
—
7.8%
—
—
—
5.8%
2.6%
99.4%
92.9%
175,948
13,615
53,277
27,863
(1,140)
(123)
(6,971)
(6)
174,808
13,492
46,306
27,857
270,703
(8,240)
262,463
The majority of non-rated debt securities within shareholder assets are held by our businesses in the UK. Of these securities most are
allocated an internal rating using a methodology largely consistent with that adopted by an external rating agency, and are considered to
be of investment grade credit quality; these include £3.6 billion (2017: £2.0 billion) of debt securities held in our UK Life business,
predominantly made up of private placements and other corporate bonds, which have been internally rated as investment grade.
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
59 – Risk management continued
The following table provides information on the Group’s exposure by credit ratings to financial assets that meet the definition of ‘solely
payment of principal and interest’ (SPPI). Further information on the assessment criteria for SPPI may be found in note 23(c).
Loans
Receivables
Accrued income & interest
Other financial assets
Total
AAA
£m
—
6
—
—
6
AA
£m
1,620
213
—
—
1,833
A
£m
—
294
18
10
322
BBB
£m
—
214
—
—
214
Below BBB
£m
Not rated
£m
—
—
—
—
—
894
5,122
175
—
6,191
At the period end, the Group held cash and cash equivalents of £13,246 million that met the SPPI criteria, of which £13,231 million is placed
with financial institutions with issuer ratings within the range of AAA to BBB. Further information on the extent to which unrated
receivables, including those that meet the SPPI criteria, are past due may be found in section (ix) of this note.
The Group continues to hold a series of macro credit hedges to reduce the overall credit risk exposure. The Group’s maximum exposure to
credit risk of financial assets, without taking collateral or these hedges into account, is represented by the carrying value of the financial
instruments in the statement of financial position. These comprise debt securities, reinsurance assets, derivative assets, loans and
receivables. The carrying values of these assets are disclosed in the relevant notes: financial investments (note 27), reinsurance assets (note
46), loans (note 24) and receivables (note 28). The collateral in place for these credit exposures is disclosed in note 61 Financial assets and
liabilities subject to offsetting, enforceable master netting arrangements and similar agreements.
(ii) Other investments
Other investments (including assets of operations classified as held for sale) include unit trusts and other investment vehicles; derivative
financial instruments, representing positions to mitigate the impact of adverse market movements; and other assets, including deposits
with credit institutions and minority holdings in property management undertakings.
The credit quality of the underlying debt securities within investment vehicles is managed by the safeguards built into the investment
mandates for these funds which determine the funds’ risk profiles. At the Group level, we also monitor the asset quality of unit trusts and
other investment vehicles against Group set limits.
A proportion of the assets underlying these investments are represented by equities and so credit ratings are not generally applicable. Equity
exposures are managed against agreed benchmarks that are set with reference to overall appetite for market risk.
(iii) Loans
The Group loan portfolio principally comprises:
• Policy loans which are generally collateralised by a lien or charge over the underlying policy;
• Loans and advances to banks which primarily relate to loans of cash collateral received in stock lending transactions. These loans are
fully collateralised by other securities;
• Healthcare, infrastructure and PFI loans secured against healthcare, education, social housing and emergency services related premises; and
• Mortgage loans collateralised by property assets.
We use loan to value, interest and debt service cover, and diversity and quality of the tenant base metrics to internally monitor our
exposures to mortgage loans. We use credit quality, based on dynamic market measures, and collateralisation rules to manage our stock
lending activities. Policy loans are loans and advances made to policyholders, and are collateralised by the underlying policies.
(iv) Credit concentration risk
The long-term and general insurance businesses are generally not individually exposed to significant concentrations of credit risk due to
the regulations applicable in most markets and the Group credit policy and limits framework, which limit investments in individual assets
and asset classes. Credit concentrations are monitored as part of the regular credit monitoring process and are reported to the Group Asset
Liability Committee (ALCO). With the exception of government bonds the largest aggregated counterparty exposure within shareholder
assets is to the Swiss Reinsurance Company Ltd (including subsidiaries), representing approximately 2.3% of the total shareholder assets.
(v) Reinsurance credit exposures
The Group is exposed to concentrations of risk with individual reinsurers due to the nature of the reinsurance market and the restricted
range of reinsurers that have acceptable credit ratings. The Group operates a policy to manage its reinsurance counterparty exposures, by
limiting the reinsurers that may be used and applying strict limits to each reinsurer. Reinsurance exposures are aggregated with other
exposures to ensure that the overall risk is within appetite. The Group Capital and Group Risk teams have an active monitoring role with
escalation to the Chief Financial Officer (CFO), Chief Risk Officer (CRO), Group ALCO and the Board Risk Committee as appropriate.
The Group’s largest reinsurance counterparty is Swiss Reinsurance Company Ltd (including subsidiaries). At 31 December 2018, the
reinsurance asset recoverable, including debtor balances, from Swiss Reinsurance Company Ltd was £2,835 million (2017: £2,902 million).
Up until late 2018, BlackRock Life Ltd had been the Group’s largest reinsurance counterparty as a result of the BlackRock funds offered to
UK Life customers via unit-linked contracts. However, as a result of action taken to restructure the agreements with BlackRock Life Ltd the
reinsurance asset recoverable, including debtor balances, from BlackRock Life Ltd as at 31 December 2018 has been reduced to £2,457
million (2017: £5,307 million).
(vi) Securities finance
The Group has significant securities financing operations within the UK and smaller operations in some other businesses. The risks within
this activity are mitigated by collateralisation and minimum counterparty credit quality requirements.
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Notes to the consolidated financial statements
Continued
59 – Risk management continued
(vii) Derivative credit exposures
The Group is exposed to counterparty credit risk through derivative trades. This risk is generally mitigated through holding collateral for
most trades. Residual exposures are captured within the Group’s credit management framework.
(viii) Unit-linked business
In unit-linked business the policyholder bears the direct market risk and credit risk on investment assets in the unit funds and the
shareholders’ exposure to credit risk is limited to the extent of the income arising from asset management charges based on the value
of assets in the fund.
(ix) Impairment of financial assets
In assessing whether financial assets carried at amortised cost or classified as available for sale are impaired, due consideration is given
to the factors outlined in accounting policies (T) and (V). The following table provides information regarding the carrying value of financial
assets subject to impairment testing that have been impaired and the ageing of those assets that are past due but not impaired. The table
excludes assets carried at fair value through profit or loss and held for sale.
As at 31 December 2018
Debt securities
Reinsurance assets
Other investments
Loans
Receivables and other financial assets
As at 31 December 2017
Debt securities
Reinsurance assets
Other investments
Loans
Receivables and other financial assets
Financial assets that are past due but not impaired
0–3 months
£m
3–6 months
£m
6 months–
1 year
£m
Greater than
1 year
£m
—
—
—
—
74
—
—
—
—
16
5
—
—
—
11
—
—
—
—
2
Financial assets that are past due but not impaired
0–3 months
£m
3–6 months
£m
6 months–
1 year
£m
Greater than
1 year
£m
—
—
—
—
78
—
—
—
—
12
—
—
—
—
5
—
—
—
—
5
Neither past
due nor
impaired
£m
1,675
7,791
1
3,259
8,776
Neither past
due nor
impaired
£m
1,726
7,521
1
3,465
8,185
Financial
assets that
have been
impaired
£m
Carrying value
£m
—
—
—
—
—
1,680
7,791
1
3,259
8,879
Financial
assets that
have been
impaired
£m
Carrying value
£m
—
—
—
—
—
1,726
7,521
1
3,465
8,285
Excluded from the tables above are financial and reinsurance assets carried at fair value through profit or loss that are not subject to
impairment testing, as follows: £168.0 billion of debt securities (2017: £174.2 billion), £52.8 billion of other investments (2017: £53.3 billion),
£25.5 billion of loans (2017: £24.4 billion) and £4.0 billion of reinsurance assets (2017: £6.1 billion).
Where assets have been classed as ‘past due and impaired’, an analysis is made of the risk of default and a decision is made whether to seek to
mitigate the risk. There were no material financial assets that would have been past due or impaired had the terms not been renegotiated.
(c) Market risk
Market risk is the risk of adverse financial impact resulting, directly or indirectly from fluctuations in interest rates, inflation, foreign currency
exchange rates, equity and property prices. Market risk arises in business units due to fluctuations in both the value of liabilities and the
value of investments held. At Group level, it also arises in relation to the overall portfolio of international businesses and in the value of
investment assets owned directly by the shareholders. We actively seek some market risks as part of our investment and product strategy.
However, we have limited appetite for interest rate risk as we do not believe it is adequately rewarded.
The management of market risk is undertaken at business unit and at Group level. Businesses manage market risks locally using the Group
market risk framework and within local regulatory constraints. Group Capital is responsible for monitoring and managing market risk at
Group level and has established criteria for matching assets and liabilities to limit the impact of mismatches due to market movements.
In addition, where the Group’s long-term savings businesses have written insurance and investment products where the majority of
investment risks are borne by its policyholders, these risks are managed in line with local regulations and marketing literature, in order to
satisfy the policyholders’ risk and reward objectives. The Group writes unit-linked business in a number of its operations. The shareholders’
exposure to market risk on this business is limited to the extent that income arising from asset management charges is based on the value
of assets in the fund.
The most material types of market risk that the Group is exposed to are described below.
(i) Equity price risk
The Group is subject to direct equity price risk arising from changes in the market values of its equity securities portfolio. Our most material
indirect equity price risk exposures are to policyholder unit-linked funds, which are exposed to a fall in the value of the fund thereby
reducing the fees we earn on those funds, and participating contracts, which are exposed to a fall in the value of the funds thereby
increasing our costs for policyholder guarantees. We also have some equity exposure in shareholder funds through equities held to match
inflation-linked liabilities.
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59 – Risk management continued
We continue to limit our direct equity exposure in line with our risk preferences. At a business unit level, investment limits and local
investment regulations require that business units hold diversified portfolios of assets thereby reducing exposure to individual equities.
The Group does not have material holdings of unquoted equity securities.
Equity risk is also managed using a variety of derivative instruments, including futures and options. Businesses actively model the
performance of equities through the use of risk models, in particular to understand the impact of equity performance on guarantees,
options and bonus rates. An equity hedging strategy remains in place to help control the Group’s overall direct and indirect exposure to
equities. At 31 December 2018 the Group continues to hold a series of macro equity hedges to reduce the overall shareholder equity risk
exposure.
Sensitivity to changes in equity prices is given in section (j) Risk and capital management, below.
(ii) Property price risk
The Group is subject to property price risk directly due to holdings of investment properties in a variety of locations worldwide and
indirectly through investments in mortgages and mortgage backed securities. Investment in property is managed at business unit level, and
is subject to local regulations on investments, liquidity requirements and the expectations of policyholders.
As at 31 December 2018, no material derivative contracts had been entered into to mitigate the effects of changes in property prices.
Exposure to property risk on equity release mortgages from sustained underperformance in the UK House Price Index (HPI) is mitigated by
capping loan to value on origination at low levels and regularly monitoring the performance of the mortgage portfolio.
Sensitivity to changes in property prices is given in section (j) Risk and capital management, below.
(iii) Interest rate risk
Interest rate risk arises primarily from the Group’s investments in long-term debt and fixed income securities and their movement relative
to the value placed on the insurance liabilities. A number of policyholder product features have an influence on the Group’s interest rate
risk. The major features include guaranteed surrender values, guaranteed annuity options, and minimum surrender and maturity values.
Details of material guarantees and options are given in note 45.
Exposure to interest rate risk is monitored through several measures that include duration, capital modelling, sensitivity testing and stress
and scenario testing. The impact of exposure to sustained low interest rates is considered within our scenario testing.
The Group typically manages interest rate risk by investing in fixed interest securities which closely match the interest rate sensitivity of the
liabilities where such investments are available. In particular, a key objective is to at least match the duration of our annuity liabilities with
assets of the same duration, and in some cases where appropriate cash flow matching has been used. These assets include corporate
bonds, residential mortgages and commercial mortgages. Should they default before maturity, it is assumed that the Group can reinvest in
assets of a similar risk and return profile, which is subject to market conditions. Interest rate risk is also managed in some business units
using a variety of derivative instruments, including futures, options, swaps, caps and floors.
Some of the Group’s products, principally participating contracts, expose us to the risk that changes in interest rates will impact on profits
through a change in the interest spread (the difference between the amounts that we are required to pay under the contracts and the
investment income we are able to earn on the investments supporting our obligations under those contracts). The primary markets where
Aviva is exposed to this risk are the UK, France and Italy.
Despite the continued pick up in market interest rates from the historical lows experienced in 2016, the continued low interest rate
environment in a number of markets around the world has resulted in our current reinvestment yields being lower than the overall current
portfolio yield, primarily for our investments in fixed income securities and commercial mortgage loans. As long as market yields remain
below the current portfolio level, the portfolio yield, and as a result net investment income, will continue to decline. While we anticipate
interest rates may remain below historical averages before the 2008 financial crisis for some time to come, it is also possible that further
future increases in interest rates or market anticipation of such increases, if larger and more rapid than expected, could adversely impact
market values of our portfolio of fixed income securities and increase the risk of credit defaults and downgrades.
Other product lines of the Group, such as protection, are not significantly sensitive to interest rate or market movements. For unit-linked
business, the shareholder margins emerging are typically a mixture of annual management fees and risk/expense charges. Risk and
expense margins will be largely unaffected by low interest rates. Annual management fees may increase in the short term as the move
towards low interest rates increases the value of unit funds. However, in the medium term, unit funds will grow at a lower rate which will
reduce fund charges. For the UK annuities business interest rate exposure is mitigated by closely matching the duration of liabilities with
assets of the same duration.
The UK participating business includes contracts with features such as guaranteed surrender values, guaranteed annuity options, and
minimum surrender and maturity values. These liabilities are managed through duration matching of assets and liabilities and the use of
derivatives, including swaptions. As a result, the Group’s exposure to sustained low interest rates on this portfolio is not material. The
Group’s key exposure to low interest rates arises through its other participating contracts, principally in Italy and France. Some of these
contracts also include features such as guaranteed minimum bonuses, guaranteed investment returns and guaranteed surrender values. In
a low interest rate environment there is a risk that the yield on assets might not be sufficient to cover these obligations. For certain of its
participating contracts the Group is able to amend guaranteed crediting rates. Our ability to lower crediting rates may be limited by
competition, bonus mechanisms and contractual arrangements.
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59 – Risk management continued
Details of material guarantees and options are given in note 45. In addition, the following table summarises the weighted average minimum
guaranteed crediting rates and weighted average book value yields on assets as at 31 December 2018 for our Italian and French
participating contracts, where the Group’s key exposure to sustained low interest rates arises.
France
Italy
Other1
Total
1
‘Other’ includes UK participating business
Weighted
average
minimum
guaranteed
crediting rate
Weighted
average book
value yield on
assets
Participating
contract
liabilities
£m
0.70%
0.48%
N/A
N/A
2.67%
3.52%
N/A
67,956
19,010
44,329
N/A
131,295
Profit before tax on General Insurance and Health Insurance business is generally a mixture of insurance, expense and investment returns.
The asset portfolio is invested primarily in fixed income securities and the reduction in interest rates over the last decade has reduced the
investment component of profit, although in 2018 there was a small partial reversal in this long term trend. The portfolio investment yield
and average total invested assets in our general insurance and health business are set out in the table below.
2016
2017
2018
1
Before realised and unrealised gains and losses and investment expenses
Portfolio
investment
yield1
2.47%
2.07%
2.28%
Average
assets
£m
14,369
14,770
14,651
The nature of the business means that prices in certain circumstances can be increased to maintain overall profitability. This is subject to
the competitive environment in each market. To the extent that there are further falls in interest rates the investment yield would be
expected to decrease further in future periods.
Sensitivity to changes in interest rates is given in section (j) Risk and capital management, below.
(iv) Inflation risk
Inflation risk arises primarily from the Group’s exposure to general insurance claims inflation, to inflation linked benefits within the defined
benefit staff pension schemes and within the UK annuity portfolio and to expense inflation. Increases in long-term inflation expectations
are closely linked to long-term interest rates and so are frequently considered with interest rate risk. Exposure to inflation risk is monitored
through capital modelling, sensitivity testing and stress and scenario testing. The Group typically manages inflation risk through its
investment strategy and, in particular, by investing in inflation linked securities and through a variety of derivative instruments, including
inflation linked swaps.
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59 – Risk management continued
(v) Currency risk
The Group has minimal exposure to currency risk from financial instruments held by business units in currencies other than their functional
currencies, as nearly all such holdings are backing either unit-linked or with-profits contract liabilities or are hedged. As a result the foreign
exchange gains and losses on investments are largely offset by changes in unit-linked and with-profits liabilities and fair value changes in
derivatives attributable to changes in foreign exchange rates recognised in the income statement.
The Group operates internationally and as a result is exposed to foreign currency exchange risk arising from fluctuations in exchange rates
of various currencies. Approximately 59% of the Group’s premium income arises in currencies other than sterling and the Group’s net assets
are denominated in a variety of currencies, of which the largest are sterling, euro and Canadian dollars. The Group does not hedge foreign
currency revenues as these are substantially retained locally to support the growth of the Group’s business and meet local regulatory and
market requirements. However, the Group does use foreign currency forward contracts to hedge planned dividends from its subsidiaries.
Businesses aim to maintain sufficient assets in local currency to meet local currency liabilities, however movements may impact the value
of the Group’s consolidated shareholders’ equity which is expressed in sterling. This aspect of foreign exchange risk is monitored and
managed centrally, against pre-determined limits. These exposures are managed by aligning the deployment of regulatory capital by
currency with the Group’s regulatory capital requirements by currency. Currency borrowings and derivatives are used to manage exposures
within the limits that have been set. Except where the Group has applied net investment hedge accounting (see note 60(a)), foreign
exchange gains and losses on foreign currency borrowings are recognised in the income statement, whereas foreign exchange gains and
losses arising on consolidation from the translation of assets and liabilities of foreign subsidiaries are recognised in other comprehensive
income. At 31 December 2018 and 2017, the Group’s total equity deployment by currency including assets ‘held for sale’ was:
Capital 31 December 2018
Capital 31 December 2017
Sterling
£m
15,720
16,776
Euro
£m
611
444
CAD$
£m
311
309
Other
£m
Total
£m
1,813
1,606
18,455
19,135
A 10% change in sterling to euro/Canada$ (CAD$) period-end foreign exchange rates would have had the following impact on total equity.
Net assets at 31 December 2018
Net assets at 31 December 2017
10% increase in
sterling/euro
rate
£m
10% decrease
in sterling/euro
rate
£m
10% increase in
sterling/CAD$
rate
£m
10% decrease in
sterling/CAD$
rate
£m
(61)
(44)
77
44
(31)
(31)
31
31
A 10% change in sterling to euro/Canada$ (CAD$) average foreign exchange rates applied to translate foreign currency profits would have
had the following impact on profit before tax, including resulting gains and losses on foreign exchange hedges.
Impact on profit before tax 31 December 2018
Impact on profit before tax 31 December 2017
10% increase in
sterling/euro
rate
£m
10% decrease
in sterling/euro
rate
£m
10% increase in
sterling/CAD$
rate
£m
10% decrease in
sterling/CAD$
rate
£m
(60)
(78)
85
95
8
6
(9)
(7)
The balance sheet changes arise from retranslation of business unit statements of financial position from their functional currencies into
sterling, with above movements being taken through the currency translation reserve. These balance sheet movements in exchange rates
therefore have no impact on profit. Net asset and profit before tax figures are stated after taking account of the effect of currency hedging
activities.
(vi) Derivatives risk
Derivatives are used by a number of the businesses. Derivatives are primarily used for efficient investment management, risk hedging
purposes, or to structure specific retail savings products. Activity is overseen by the Group Capital and Group Risk teams, which monitor
exposure levels and approve large or complex transactions.
The Group applies strict requirements to the administration and valuation processes it uses, and has a control framework that is consistent
with market and industry practice for the activity that is undertaken.
(vii) Correlation risk
The Group recognises that lapse behaviour and potential increases in consumer expectations are sensitive to and interdependent with
market movements and interest rates. These interdependencies are taken into consideration in the internal capital model and in scenario
analysis.
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59 – Risk management continued
(d) Liquidity risk
Liquidity risk is the risk of not being able to make payments as they become due because there are insufficient assets in cash form. The
relatively illiquid nature of insurance liabilities is a potential source of additional investment return by allowing us to invest in higher
yielding, but less liquid assets such as commercial mortgages and infrastructure loans. The Group seeks to ensure that it maintains
sufficient financial resources to meet its obligations as they fall due through the application of a Group liquidity risk policy and business
standard and through the development of its liquidity risk management plan. At Group and business unit level, there is a liquidity risk
appetite which requires that sufficient liquid resources be maintained to cover net outflows in a stress scenario. In addition to the existing
liquid resources and expected inflows, the Group maintains significant undrawn committed borrowing facilities (£1,650 million) from a
range of leading international banks to further mitigate this risk.
Maturity analyses
The following tables show the maturities of our insurance and investment contract liabilities, and of the financial and reinsurance assets
held to meet them. A maturity analysis of the contractual amounts payable for borrowings and non-hedge derivatives is given in notes 52
and 60, respectively. Contractual obligations under operating leases and capital commitments are given in note 56.
(i) Analysis of maturity of insurance and investment contract liabilities
For non-linked insurance business, the following table shows the gross liability at 31 December 2018 and 2017 analysed by remaining
duration. The total liability is split by remaining duration in proportion to the cash-flows expected to arise during that period, as permitted
under IFRS 4, Insurance Contracts.
Almost all linked business and non-linked investment contracts may be surrendered or transferred on demand. For such contracts, the
earliest contractual maturity date is therefore the current statement of financial position date, for a surrender amount approximately equal
to the current statement of financial position liability. However, we expect surrenders, transfers and maturities to occur over many years,
and therefore the tables below reflect the expected cash flows for these contracts, rather than their contractual maturity date. This table
includes amounts held for sale.
As at 31 December 2018
Long-term business
Insurance contracts – non-linked
Investment contracts – non-linked
Linked business
General insurance and health
Total contract liabilities
As at 31 December 2017
Long-term business
Insurance contracts – non-linked
Investment contracts – non-linked
Linked business
General insurance and health
Total contract liabilities
On demand or
within 1 year
£m
Total
£m
1-5 years
£m
5-15 years
£m
Over 15 years
£m
106,622
75,158
156,859
16,368
8,421
5,547
15,559
6,859
25,940
19,199
23,901
6,758
40,548
28,572
52,656
2,217
31,713
21,840
64,743
534
355,007
36,386
75,798
123,993
118,830
On demand or
within 1 year
£m
Total
£m
1-5 years
£m
5-15 years
£m
Over 15 years
£m
109,900
71,948
163,571
16,794
362,213
10,105
5,370
17,609
6,877
39,961
27,278
17,088
27,632
6,838
41,720
26,300
55,519
2,462
30,797
23,190
62,811
617
78,836
126,001
117,415
(ii) Analysis of maturity of financial assets
The following table provides an analysis, by maturity date of the principal, of the carrying value of financial assets which are available to
fund the repayment of liabilities as they crystallise. This table excludes assets held for sale.
As at 31 December 2018
Debt securities
Equity securities
Other investments
Loans
Cash and cash equivalents
As at 31 December 2017
Debt securities
Equity securities
Other investments
Loans
Cash and cash equivalents
On demand or
within 1 year
£m
Total
£m
1-5 years
£m
Over 5 years
£m
No fixed term
(perpetual)
£m
169,289
82,128
46,168
28,785
46,484
31,282
—
41,027
2,089
46,484
43,876
—
77
4,236
—
92,985
—
4,301
22,457
—
1,146
82,128
763
3
—
372,854 120,882
48,189 119,743
84,040
On demand or
within 1 year
£m
Total
£m
1-5 years
£m
Over 5 years
£m
No fixed term
(perpetual)
£m
174,808
89,968
46,306
27,857
43,347
28,037
—
40,500
1,651
43,347
47,289
—
364
5,053
—
99,078
—
4,680
21,149
—
382,286
113,535
52,706
124,907
404
89,968
762
4
—
91,138
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Continued
59 – Risk management continued
The assets above are analysed in accordance with the earliest possible redemption date of the instrument at the initiation of the Group.
Where an instrument is transferable back to the issuer on demand, such as most unit trusts or similar types of investment vehicle, it is
included in the ‘On demand or within 1 year’ column. Debt securities with no fixed contractual maturity date are generally callable at the
option of the issuer at the date the coupon rate is reset under the contractual terms of the instrument. The terms for resetting the coupon
are such that we expect the securities to be redeemed at this date, as it would be uneconomic for the issuer not to do so, and for liquidity
management purposes we manage these securities on this basis. The first repricing and call date is normally ten years or more after the
date of issuance. Most of the Group’s investments in equity securities and fixed maturity securities are market traded and therefore, if
required, can be liquidated for cash at short notice.
(e) Life and health insurance risk
Life insurance risk in the Group arises through its exposure to mortality risk and exposure to worse than anticipated operating experience
on factors such as persistency levels, exercising of policyholder options and management and administration expenses. The Group’s health
insurance business (including private health insurance, critical illness cover, income protection and personal accident insurance, as well as
a range of corporate healthcare products) exposes the Group to morbidity risk (the proportion of our customers falling sick) and medical
expense inflation. The Group chooses to take measured amounts of life and health insurance risk provided that the relevant business has
the appropriate core skills to assess and price the risk and adequate returns are available. The Group’s underwriting strategy and appetite
is communicated via specific policy statements, related business standards and guidelines. Life insurance risk is managed primarily at
business unit level with oversight at the Group level.
The underlying risk profile of our life and health insurance risks, primarily persistency, longevity, mortality and expense risk, has remained
stable during 2018, although the current continued relatively low levels of interest rates have increased our sensitivity to longevity shocks
compared to historical norms. We are also exposed to longevity risk through the Aviva Staff Pension Scheme, to which our economic
exposure has been reduced since 2014 by entering into a longevity swap covering approximately £5 billion of pensioner in payment scheme
liabilities. Longevity risk remains the Group’s most significant life insurance risk, while persistency risk remains significant and continues to
have a volatile outlook with underlying performance linked to some degree to economic conditions. However, businesses across the Group
have continued to make progress with a range of customer retention activities. The Group has continued to write considerable volumes of
life protection business, and to utilise reinsurance to reduce exposure to potential losses. More generally, life insurance risks are believed to
provide a significant diversification against other risks in the portfolio. Life insurance risks are modelled within the internal capital model
and subject to sensitivity and stress and scenario testing. Our UK Life business is in the process of implementing a new actuarial modelling
system for non-profit business. During the year ended 31 December 2018, annuities and certain protection products were transferred into
the new modelling system which had minimal financial impact.
The assumption and management of life and health insurance risks is governed by the Group-wide business standards covering
underwriting, pricing, product design and management, in-force management, claims handling, and reinsurance. The individual life and
health insurance risks are managed as follows:
• Mortality and morbidity risks are mitigated by use of reinsurance. The Group allows businesses to select reinsurers, from those approved
by the Group, based on local factors, but retains oversight of the overall exposures and monitors that the aggregation of risk ceded is
within credit risk appetite.
• Longevity risk and internal experience analysis are monitored against the latest external industry data and emerging trends. Whilst
individual businesses are responsible for reserving and pricing for annuity business, the Group monitors the exposure to this risk and any
associated capital implications. The Group has used reinsurance solutions to reduce the risks from longevity and continually monitors
and evaluates emerging market solutions to mitigate this risk further.
• Persistency risk is managed at a business unit level through frequent monitoring of company experience, and benchmarked against local
market information. Generally, persistency risk arises from customers lapsing their policies earlier than has been assumed. Where
possible the financial impact of lapses is reduced through appropriate product design. Businesses also implement specific initiatives to
improve the retention of policies which may otherwise lapse. The Group has developed guidelines on persistency management.
• Expense risk is primarily managed by the business units through the assessment of business unit profitability and frequent monitoring of
expense levels.
Embedded derivatives
The Group is exposed to the risk of changes in policyholder behaviour due to the exercise of options, guarantees and other product features
embedded in its long-term savings products. These product features offer policyholders varying degrees of guaranteed benefits at maturity
or on early surrender, along with options to convert their benefits into different products on pre-agreed terms. The extent of the impact of
these embedded derivatives differs considerably between business units and exposes Aviva to changes in policyholder behaviour in the
exercise of options as well as market risk.
Examples of each type of embedded derivative affecting the Group are:
• Options: call, put, surrender and maturity options, guaranteed annuity options, options to cease premium payment, options for
withdrawals free of market value adjustment, annuity options, and guaranteed insurability options.
• Guarantees: embedded floor (guaranteed return), maturity guarantee, guaranteed death benefit, and guaranteed minimum rate of
annuity payment.
• Other: indexed interest or principal payments, maturity value, loyalty bonus.
The impact of these is reflected in the capital model and managed as part of the asset liability framework. Further disclosure on financial
guarantees and options embedded in contracts and their inclusion in insurance and investment contract liabilities is provided in note 45.
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59 – Risk management continued
(f) General insurance risk
Types of risk
General insurance risk in the Group arises from:
• Fluctuations in the timing, frequency and severity of claims and claim settlements relative to expectations;
• Unexpected claims arising from a single source or cause;
• Inaccurate pricing of risks or inappropriate underwriting of risks when underwritten; and
• Inadequate reinsurance protection or other risk transfer techniques.
Aviva has a preference for general insurance risk in measured amounts for explicit reward, in line with our core skills in underwriting and
pricing. The majority of the general insurance business underwritten by the Group continues to be short tail in nature such as motor,
household and commercial property insurances. The Group’s underwriting strategy and appetite is communicated via specific policy
statements, related business standards and guidelines. General insurance risk is managed primarily at business unit level with oversight at
the Group level. Claims reserving is undertaken by local actuaries in the various general insurance businesses and is also subject to periodic
external reviews. Reserving processes are further detailed in note 42 Insurance liabilities.
The vast majority of the Group’s general insurance business is managed and priced in the same country as the domicile of the customer.
Management of general insurance risks
Significant insurance risks will be reported under the risk management framework. Additionally, the capital model is used to assess the
risks that each general insurance business unit, and the Group as a whole, is exposed to, quantifying their impact and calculating
appropriate capital requirements.
Business units have developed mechanisms that identify, quantify and manage accumulated exposures to contain them within the limits of
the appetite of the Group. The business units are assisted by the General Insurance Council which provides technical input for major
decisions which fall outside individual delegated limits or escalations outside group risk preferences, group risk accumulation,
concentration and profitability limits.
Reinsurance strategy
Significant reinsurance purchases are reviewed annually at both business unit and Group level to verify that the levels of protection being
bought reflect any developments in exposure and the risk appetite of the Group. The basis of these purchases is underpinned by analysis of
capital, earnings and capital volatility, cash flow and liquidity and the Group’s franchise value.
Detailed actuarial analysis is used to calculate the Group’s extreme risk profile and then design cost and capital efficient reinsurance
programmes to mitigate these risks to within agreed appetites. For businesses writing general insurance we analyse the natural
catastrophe exposure using our own internal probabilistic catastrophe model which is benchmarked against external catastrophe models
widely used by the rest of the (re)insurance industry.
The Group cedes much of its worldwide catastrophe risk to third-party reinsurers through excess of loss and aggregate excess of loss
structures. The Group purchases a Group-wide catastrophe reinsurance programme to protect against catastrophe losses exceeding a 1 in
200 year return period. The total Group potential retained loss from its most concentrated catastrophe exposure peril (Northern Europe
Windstorm) is approximately £150 million on a per occurrence basis and £175 million on an annual aggregate basis. Any losses above these
levels are covered by the group-wide catastrophe reinsurance programme to a level in excess of a 1 in 200 year return period. In addition
the Group purchases a number of GI business line specific reinsurance programmes with various retention levels to protect both capital
and earnings, and has reinsured 100% of its latent exposures to its historic UK employers’ liability and public liability business written prior
to 31 December 2000.
(g) Asset management risk
Aviva is directly exposed to the risks associated with operating an asset management business through its ownership of Aviva Investors. The
underlying risk profile of our asset management risk is derived from investment performance, specialist investment professionals and
leadership, product development capabilities, fund liquidity, margin, client retention, regulatory developments, fiduciary and contractual
responsibilities. Funds invested in illiquid assets such as commercial property are particularly exposed to liquidity risk. The risk profile is
regularly monitored.
A client relationship team is in place to manage client retention risk, while all new asset management products undergo a review and
approval process at each stage of the product development process, including approvals from legal, compliance and risk functions.
Investment performance against client objectives relative to agreed benchmarks is monitored as part of our investment performance and
risk management process, and subject to further independent oversight and challenge by a specialist risk team, reporting directly to the
Aviva Investors’ Chief Risk Officer.
(h) Operational risk
Operational risk is the risk of direct or indirect loss, arising from inadequate or failed internal processes, people and systems, or external
events including changes in the regulatory environment. We have limited appetite for operational risk and aim to reduce these risks as far
as is commercially sensible.
Our business units are primarily responsible for identifying and managing operational risks within their businesses, within the Group-wide
operational risk framework including the risk and control self-assessment process. Businesses must be satisfied that all material risks falling
outside our risk tolerances are being mitigated, monitored and reported to an appropriate level. Any risks with a high potential impact are
monitored centrally on a regular basis. Businesses use key indicator data to help monitor the status of the risk and control environment.
They also identify and capture loss events, taking appropriate action to address actual control breakdowns and promote internal learning.
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Continued
59 – Risk management continued
The increasing importance to our strategy of digital interaction with our customers and advanced data analytics, the conduct, data
protection and financial crime agenda of the European institutions, the FCA and other regulators, as well as the increasing cyber security
threat, as evidenced by continuing instances of high profile cyber security breaches for other corporates in the UK and elsewhere, mean
that the Group’s inherent risk exposure to risks such as data theft, conduct regulatory breaches (including financial crime) and customer
service interruption due to IT systems failure increased in 2018 and is expected to continue to increase into the future. The risk of customer
service interruption is increased by the age and complexity of the Group’s IT infrastructure, which at times during the first half of 2018
resulted in disruption to continuous service to our customers, while our UK long-term savings business also experienced some functionality
issues during its update of its platform capability. During 2018 we have continued to take action to reduce our residual exposure to these
risks and improve our operational resilience through our conduct risk management framework, financial crime risk mitigation programme
and significant investment in upgrading our IT infrastructure (including migrations to a new data centre infrastructure provider and to the
Cloud) and IT Security Transformation programme, and by ensuring appropriate consideration of IT infrastructure and security risks in
developing our digital strategy, and will continue to do so into the future.
(i) Brand and reputation risk
We are exposed to the risk that litigation, employee misconduct, operational failures, the outcome of regulatory investigations, media
speculation and negative publicity, disclosure of confidential client information, inadequate services, whether or not founded, could
impact our brands or reputation. Any of our brands or our reputation could also be affected if products or services recommended by us (or
any of our intermediaries) do not perform as expected (whether or not the expectations are founded) or customers’ expectations for the
product change. We seek to reduce this risk to as low a level as commercially sensible.
The FCA regularly considers whether we are meeting the requirement to treat our customers fairly and we make use of various metrics to
assess our own performance, including customer advocacy, retention and complaints. Failure to meet these requirements could also
impact our brands or reputation.
If we do not manage the perception of our brands and reputation successfully, it could cause existing customers or agents to withdraw
from our business and potential customers or agents to choose not to do business with us.
(j) Risk and capital management
(i) Sensitivity test analysis
The Group uses a number of sensitivity tests to understand the volatility of earnings, the volatility of its capital requirements, and to
manage its capital more efficiently. Sensitivities to economic and operating experience are regularly produced on the Group’s key financial
performance metrics to inform the Group’s decision making and planning processes, and as part of the framework for identifying and
quantifying the risks to which each of its business units, and the Group as a whole, are exposed.
(ii) Life insurance and investment contracts
The nature of long-term business is such that a number of assumptions are made in compiling these financial statements. Assumptions are
made about investment returns, expenses, mortality rates and persistency in connection with the in-force policies for each business unit.
Assumptions are best estimates based on historic and expected experience of the business. A number of the key assumptions for the
Group’s central scenario are disclosed elsewhere in these statements.
(iii) General insurance and health business
General insurance and health claim liabilities are estimated by using standard actuarial claims projection techniques. These methods
extrapolate the claims development for each accident year based on the observed development of earlier years. In most cases, no explicit
assumptions are made as projections are based on assumptions implicit in the historic claims.
(iv) Sensitivity test results
Illustrative results of sensitivity testing for long-term business, general insurance and health business and the fund management and non-
insurance business are set out below. For each sensitivity test the impact of a reasonably possible change in a single factor is shown, with
other assumptions left unchanged.
Sensitivity factor
Description of sensitivity factor applied
Interest rate and investment return
Credit spreads
Equity/property market values
Expenses
Assurance mortality/morbidity (life insurance only)
Annuitant mortality (long-term insurance only)
Gross loss ratios (non-long-term insurance only)
The impact of a change in market interest rates by a 1% increase or decrease. The test allows
consistently for similar changes to investment returns and movements in the market value of
backing fixed interest securities.
The impact of a 0.5% increase in credit spreads over risk-free interest rates on corporate bonds
and other non-sovereign credit assets. The test allows for any consequential impact on liability
valuations.
The impact of a change in equity/property market values by ± 10%.
The impact of an increase in maintenance expenses by 10%.
The impact of an increase in mortality/morbidity rates for assurance contracts by 5%.
The impact of a reduction in mortality rates for annuity contracts by 5%.
The impact of an increase in gross loss ratios for general insurance and health business by 5%.
Aviva plc Annual report and accounts 2018
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Other information
Notes to the consolidated financial statements
Continued
59 – Risk management continued
Long-term business
Sensitivities as at 31 December 2018
31 December 2018 Impact on profit before tax £m
Insurance participating
Insurance non-participating
Investment participating
Investment non-participating
Assets backing life shareholders’ funds
Total
31 December 2018 Impact on shareholders’ equity before tax £m
Insurance participating
Insurance non-participating
Investment participating
Investment non-participating
Assets backing life shareholders’ funds
Total
Sensitivities as at 31 December 2017
31 December 2017 Impact on profit before tax £m
Insurance participating
Insurance non-participating
Investment participating
Investment non-participating
Assets backing life shareholders’ funds
Total
31 December 2017 Impact on shareholders’ equity before tax £m
Insurance participating
Insurance non-participating
Investment participating
Investment non-participating
Assets backing life shareholders’ funds
Total
Interest rates
+1%
Interest rates
-1%
Credit spreads
+0.5%
Equity/
property
+10%
Equity/
property
-10%
Expenses
+10%
Assurance
mortality
+5%
Annuitant
mortality
-5%
(75)
(975)
(40)
—
(95)
(1,185)
35
1,130
40
—
105
1,310
(15)
(695)
(10)
—
(25)
(745)
(105)
(125)
(15)
10
20
(215)
70
105
(15)
(25)
(20)
115
(20)
(210)
(15)
(20)
—
(265)
(5)
(115)
—
—
—
(120)
(5)
(865)
—
—
—
(870)
Interest rates
+1%
Interest rates
-1%
Credit spreads
+0.5%
Equity/
property
+10%
Equity/
property
-10%
Expenses
+10%
Assurance
mortality
+5%
Annuitant
mortality
-5%
(75)
(975)
(40)
—
(145)
(1,235)
35
1,130
40
—
150
1,355
(15)
(695)
(10)
—
(25)
(745)
(105)
(125)
(15)
10
25
(210)
70
105
(15)
(25)
(25)
110
(20)
(210)
(15)
(20)
—
(265)
(5)
(115)
—
—
—
(120)
(5)
(865)
—
—
—
(870)
Interest rates
+1%
Interest rates
-1%
Credit spreads
+0.5%
Equity/
property
+10%
Equity/
property
-10%
Expenses
+10%
Assurance
mortality
+5%
Annuitant
mortality
-5%
(45)
(475)
—
—
(90)
(610)
25
485
10
(10)
115
625
(15)
(790)
(5)
(5)
(25)
(840)
(20)
(135)
(5)
10
20
(130)
(40)
115
—
(10)
(20)
45
(25)
(215)
(15)
(30)
—
(285)
(5)
(105)
—
—
—
(110)
(10)
(905)
—
—
—
(915)
Interest rates
+1%
Interest rates
-1%
Credit spreads
+0.5%
Equity/
property
+10%
Equity/
property
-10%
Expenses
+10%
Assurance
mortality
+5%
Annuitant
mortality
-5%
(45)
(475)
—
—
(150)
(670)
25
485
10
(10)
175
685
(15)
(790)
(5)
(5)
(35)
(850)
(20)
(135)
(5)
10
20
(130)
(40)
115
—
(10)
(20)
45
(25)
(215)
(15)
(30)
—
(285)
(5)
(105)
—
—
—
(110)
(10)
(905)
—
—
—
(915)
Changes in sensitivities between 2018 and 2017 reflect underlying movements in the value of assets and liabilities, the relative duration of
assets and liabilities and asset liability management actions. The sensitivities to economic and demographic movements relate mainly to
business in the UK. Our sensitivity to interest rates has increased over the period mainly due to the impacts of our hedging programme
which protects Solvency II capital and increased exposure in the UK, predominantly as a result of surplus assets originated in 2018 to back
new business in 2019 that would otherwise be invested in cash.
Aviva plc Annual report and accounts 2018
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Notes to the consolidated financial statements
Continued
59 – Risk management continued
General insurance and health business sensitivities as at 31 December 2018
31 December 2018 Impact on profit before tax £m
Gross of reinsurance
Net of reinsurance
31 December 2018 Impact on shareholders’ equity before tax £m
Gross of reinsurance
Net of reinsurance
Sensitivities as at 31 December 2017
31 December 2017 Impact on profit before tax £m
Gross of reinsurance
Net of reinsurance
31 December 2017 Impact on shareholders’ equity before tax £m
Gross of reinsurance
Net of reinsurance
Interest rates
+1%
Interest rates
-1%
Credit spreads
+0.5%
(240)
(305)
235
295
(115)
(115)
Interest rates
+1%
Interest rates
-1%
Credit spreads
+0.5%
(240)
(305)
235
295
(115)
(115)
Interest rates
+1%
Interest rates
-1%
Credit spreads
+0.5%
(285)
(345)
300
355
(130)
(130)
Interest rates
+1%
Interest rates
-1%
Credit spreads
+0.5%
(285)
(345)
300
355
(130)
(130)
Equity/
property
+10%
165
165
Equity/
property
+10%
170
170
Equity/
property
+10%
165
165
Equity/
property
+10%
165
165
Equity/
property
-10%
(165)
(165)
Equity/
property
-10%
(170)
(170)
Equity/
property
-10%
(165)
(165)
Equity/
property
-10%
(165)
(165)
Expenses
+10%
(120)
(120)
Expenses
+10%
(25)
(25)
Expenses
+10%
(120)
(120)
Expenses
+10%
(25)
(25)
Gross loss
ratios
+5%
(325)
(315)
Gross loss
ratios
+5%
(325)
(315)
Gross loss
ratios
+5%
(335)
(325)
Gross loss
ratios
+5%
(335)
(325)
For general insurance and health, the impact of the expense sensitivity on profit also includes the increase in ongoing administration
expenses, in addition to the increase in the claims handling expense provision.
Fund management and non-insurance business sensitivities as at 31 December 2018
31 December 2018 Impact on profit before tax £m
Total
31 December 2018 Impact on shareholders’ equity before tax £m
Total
Sensitivities as at 31 December 2017
31 December 2017 Impact on profit before tax £m
Total
31 December 2017 Impact on shareholders’ equity before tax £m
Total
Interest rates
+1%
Interest rates
-1%
Credit spreads
+0.5%
Equity/
property
+10%
Equity/
property
-10%
(25)
20
30
(20)
35
Interest rates
+1%
Interest rates
-1%
Credit spreads
+0.5%
Equity/
property
+10%
Equity/
property
-10%
(20)
15
30
(20)
30
Interest rates
+1%
Interest rates
-1%
Credit spreads
+0.5%
Equity/
property
+10%
Equity/
property
-10%
(30)
30
80
(10)
20
Interest rates
+1%
Interest rates
-1%
Credit spreads
+0.5%
Equity/
property
+10%
Equity/
property
-10%
(25)
25
80
(10)
15
Limitations of sensitivity analysis
The above tables demonstrate the effect of a change in a key assumption while other assumptions remain unchanged. In reality, there is a
correlation between the assumptions and other factors. It should also be noted that these sensitivities are non-linear, and larger or smaller
impacts should not be interpolated or extrapolated from these results.
The sensitivity analyses do not take into consideration that the Group’s assets and liabilities are actively managed. Additionally, the
financial position of the Group may vary at the time that any actual market movement occurs. For example, the Group’s financial risk
management strategy aims to manage the exposure to market fluctuations.
As investment markets move past various trigger levels, management actions could include selling investments, changing investment
portfolio allocation, adjusting bonuses credited to policyholders, and taking other protective action.
A number of the business units use passive assumptions to calculate their long-term business liabilities. Consequently, a change in the
underlying assumptions may not have any impact on the liabilities, whereas assets held at market value in the statement of financial
position will be affected. In these circumstances, the different measurement bases for liabilities and assets may lead to volatility in
shareholder equity. Similarly, for general insurance liabilities, the interest rate sensitivities only affect profit and equity where explicit
assumptions are made regarding interest (discount) rates or future inflation.
Other limitations in the above sensitivity analyses include the use of hypothetical market movements to demonstrate potential risk that
only represent the Group’s view of possible near-term market changes that cannot be predicted with any certainty, and the assumption
that all interest rates move in an identical fashion.
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Other information
Notes to the consolidated financial statements
Continued
60 – Derivative financial instruments and hedging
This note gives details of the various financial instruments the Group uses to mitigate risk.
The Group uses a variety of derivative financial instruments, including both exchange traded and over-the-counter instruments, in line with
the Group’s overall risk management strategy. The objectives include managing exposure to market, foreign currency and/or interest rate
risk on existing assets or liabilities, as well as planned or anticipated investment purchases.
In the narrative and tables below, figures are given for both the notional amounts and fair values of these instruments. The notional
amounts reflect the aggregate of individual derivative positions on a gross basis and so give an indication of the overall scale of the
derivative transaction. They do not reflect current market values of the open positions. The fair values represent the gross carrying values
at the year end for each class of derivative contract held (or issued) by the Group.
The fair values do not provide an indication of credit risk, as many over-the-counter transactions are contracted and documented under
ISDA (International Swaps and Derivatives Association, Inc.) master agreements or their equivalent. Such agreements are designed to
provide a legally enforceable set-off in the event of default, which reduces credit exposure. In addition, the Group has collateral agreements
in place between the individual Group entities and relevant counterparties. Refer to note 61 for further information on collateral and net
credit risk of derivative instruments.
(a) Instruments qualifying for hedge accounting
The Group has formally assessed and documented the hedge effectiveness in accordance with IAS 39, Financial Instruments: Recognition
and Measurement.
Net investment hedges
To reduce its exposure to foreign currency risk, the Group has designated a portion of its euro denominated debt as hedge instruments to
hedge a net investment in its European subsidiaries. No material disposals are expected prior to the maturity of the euro denominated debt
and the hedge effectiveness is prospectively expected to remain between 80% and 125%. The carrying value of the debt at 31 December
2018 was £2,468 million (2017: £2,885 million) and its fair value at that date was £2,515 million (2017: £3,202 million).
Foreign exchange losses of £27 million (2017: loss of £98 million) on translation of the debt to sterling at the statement of financial position
date in respect of the effective portion have been recognised in the hedging instruments reserve in shareholders’ equity. A gain of £4 million
(2017: loss of £13 million) has been recognised in the income statement due to the termination of a net investment hedge.
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Notes to the consolidated financial statements
Continued
60 – Derivative financial instruments and hedging continued
(b) Derivatives not qualifying for hedge accounting
Certain derivatives either do not qualify for hedge accounting under IAS 39 or the option to designate them as hedge instruments has not
been taken. These are referred to below as non-hedge derivatives.
(i) The Group’s non-hedge derivatives at 31 December 2018 and 2017 were as follows:
Foreign exchange contracts
OTC
Forwards
Interest rate and currency swaps
Options
Total
Interest rate contracts
OTC
Forwards
Swaps
Options
Swaptions
Exchange traded
Futures
Total
Equity/Index contracts
OTC
Options
Exchange traded
Futures
Options
Total
Credit contracts
Other
Total at 31 December
Contract/
notional
amount
£m
17,529
7,908
174
25,611
2018
2017
Fair value
asset
£m
Fair value
liability
£m
Contract/
notional
amount
£m
Fair value
asset
£m
Fair value
liability
£m
73
29
9
111
(117)
(708)
—
(825)
10,281
7,336
—
17,617
87
176
—
263
(34)
(568)
—
(602)
283
50,316
203
358
11
3,651
1
126
—
(2,120)
(20)
(5)
280
52,464
178
1,220
4
4,370
15
143
(2)
(2,539)
(11)
(7)
5,297
53
(34)
4,577
11
(17)
56,457
3,842
(2,179)
58,719
4,543
(2,576)
132
10,888
3,156
14,176
10,756
14,327
58
185
441
684
12
345
(1)
593
(197)
(13)
(211)
(227)
(2,129)
16,279
2,560
19,432
9,920
15,395
29
254
175
458
15
228
121,327
4,994
(5,571)
121,083
5,507
(2)
(249)
(5)
(256)
(261)
(2,071)
(5,766)
Fair value assets of £4,994 million (2017: £5,507 million) are recognised as ‘Derivative financial instruments’ in note 27(a), while fair value
liabilities of £5,571 million (2017: £5,766 million) are recognised as ‘Derivative liabilities’ in note 53.
The Group’s derivative risk management policies are outlined in note 59.
(ii) The contractual undiscounted cash flows in relation to non-hedge derivative liabilities have the following maturities:
Within 1 year
Between 1 and 2 years
Between 2 and 3 years
Between 3 and 4 years
Between 4 and 5 years
After 5 years
2018
£m
1,224
512
445
384
301
3,359
6,225
2017
£m
1,071
597
503
404
328
3,461
6,364
(c) Collateral
Certain derivative contracts, primarily interest rate and currency swaps, involve the receipt or pledging of cash and non-cash collateral.
The amounts of cash collateral receivable or repayable are included in notes 28 and 53 respectively. Collateral received and pledged by the
Group is detailed in note 61.
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Other information
Notes to the consolidated financial statements
Continued
61 – Financial assets and liabilities subject to offsetting, enforceable master netting agreements and
similar arrangements
(a) Offsetting arrangements
Financial assets and liabilities are offset in the statement of financial position when the Group has a legally enforceable right to offset and
has the intention to settle the asset and liability on a net basis, or to realise the asset and settle the liability simultaneously.
Aviva mitigates credit risk in derivative contracts by entering into collateral agreements, where practical, and into ISDA master netting
agreements for each of the legal entities to facilitate its right to offset credit risk exposure. The credit support agreement will normally
dictate the threshold over which collateral needs to be pledged by Aviva or its counterparty.
Derivative transactions requiring Aviva or its counterparty to post collateral are typically the result of over-the-counter derivative trades,
comprised mostly of interest rate swaps, currency swaps and credit default swaps. These transactions are conducted under terms that are
usual and customary to standard long-term borrowing, derivative, securities lending and securities borrowing activities. The derivative
assets and liabilities in the table below are made up of the contracts described in detail in note 60.
Aviva participates in a number of stock lending and repurchase arrangements. In some of these arrangements cash is exchanged by Aviva
for securities and a related receivable is recognised within ‘Loans to banks’ in note 24. These arrangements are reflected in the tables
below. In instances where the collateral is recognised on the statement of financial position, the obligation for its return is included within
‘Payables and other financial liabilities’ in note 53.
In other arrangements, securities are exchanged for other securities. The collateral received must be in a readily realisable form such as
listed securities and is held in segregated accounts. Transfer of title always occurs for the collateral received. In many instances, however,
no market risk or economic benefit is exchanged and these transactions are not recognised on the statement of financial position in
accordance with our accounting policies, and accordingly not included in the tables below.
2018
Financial assets
Derivative financial assets
Loans to banks and repurchase arrangements
Total financial assets
Financial liabilities
Derivative financial liabilities
Other financial liabilities
Total financial liabilities
Offset under IAS 32
Amounts subject to enforceable netting arrangements
Amounts under a master netting agreement
but not offset under IAS 32
Gross
amounts
£m
Amounts
offset
£m
Net amounts
reported in
the statement
of financial
position
£m
Financial
instruments
£m
Cash collateral
£m
Securities
collateral
received/
pledged
£m
Net amount
£m
3,978
1,923
5,901
(4,701)
(3,314)
(8,015)
—
—
—
—
—
—
3,978
1,923
5,901
(2,831)
—
(2,831)
(657)
(300)
(957)
(186)
(1,614)
(1,800)
(4,701)
(3,314)
(8,015)
2,896
—
2,896
7
—
7
1,288
3,314
4,602
304
9
313
(510)
—
(510)
Aviva plc Annual report and accounts 2018
228
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
61 – Financial assets and liabilities subject to offsetting, enforceable master netting arrangements and
similar agreements continued
2017
Financial assets
Derivative financial assets
Loans to banks and repurchase arrangements
Total financial assets
Financial liabilities
Derivative financial liabilities
Other financial liabilities
Total financial liabilities
Offset under IAS 32
Gross
amounts
£m
Amounts
offset
£m
Net amounts
reported in the
statement of
financial
position
£m
Amounts subject to enforceable netting arrangements
Amounts under a master netting agreement
but not offset under IAS 32
Financial
instruments
£m
Cash collateral
£m
Securities
collateral
received/
pledged
£m
Net amount
£m
4,605
2,524
7,129
(4,790)
(2,961)
(7,751)
—
—
—
—
—
—
4,605
2,524
7,129
(3,162)
—
(3,162)
(830)
—
(830)
(291)
(2,502)
(2,793)
(4,790)
(2,961)
(7,751)
3,233
—
3,233
17
—
17
1,120
2,961
4,081
322
22
344
(420)
—
(420)
Derivative assets are recognised as ‘Derivative financial instruments’ in note 27(a), while fair value liabilities are recognised as ‘Derivative
liabilities’ in note 53. £1,016 million (2017: £902 million) of derivative assets and £870 million (2017: £976 million) of derivative liabilities are
not subject to master netting agreements and are therefore excluded from the table above.
Amounts receivable related to securities lending and reverse-repurchase arrangements totalling £1,923 million (2017: £2,524 million) are
recognised within ‘Loans to banks’ in note 24.
Other financial liabilities presented above represent liabilities related to repurchase arrangements recognised within ‘Obligations for
repayment of cash collateral received’ in note 53.
(b) Collateral
In the tables above, the amounts of assets or liabilities presented in the consolidated statement of financial position are offset first by
financial instruments that have the right of offset under master netting or similar arrangements with any remaining amount reduced by the
amount of cash and securities collateral. The actual amount of collateral may be greater than amounts presented in the tables above in the
case of over collateralisation.
The total amount of collateral received which the Group is permitted to sell or repledge in the absence of default, excluding collateral
related to balances recognised within ‘Loans to banks’ disclosed in note 24, was £19,504 million (2017: £22,978 million), all of which other
than £4,058 million (2017: £4,780 million) is related to securities lending arrangements. Collateral of £1,914 million (2017: £2,697 million) has
been received related to balances recognised within ‘Loans to banks’ in note 24. The value of collateral that was actually sold or repledged
in the absence of default was £nil (2017: £nil).
The level of collateral held is monitored regularly, with further collateral obtained where this is considered necessary to manage the
Group’s risk exposure.
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Other information
Notes to the consolidated financial statements
Continued
62 – Related party transactions
This note gives details of the transactions between Group companies and related parties which comprise our joint ventures, associates and
staff pension schemes.
The Group undertakes transactions with related parties in the normal course of business. Loans to related parties are made on normal
arm’s-length commercial terms.
Services provided to, and by related parties
Associates
Joint ventures
Employee pension schemes
Income earned
in the year
£m
Expenses
incurred in
the year
£m
Payable at
year end
£m
Receivable at
year end
£m
Income earned
in the year
£m
Expenses
incurred in
the year
£m
Payable at
year end
£m
Receivable at
year end
£m
2018
2017
1
49
10
60
—
—
—
—
—
(1)
—
(1)
2
2
7
11
4
49
12
65
(4)
—
—
(4)
—
—
—
—
—
2
14
16
Transactions with joint ventures in the UK relate to the property management undertakings, the most material of which are listed in note
19(a)(iii). The Group has equity interests in these joint ventures, together with the provision of administration services and financial
management to many of them. Our fund management companies also charge fees to these joint ventures for administration services and
for arranging external finance.
Key management personnel of the Company may from time to time purchase insurance, savings, asset management or annuity products
marketed by group companies on equivalent terms to those available to all employees of the Group. In 2018, other transactions with key
management personnel were not deemed to be significant either by size or in the context of their individual financial positions.
Our UK fund management companies manage most of the assets held by the Group’s main UK staff pension scheme, for which they charge
fees based on the level of funds under management. The main UK scheme holds investments in Group-managed funds and insurance
policies with other group companies, as explained in note 51(b)(ii). As at 31 December 2018, the Friends Provident Pension Scheme (‘FPPS’),
acquired in 2015 as part of the acquisition of the Friends Life business, held an insurance policy of £620 million (2017: £630 million) issued by
a group company, which eliminates on consolidation.
The related parties’ receivables are not secured and no guarantees were received in respect thereof. The receivables will be settled in
accordance with normal credit terms.
Key management compensation
The total compensation to those employees classified as key management, being those having authority and responsibility for planning,
directing and controlling the activities of the Group, including the executive and non-executive directors is as follows:
Salary and other short-term benefits
Other long-term benefits
Post-employment benefits
Equity compensation plans
Termination benefits
Total
2018
£m
7.9
8.6
1.5
10.5
—
28.5
2017
£m
12.5
5.4
1.5
16.4
0.4
36.2
Information concerning individual directors’ emoluments, interests and transactions is given in the Directors’ Remuneration Report.
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Other information
Notes to the consolidated financial statements
Continued
63 – Organisational structure
The following chart shows, in simplified form, the organisational structure of the Group as at 31 December 2018. Aviva plc is the holding
company of the Group.
Parent company
Aviva plc
Subsidiaries
The principal subsidiaries of the Company at 31 December 2018 are listed below by country of incorporation.
A complete list of the Group’s related undertakings comprising of subsidiaries, joint ventures, associates and other significant holdings is
contained within note 64.
Incorporated in England and Wales
Incorporated in People’s Republic of China.
*
**
*** Incorporated in Scotland
United Kingdom
Aviva Central Services UK Limited
Aviva Employment Services Limited
Aviva Equity Release UK Limited
Aviva Health UK Limited
Aviva Insurance Limited
Aviva International Insurance Limited
Aviva Investors Global Services Limited
Aviva Investors Pensions Limited
Aviva Investors UK Fund Services Limited
Aviva Life & Pensions UK Limited
Aviva Life Services UK Limited
Aviva Pension Trustees UK Limited
Aviva UK Digital Limited
Aviva Wrap UK Limited
Gresham Insurance Company Limited
The Ocean Marine Insurance Company Limited
Aviva Management Services UK Limited
Aviva Administration Limited
Friends Provident International Limited1
Barbados
Victoria Reinsurance Company Ltd
Bermuda
Aviva Re Limited
Canada
Aviva Canada Inc. and its principal subsidiaries:
Aviva Insurance Company of Canada
Aviva General Insurance Company
Elite Insurance Company
Pilot Insurance Company
Scottish & York Insurance Co. Limited
S&Y Insurance Company
Traders General Insurance Company
France
Aviva France SA (99.99%) and its principal subsidiaries:
Aviva Assurances SA (99.9%)
Aviva Investors France SA (99.9%)
Aviva Vie SA (99.9%)
Aviva Epargne Retraite (99.9%)
Aviva Retraite Professionnelle SA (99.9%)
Union Financière de France Banque (Banking) (75%)
Ireland
Friends First Life Assurance Company DAC (Friends First)
1 See note 4(c) for further details in respect of operations classified as held for sale
Aviva plc Annual report and accounts 2018
231
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
63 – Organisational structure continued
Italy
Aviva Italia Holding S.p.A and its principal subsidiaries:
Aviva S.p.A (51%)
Aviva Italia S.p.A
Aviva Life S.p.A
Aviva Vita S.p.A (80%)
Lithuania
Uždaroji akcinė gyvybės draudimo ir pensijų bendrovė ‘Aviva
Lietuva’ (90%)
Poland
Aviva Powszechne Towarzystwo Emerytalne Aviva Santander S.A.
(81%)
Aviva Towarzystwo Ubezpieczen na Zycie S.A. (90%)
Aviva Towarzystwo Ubezpieczen Ogolnych S.A. (90%)
Santander Aviva Towarzystwo Ubezpieczeń S.A. (51%)
Santander Aviva Towarzystwo Ubezpieczeń na Życie S.A. (51%)
Singapore
Aviva Ltd
Vietnam
Aviva Vietnam Life Insurance Company Limited
Branches
The Group also operates through branches, the most significant of
which is based in Ireland.
Associates and joint ventures
The Group has ongoing interests in the following operations that are
classified as joint ventures or associates. Further details of those
operations that were most significant in 2018 are set out in notes 19
and 20 to the financial statements.
United Kingdom
The Group has interests in several property limited partnerships.
Further details are provided in notes 19, 20 and 26 to the financial
statements.
China
Aviva-COFCO Life Insurance Company Ltd (50%)
Hong Kong
Aviva Life Insurance Company Limited (40%)
India
Aviva Life Insurance Company India Limited (49%)
Indonesia
PT Astra Aviva Life (50%)
Turkey
AvivaSA Emeklilik ve Hayat A.S (40%)
Aviva plc Annual report and accounts 2018
232
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
64 – Related Undertakings
The Companies Act 2006 requires disclosure of certain information about the Group’s related undertakings which is set out in this note.
Related undertakings comprise subsidiaries, joint ventures, associates and other significant holdings. Significant holdings are where the
Group either has a shareholding greater than or equal to 20% of the nominal value of any share class, or a book value greater than 20% of
the Group’s assets.
The definition of a subsidiary undertaking in accordance with the Companies Act 2006 is different from the definition under IFRS. As a result,
the related undertakings included within the list below may not be the same as the undertakings consolidated in the Group IFRS financial
statements. See accounting policies (D) Consolidation principles for further detail on principles of consolidation and definition of joint
ventures.
The Group’s related undertakings along with the country of incorporation, the registered address, the classes of shares held and the
effective percentage of equity owned at 31 December 2018 are disclosed below.
The direct related undertakings of the Company as at 31 December 2018 are listed below:
Name of undertaking
Country of
incorporation
Registered address
Aviva-COFCO Life Insurance Company Ltd2 China
General Accident plc
United Kingdom
12/F,Block A,Landgent Centre, 20 East Third Ring Middle Road,
Beijing, 100022
Pitheavlis, Perth, Perthshire, PH2 0NH
Aviva Group Holdings Limited
United Kingdom
St Helen’s, 1 Undershaft, London, EC3P 3DQ
Share class1
Ordinary shares
Ordinary shares
Ordinary shares
% held
50
100
100
The indirect related undertakings of the Company as at 31 December 2018 are listed below:
Company name
Barbados
c/o USA Risk Group (Barbados) Ltd.,
6th Floor, CGI Tower, Warrens, St. Michael,
BB22026
Victoria Reinsurance Company Ltd.
Belgium
Avenue Louise 326, Boîte 30, 1050 Ixelles
Parnasse Square Invest
Bermuda
Canon’s Court, 22 Victoria Street, Hamilton, HM
12
Aviva Re Limited
Trinity Hall, 43 Cedar Avenue, Hamilton HM 12
Lend Lease JEM Partners Fund Limited
Canada
10 Aviva Way, Suite 100, Markham On
L6G 0G1
9543864 Canada Inc.
Aviva Canada Inc.
Aviva General Insurance Company
Aviva Insurance Company of Canada
Aviva Warranty Services Inc.
Elite Insurance Company
Insurance Agent Service Inc.
National Home Warranty Group Inc.
OIS Ontario Insurance Service Limited
Pilot Insurance Company
S&Y Insurance Company
Scottish & York Insurance Co. Limited
Traders General Insurance Company
Wayfarer Insurance Brokers Limited
100 King Street West, Suite 4900, Toronto On
M5X 2A2
Aviva Investors Canada Inc.
100, 10325 Bonaventure Drive S.E., Calgary T2J
7E4
A-Win Insurance Ltd.
328 Mill Street, Unit 11, Beaverton L0K 1A0
Bay-Mill Specialty Insurance Adjusters Inc.
480 University Avenue, Suite 800, Toronto On
M5G 1V2
LMS Prolink Limited2
555 Chabanel Ouest, Bureau 900, Montreal QC
H2N 2H8
Aviva Agency Services Inc.
600 Cochrane Drive, Suite 205, Markham On
L3R 5K3
Westmount Guarantee Services Inc.
Cayman Islands
115 East 57th Street, Suite 1019,New York NY
10022
Belmont Global Trend Fund Ltd
Share Class1
% held
Common Shares
100
Ordinary Shares
99
Ordinary Shares
100
Ordinary Shares
23
Common Shares
Voting Interest
Common Shares
Common Shares
Common Shares
Common Shares
Common Shares
Common Shares
Common Shares
Common Shares
Common Shares
Common Shares
Common Shares
Common Shares
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Common Shares
100
Ordinary Shares
Common Shares
100
100
Common A Shares
34
Common A Shares
100
Common A Shares
33
Mutual Fund
14
Company name
China
Units 1805-1807, 18th Floor, Block H Office
Building, Phoenix Land Plaza, No. A5 Yard,
Shuguangxili, Chaoyang District, Beijing
Aviva-Cofco Yi Li Asset Management Co Ltd2
Czech Republic
5/482, Ve Svahu, Prague 4, 14700
AIEREF Renewable Energy s.r.o.
France
3 Boulevard Saint Martin
Aviva Impact Investing France
128 Boulevard Raspail, 75006, Paris
UFF Oblicontext 2021-A (UFFo21A)
UFF Oblicontext 2023 A (UFFo23A)
UFF Obligations 3-5 A
13 Rue du Moulin Bailly, 92270, Bois Colombes
11 Rue De L’Echelle
Agents 3A
Aviva Assurances, Société Anonyme d’Assurances
Incendie, Accidents et Risques Divers
13, Avenue Lebrun, 92188, Antony Cedex
Pierrevenus
14 Rue Roquépine, 75008, Paris
AFER – SFER
Aviva Convertibles
Aviva Europe
Aviva Developpement
Aviva Diversifie
Aviva Investors France
Aviva Oblig International
Aviva Oblirea
Aviva Patrimoine
Aviva Rendement Europe
Aviva Valeurs Francaises
Aviva Valeurs Immobilieres
153, Boulevard Haussmann, 75008, Paris
Selectus
17 Rue du Cirque, 75008, Paris
Financiere Du Carrousel
Infinitis
20 Place Vendôme, 75001, Paris
AXA Lbo Fund IV Feeder
AXA UK Infrastructure Investment SAS
Croissance Pme A C.
24 Rue de la Pépinière, 75008 Paris
Aviva Investors Euro Crédit Bonds 1-3 HDR
Afer Actions Amerique Fcp
Afer Actions Euro A
Afer Actions Monde
Afer Convertibles C.
Afer Diversifie Durable
Afer Marches Emergents Fcp
Afer Multi Foncier
Afer Obl Md Ent C.
Aviva plc Annual report and accounts 2018
233
Share Class1
% held
Ordinary Shares
21
Ordinary Shares
99
Ordinary Shares
100
FCP
FCP
FCP
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
FCP
Ordinary Shares
Ordinary Shares
Private Equity Fund
Ordinary Shares
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
98
98
88
100
50
100
74
50
86
96
99
95
99
72
85
92
90
83
41
96
74
74
35
100
97
39
100
100
100
100
100
100
100
100
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
Company name
Afer Patrimoine
Afer-Flore
Afer-Sfer
Aviva Actions Croissance
Aviva Actions Euro
Aviva Actions Europe ISR
Aviva Actions France
Aviva Amerique
Aviva Asie
Aviva Convertibles
Aviva Conviction Opportunites
Aviva Conviction Patrimoine
Aviva Developpement
Aviva Diversifié
Aviva Eur Corp Senior Debts
Aviva Europe
Aviva Flexible (AVIFLEX)
Aviva Flexible Emergents A FCP
Aviva France Opportunites
Aviva Grdes Marq A C.
Aviva Interoblig
Aviva Investors Actions Euro
Aviva Investors Alpha Taux A
Aviva Investors Alpha Yield
Aviva Investors Britannia (D)
Aviva Investors Conviction
Aviva Investors Euro Aggregate
Aviva Investors Euro Com R E D
Aviva Investors Euro Crédit Bonds 1-3
Aviva Investors Japan
Aviva Investors Portefeuille
Aviva Investors Reference Div
Aviva Investors Repo (avirepo)
Aviva Investors Selection
Aviva Investors Valeurs
Aviva Investors Valeurs Europe
Aviva Investors Yield Curve Abs Rt R
Aviva Monetaire Isr (A)
Aviva Multigestion
Aviva Oblig International
Aviva Oblirea
Aviva Patrimoine
Aviva Performance
Aviva Rebond
Aviva Rendement Europe
Aviva Selection Opportunites
Aviva Selection Patrimoine
Aviva Signatures Europe
Aviva Structure Index 1 C.
Aviva Structure Index 2
Aviva Structure Index 4 C.
Aviva Structure Index3
Aviva Small & Mid Caps Euro ISR
Aviva Valeurs Francaises
Aviva Valeurs Immobilieres
Aviva Valorisation Opportunite
Aviva Valorisation Patrimoine
FPE Aviva Eur Corp Senior Db2
FPE Aviva Small & Midcap ASAM
UFF Cap Defensif
UFF Eu-Val 0-100 A C.
UFF Obligations 5-7 A
UFF Rendement Diversifie A
24-26 Rue De La Pépinière, 75008, Paris
100 Courcelles
AFER Immo
AFER Immo 2
Aviva Commerce Europe
Aviva Immo Selection
Aviva Investors Real Estate France S.A.
Aviva Investors Real Estate France SGP
Aviva Patrimoine Immobilier
Logiprime Europe
Primotel Europe
SCI La Coupole Des Halles
SCI Pergola
Société Civile Immobilière Thomas Edison
Société Civile Immobilière Pleyel R2
Sapphire Ile de France SCI
Afer Avenir Senior
Aviva Investors Commercial Real Estate Debt Fun
Aviva Investors Inflation Euro Hd
Share Class1
FCP
FCP
SICAV
FCP
FCP
FCP
FCP
FCP
FCP
SICAV
FCP
FCP
SICAV
SICAV
FCT
SICAV
FPS
FCP
FCP
FCP
FCP
FCP
FCP
FCP
SICAV
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
SICAV
SICAV
SICAV
FCP
FCP
SICAV
FCP
FCP
FCP
FCP
FCP
FIPS
FPS
FCP
SICAV
SICAV
FCP
FCP
Mutual Fund
FCP
FCP
FCP
FCP
FCP
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary A Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Euro 1 Each Shares
SICAV
FCP
FCP
% held
100
98
100
100
98
100
79
97
100
98
100
100
99
94
100
96
100
100
83
99
100
83
100
92
98
100
76
100
77
95
100
100
100
100
100
74
100
98
100
90
97
98
100
88
95
99
100
100
100
100
100
100
100
98
79
99
100
31
100
97
98
99
100
100
100
100
65
99
100
100
93
98
99
98
100
50
50
100
100
68
50
Company name
Aviva Investors Monétaire
Aviva Investors Valorisation
Aviva Japan
Aviva Messine 5
Aviva Performance Divers.Fcp
Aviva Valeurs Responsable A
32, Avenue d’Iéna, 75116 Paris
Aviva Capital Planete (Avicapa)
CGP Entrepreneurs
Myria Asset Management
UFF Selection Alpha-A (Ufselaa)
UFF Actions France-Aeur (UFFacfa)
UFF Allocation Optimum
UFF Cap Diversifie (UCAPDIV)
UFF Capital Planete A (Aviufcp)
UFF Croissance Pme A (Ucapcro)
UFF Emergence-A (UFFemga)
UFF Europe Opportunites-Aeur (UFFgeua)
UFF Euro Valeur A
UFF Global Allocation A
UFF Global Foncieres-A (Ufgf70A)
UFF Global Multi-Strategie-A (Ufglmsa)
UFF Global Obligations-A (Ufgf30A)
UFF Global Reactif-A (Ufgf10A)
UFF Liberty-A (UFFliba)
UFF Selection Premium A (Uavfran)
Ufifrance Gestion
Ufifrance Patrimoine
UFF Privilège A
Union Financière de France Banque
36 Rue De Naples 75008 Paris
Cybele Am – Bellatrix-C (THIPATC)
Cybele Am Betelgeuse (BETGUSV)
Ufifrance Immobilier
37 Avenue des Champs Elysées, 75008, Paris
Cybele Europe Israel Croissance (FRAISCR)
Société Française de Gestion et d’Investissement
Sirius
41 Rue Capitaine Guynemer, 92400, Courbevoie
Logipierre 1
47 Rue du Faubourg Saint-Honoré, 75008,
Paris
Aviva Selection (Edmasio)
CGU Equilibre
L’Antenne-U (Edmlanu)
UFF Global Convertibles A
53 Avenue d’Iéna
UFF Valeurs Pme-A (Fintrma)
62 Rue du Faubourg Saint-Honoré, 75008, Paris
Diapason 1
7 Rue Auber, 75009, Paris
Vip Conseils
70 Avenue De L’Europe, 92270 Bois-Colombes
Aviva Epargne Retraite
Aviva France Ventures
Aviva Investissements
Aviva Retraite Professionnelle
Aviva Vie, Société Anonyme d’Assurances Vie et de
Capitalisation
Epargne Actuelle
Newco 3
Newco 5
Société Civile Immobilière Carpe Diem
Societe Civile Immobiliere Charles Hermite
Societe Civile Immobiliere Montaigne
Zelmis
80 Avenue De L’Europe, 92270 Bois-Colombes
Aviva France
Aviva Solutions
Croissance Pierre II
Groupement D’Interet Economique du Groupe
Aviva France
Locamat SAS
Newco
SCI Pesaro
Selectinvie – Societe Civile Immobiliere
Selectipierre – Société Civile
Societe Concessionaire des Immeubles de la
Pepiniere
Victoire Immo 1- Société Civile
Voltaire S.A.S
90 Boulevard Pasteur, 75015, Paris
Aviva Actions S2 C.
Aviva plc Annual report and accounts 2018
234
Share Class1
FCP
FCP
FCP
FCP
FCP
FCP
% held
55
100
100
100
100
100
FCP
Ordinary Shares
Ordinary Shares
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
Ordinary Shares
Ordinary Shares
FCP
Ordinary Shares
SICAV
SICAV
Ordinary Shares
SICAV
Ordinary B Shares
SICAV
Ordinary Shares
FCP
FCP
FCP
FCP
FCP
FCP
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
FCP
100
74
74
98
99
99
51
98
100
99
99
100
100
98
99
97
95
100
98
74
74
29
74
78
92
20
85
67
98
44
100
81
97
99
98
84
34
100
100
100
100
100
100
100
100
50
56
92
100
100
100
100
100
100
100
79
100
94
100
100
100
100
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
Company name
Aviva Couv Actions C.
91-93 Boulevard Pasteur, 75015, Paris
SCI Campus Medicis St Denis
SCI Campus Rimbaud St Denis
Tour Majunga – La Défense 9, 6 place de la
Pyramide
AXA Premiere Categorie
9 Rue Newton, 75116 Paris
Pretons Ensemble
14 Rue Bergère, 75009 Paris
Afer Actions PME
Aviva Perspective 2021-2025
Aviva Perspective 2026-2030
Aviva Perspective 2031-2035
Aviva Perspective 2036-2040
24 Rue de la Pépinière, 75008 Paris
Aviva Valeurs Responsables
3 Rue Alexandre Fleming
France
92260
Kroknet S. a. r. l.
Germany
c/o Wswp Weinert GmbH, Theatinerstr. 31,
80333, Munich
FPB Holdings GmbH
Eschenheimer Anlage 1, 60316, Frankfurt
Reschop Carré Hattingen GmbH
Reschop Carré Marketing GmbH
Max-Planck-Strasse, 3,85609 Aschheim-
Dornach
ASF German Retail GmbH & Co. KG
German Retail Investment Properties Sarl
German Retail I GmbH
German Retail II GmbH
German Retail IV GmbH
German Retail IX GmbH
German Retail V GmbH
German Retail VII GmbH
German Retail VIII GmbH
Speditionstraße 23, 40221 Düsseldorf
Projektgesellschaft Hafenspitze mbH
Guernsey
Dorey Court Admiral Park, St Peter Port,
Guernsey, GY1 2HT
First Meridian Cautious Balanced Fund GBP
First Meridian Cautious Balanced Fund USD
The Fincrest Global Equity Fund
PO Box 255, Trafalgar Court, Les Banques, St.
Peter Port, GY1 3QL
AXA Property Trust Ltd
F&C Commercial Property Trust Limited
St Martin’s House, Le Bordage, St Peter Port
Paragon Insurance Company Guernsey Limited
80 George Street,
F&C Commercial Property Trust Ltd
Hong Kong
21st Floor, Chater House, 8 Connaught Road
Central
JPMorgan Indonesia Fund
30/F, One Kowloon, 1 Wang Yuen Street,
Kowloon Bay, Hong Kong
Aviva Life Insurance Company Limited
India
2nd Floor, Prakash Deep Building 7, Tolstoy
Marg, New Delhi, Delhi, 110001
CGU Project Services Private Limited
Aviva Life Insurance Company India Limited2
A-47 (L.G.F), Hauz Khas, New Delhi, Delhi
Sesame Group India Private Limited
Pune Office Addresses 103/P3, Pentagon,
Magarpatta City, Hadapsar, Pune – 411013
A.G.S. Customer Services (India) Private Limited
Indonesia
Pondok Indah Office Tower 3, 1st Floor, Jl.
Sultan Iskandar Muda Kav. V-TA, Pondok Indah,
Jakarta Selatan, Jakarta, 12310
PT Astra Aviva Life2
Ireland
25/28 North Wall Quay, Dublin
CGWM Select Affinity Fund
Share Class1
FCP
% held
100
Ordinary Shares
Ordinary Shares
SICAV
FPS
FCP
FCP
FCP
FCP
FCP
FCP
30
30
85
50
100
100
100
100
100
100
Ordinary Shares
90
Series A Shares, Series B
Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
OEIC
OEIC
OEIC
OEIC
OEIC
Ordinary Shares
Closed Ended Investment
Company
Unit Trust
Ordinary Shares
100
95
100
98
98
98
98
98
98
98
98
98
94
29
20
23
28
47
47
20
25
40
Rs.10 Shares
Ordinary Shares
Ordinary Shares
100
49
100
Ordinary Shares
100
Ordinary Shares
50
OEIC
23
Share Class1
OEIC
OEIC
OEIC
OEIC
Ordinary Shares
ICVC
ICVC
% held
60
39
51
42
100
81
98
ICVC
ICVC
OEICS
Company name
CGWM Select Global Affinity Fund
CGWM Select Global Diversity Fund
CGWM Select Global Opportunity Fund
CGWM Select Opportunity Fund
Anna Livia Properties Limited
Aviva Investors Euro Liquidity Fund
Aviva Investors Sterling Government Liquidity
Fund
Aviva Investors Sterling Liquidity Fund
Aviva Investors Sterling Liquidity Plus Fund
Central Quey, Riverside IV4, Sir John
Rogerson’s Quey, Dublin 2
BMO Multi-Strategy Global Equity Fund
Georges Court, 54-62 Townsend Street, Dublin
2
FPPE Fund Public Limited Company
FPPE – Private Equity
Guild House, Guild Street, IFRS, Dublin 1
Aviva Irl Merrion Exempt Trust – Managed Fund
One Park Place, Hatch Street, Dublin 2
Area Life International Assurance dac
Aviva Direct Ireland Limited
Aviva Driving School Ireland Limited
Aviva Group Ireland Limited
Aviva Group Services Ireland Limited
Aviva Insurance Ireland Designated Activity
Company
Aviva Life Services Ireland Limited
Aviva Trustee Company Ireland Designated Activity
Company
Aviva Undershaft Four Limited
Peak Re Designated Activity Company
Charlotte House, Charlemont St
Mercer Diversified Retirement Fund
3rd Floor, 2 Harbourmaster Place, IFSC
KBI Institutional Fund ICAV – KBI Institutional
Eurozone Equity Fund
Behan House
10 Mount Street Lower
Dublin 2
Ireland
CALM Eurozone Equity Sub Fund
AG10 Currency Fund
78 Sir John Rogersons Quay Dublin 2 Ireland
State Street IUT Balanced Fund S30
SSgA GRU Euro Index Equity Fund
One Coleman Street, London EC2R 5AA, United
Kingdom
Legal & General ICAV – L&G World Equity Index
Fund
Legal & General ICAV – L&G Multi-Index EUR V Fund
Legal & General ICAV – L&G Multi-Index EUR IV
Fund
Legal & General ICAV – L&G Multi-Index EUR III
Fund
Friends First House
Cherrywood Science & Technology Park
Loughlinstown
Co. Dublin
Ireland
Ashtown Management Company Limited
Atrium Nominees Limited
Friends First Life Assurance Company DAC (Friends
First)
Friends First Life Assurance Company Designated
Activity Company
Friends First Managed Pensions Funds Designated
Activity Company
Friends First US Property Company Limited
Isle of Man
Royal Court, Castletown, IM9 1RA
Friends Provident International Limited
Friends Provident International Services Limited
Italy
Piazzetta Guastalla 1, 20122, Milan
Banca Network Investimenti SPA
Via Scarsellini 14, 20161, Milan
Aviva Italia Holding S.p.A
Aviva Italia S.p.A
Aviva Italia Servizi Scarl
Aviva Life SPA
Aviva SPA
Shares Of No Par Value Shares,
1 Subscriber Euro €1 Shares
Private Equity
Unit Trust
A Shares, B Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
OEIC
OEIC
OEIC
OEIC
Unit Trust
Unit Trust
OEIC
OEIC
OEIC
OEIC
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares-A
Ordinary Shares-B
Ordinary Shares
Ordinary Shares
Ordinary B Shares, Ordinary
Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
78
78
93
100
100
37
100
100
100
100
92
100
92
92
100
100
22
43
91
93
30
47
39
95
100
100
50
100
100
100
100
100
100
100
25
100
100
36
100
51
Aviva plc Annual report and accounts 2018
235
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
Company name
Aviva Vita S.p.A
Petunia Spa
Milano, Piazza Lina Bo Bardi n. 3
Aviva Immobiliare
Jersey
19-21 Broad Street, St Helier, JE1 3PB
11-12 Hanover Square UT2
130 Fenchurch Street UT2
30 Warwick Street UT2
30-31 Golden Square UT2
Aviva Investors Jersey Unit Trusts Management
Limited
Barratt House UT2
Chancery House London UT2
Irongate House UT2
New Broad Street House UT2
Pegasus House and Nuffield House UT2
W Nine UT2
3rd Floor Walker House, 28-34 Hill Street, St
Helier, JE4 8PN
1 Fitzroy Place Jersey Unit Trust2
2 Fitzroy Place Jersey Unit Trust2
Le Masurier House, La Rue Le Masurier, St
Helier, JE2 4YE
Yatra – (Saffron)
Lime Grove House , Green Street, St Helier, JE1
2ST
20 Gracechurch Unit Trust
COW Real Estate Investment Unit Trust
Designer Retail Outlet Centres (Mansfield) Unit
Trust
Designer Retail Outlet Centres (York) Unit Trust
Designer Retail Outlet Centres Unit Trust
Quantum Property Unit Trust2
Serviced Offices UK Unit Trust2
Southgate Unit Trust
3rd Floor, One The Esplanade, Jersey, JE2 3QA
Crieff Road Limited
FF UK Select Limited
Lithuania
Lvovo g. 25, Vilnius, LT-09320
Uždaroji akcinė gyvybės draudimo ir pensijų
bendrovė "Aviva Lietuva" (Joint Stock Limited Life
Insurance and Pension Company Aviva Lietuva)
Luxembourg
10 Rue du Fort Bourbon, L-1249
VH German Mandate
11 Rue du Fort Bourbon, L-1249
Centaurus Sarl
14 Rue du Fort Bourbon, L-1249
Aviva Investors European Renewable Energy S.A.
15 Rue du Fort Bourbon, L-1249
Aviva Investors European Secondary Infrastructure
Credit SV S.A
16 Avenue de la Gare, 1610
Aviva Investors Luxembourg Services S.à r.l.
Aviva Investors Polish Retail S.à r.l.
16 Rue Jean-Pierre Brasseur, L-1258
VAM Funds (Lux) – International Real Estate Equity
Fund
VAM Managed Funds (Lux) – Close Brothers
Growth Fund
19 Rue du Fort Bourbon, L-1249
Lend Lease Retail Partners
1c Rue Gabriel Lippmann
Patriarch Classic B&W Global Freestyle
2 Boulevard de la Foire, L-1528
Pramerica Pan-European Real Estate Fund
2 Rue de Bitbourg, L-1273
Henderson Horizon – European Growth Fund
2 Rue du Fort Bourbon, L-1249
AFRP S.à r.l.
AIEREF Holding 1 S.a.r.l
AIEREF Holding 2 S.a.r.l
Aviva Investors Alternative Income Solutions
General Partner S.à r.l.
Aviva Investors Alternative Income Solutions
Limited Partnership
Aviva Investors Asian Equity Income Fund
Aviva Investors CELLs Danone Sarl
Aviva Investors Investment Solutions Emerging
Markets Debt Fund
Aviva Investors Cells (GP) S.à r.l.
Share Class1
Ordinary Shares
Ordinary A Shares
% held
80
51
Real Estate Fund
100
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Ordinary Shares
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Ordinary Shares
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Ordinary Shares
Ordinary Shares
50
50
50
50
100
50
50
50
50
50
50
50
50
27
100
100
97
97
97
50
50
50
100
100
Ordinary Shares
90
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
SICAV
SICAV
Ordinary Shares
FCP
Ordinary Shares
SICAV
Ordinary Shares
Equity Shares
Equity Shares
Ordinary Shares
Limited Partnership
SICAV
SICAV
SICAV
Ordinary Shares
100
100
100
67
100
100
33
20
26
31
76
32
100
44
100
100
55
99
100
100
100
Company name
Aviva Investors CELLS Holding Sarl
Aviva Investors CELLS SCSp
Aviva Investors CELLS Stern Sarl
Aviva Infrastructure Debt Europe I S.A
Aviva Investors EBC S.à r.l.
Aviva Investors Emerging Markets Bond Fund
Aviva Investors Emerging Markets Corporate Bond
Fund
Aviva Investors Emerging Markets Equity Income
Fund
Aviva Investors Emerging Markets Equity Small
Cap Fund
Aviva Investors Emerging Markets Local Currency
Bond Fund
Aviva Investors European Corporate Bond Fund
Aviva Investors European Equity Fund
Aviva Investors European Equity Income Fund
Aviva Investors European Infrastructure Debt Str
Aviva Investors European Real Estate Securities
Fund
Aviva Investors Global Aggregate Bond Fund
Aviva Investors Global Investment Grade
Corporate Bond Fund
Aviva Investors Global Convertibles Absolute
Return Fund
Aviva Investors Global Convertibles Fund
Aviva Investors Global Emerging Markets Index
Fund
Aviva Investors Global Equity Endurance Fund
Aviva Investors Global High Yield Bond Fund
Aviva Investors Luxembourg
Aviva Investors Multi-Strategy Fixed Income Fund
Aviva Investors Short Duration Global High Yield
Bond Fund
Aviva Investors UK Equity Focus Fund
Aviva Investors US Equity Income Fund
Centaurus CER (Aviva Investors) Sarl
Hexagone S.à r.l.
Sapphire Ile de France 1 S.à.r.l.
Sapphire Ile de France 2 S.à r.l.
Victor Hugo 1 S.à r.l.
3 Rue des Labours, L-1912
Haspa Trendkonzept
42 Rue de la Vallée, L-2661
World Investment Opportunities Funds – China
Performance Fund
47 Avenue John F Kennedy
Goodman European Business Park Fund (Lux)
S.àr.l.
49 Avenue J.F. Kennedy, L-1855
AXA World Funds II – North American Equities
BMO Global Equity Market Neutral V10 Fund
BMO Global Total Return Bond Fund
6 Rue du Fort Bourbon, L-1249
German Retail Associate Property Fund FCP-SIF
German Retail III GmbH
Sachsenfonds GmbH
9 Rue du Fort Bourbon, L-1249
EPI NU Sarl
Boulevard Konrad Adenauer
Deutsche European Property Fund
Xtrackers II Eurozone Government Bond 15-30
UCITS ETF
c/o CACEIS BANK Lux, 5, Allée Scheffer, L-2520
PI EMU EQUITY-XEURND (PIEMUXE)
Tikehau Italy Retail Fund Ii Scsp-Area12
28-32, Place de la Gare, L-1616 Luxembourg
Ver Capital Credit Partners IV SICAV – SIF
Ver Capital Credit VI – Sub Fund A
Ver Capital Credit VI – Sub Fund B
Jupiter Asset Management Ltd., 70 Victoria
Street, The Zig Zag Building
Jupiter Global Fund – Jupiter Global Financials
Jupiter Global Fund – Jupiter New Europe
2c, rue Albert Borschette, L-1246, Luxembourg
Grand Duchy of Luxembourg
AQR Systematic Total Return Fund II
47 Avenue John F. Kennedy
Luxembourg
L – 1855
Centaurus CER (Aviva Investors) Sarl
Aviva plc Annual report and accounts 2018
236
Share Class1
Ordinary Shares
Limited Partnership
Ordinary Shares
SICAV
Ordinary Shares
SICAV
SICAV
% held
100
100
100
100
100
89
66
SICAV
SICAV
SICAV
SICAV
SICAV
SICAV
FIAR
SICAV
SICAV
SICAV
SICAV
SICAV
SICAV
SICAV
SICAV
Nominal Par Value Shares
SICAV
SICAV
SICAV
SICAV
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Each Eur 25 Shares
FCP
SICAV
98
89
91
65
62
100
22
67
95
97
81
39
100
100
69
100
70
45
91
70
100
100
100
100
100
40
36
Ordinary Shares
100
SICAV
SICAV
SICAV
FCP
Ordinary Shares
Ordinary Shares
20
52
66
98
98
98
Ordinary Shares
100
Ordinary Shares
SICAV
OEIC
FCP
SICAV
SICAV
SICAV
SICAV
SICAV
SICAV
20
36
22
31
22
43
43
21
55
41
Ordinary Shares
100
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
Company name
Malta
184 St. Lucia Street, Valletta, VLT 1189
Herakles
Mauritius
4th Floor, Raffles Tower, 19 Cybercity, Ebene
Reliance Emergent India Fund
Les Cascades, Edith Cavell Street, Port Louis
Actis China Investment Company Limited
Norway
Tollbugate 27,0157 Oslo
Aviva Investors CELLs Norway Holding AS
Aviva Investors CELLs Norway AS
Kongsgard Alle 20 AS
Poland
Al. Jana Pawła II 25, 00-854 , Warszawa
Focus Park Piotrków Trybunalski sp.z o.o
Focus Mall Zielona Gora Sp. Z o.o.
Lodz BC Sp. z o.o
Wroclaw BC sp. z.o.o
Inflancka 4b, 00-189 Warszawa
Aviva Investors FIO Aktywnej Alokacji
Aviva Investors Fio Depozyt Plus
Aviva Investors Fio Nowoczesnych Technologii
Aviva Investors Fio Nowych Spolek
Aviva Investors Fio Obligacji
Aviva Investors Fio Polskich Akcji
Aviva Investors FIO Subfundusz Aviva Investors
Obligacji Dynamiczny
Aviva Investors Sfio Akcyjny
Aviva Investors Sfio Aviva Lokacyjny
Aviva Investors Sfio Dluzny
Aviva Investors Sfio Pap Nieskarbowych
Aviva Investors Sfio Pieniezny
Aviva Investors Sfio Spolek Dywidend
Aviva Sfio Subfundusz Aviva Oszczędnościowy
Aviva Investors Fio Malych Spolek
Ul. Burakowska 5/7, 01-066 , Warszawa
Berkley Investments S.A.
Porowneo.Pl Sp. Z O.O
Ul. Prosta 69, 00-838 Warsaw, 00-838, Warsaw
AdRate Sp. z o.o.
Expander Advisors Sp. z o.o.
Life Plus Sp. z o.o.
Ul.Inflancka 4B, 00-189, Warsaw
Aviva Investors Poland Towarzystwo Funduszy
Inwestycyjnych S.A.
Aviva Powszechne Towarzystwo Emerytalne Aviva
Santander S.A.
Aviva Services Spółka z ograniczoną
odpowiedzialnością
Aviva Spółka z ograniczoną odpowiedzialnością
Aviva Towarzystwo Ubezpieczen Na Zycie S.A.
Aviva Towarzystwo Ubezpieczen Ogolnych S.A.
Santander Aviva Towarzystwo Ubezpieczeń na
Życie Spółka Akcyjna
Santander Towarzystwo Ubezpieczeń Spółka
Akcyjna
Saudi Arabia
Riyad Capital, 6775 Takhassusi Street – Olaya,
Riyadh 12331 – 3712
Al Hadi Sharia Compliant Fund
Al Mokdam Sharia Compliant Fund
Al Shamekh Fund
Al Shuja’a Sharia Compliant Fund
Singapore
12 Marina View, #18-02 Asia Square Tower 2,
018961
Nikko AM Shenton Asia Pacific Fund
Nikko AM Shenton Income Fund
Nikko AM Shenton Global Green Bond Fund
4 Shenton Way, #01-01 SGX Centre 2,
Singapore, 068807
Aviva Ltd
Navigator Investment Services Limited
6 Shenton Way, #09-08, OUE Downtown,
068809
Professional Advisory Holdings Ltd.
Professional Investment Advisory Services Pte Ltd
6 Temasek Boulevard, #29-00, Suntec Tower 4,
038986
Aviva Asia Digital Pte. Ltd.
Share Class1
% held
SICAV
60
OEIC
Us$ A Shares
Cells Fund
Cells Fund
Cells Fund
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
UCITS
UCITS
UCITS
UCITS
UCITS
UCITS
UCITS
Non UCITS
Non UCITS
Non UCITS
Non UCITS
Non UCITS
Non UCITS
Non UCITS
UCITS
Ordinary A Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary D shares
Ordianry A Shares
88
50
100
100
100
100
100
100
100
24
38
72
86
78
56
22
100
71
100
99
100
100
70
69
90
90
90
90
90
95
81
Ordinary 1,000 Pln Shares
100
Ordinary Shares
Parent Interest
Ordinary Shares
Series A Ordinary
Series B Ordinary
Ordinary Shares
Mutual Fund
Mutual Fund
Mutual Fund
Mutual Fund
Unit Trust
Unit Trust
Unit Trust
Ordinary Shares
Ordinary Shares
Ordinary A Shares
Ordinary A Shares
90
90
90
51
51
83
77
70
77
65
65
53
100
100
92
92
Ordinary Shares
100
Company name
Aviva Asia Pte Ltd
Aviva Financial Advisers Pte. Ltd
Aviva Global Services (Management Services)
Private Ltd.
Spain
Avda Andalucia, 10-12, Malaga
Ahorro Andaluz, S.A
Avda de Bruselas – Numero 13, Edificio,
America, Piso 1, Puerta d,Alcobendas 28-
Madrid
Eólica Almatret S.L.
Nanclares de Oca, numero 1-B
Spain 28022
San Ramon Hoteles
Todo Real Est Investments
Switzerland
Stockerstrasse, 38 8002 , Zurich
Aviva Investors Schweiz GmbH
Turkey
Saray Mah., Adnan Büyüjdeniz Cad. No:12
34768 Umraniye, Istanbul
AvivaSA Emeklilik ve Hayat A.S2
United Kingdom
1 Dorset Street, Southampton, Hampshire,
SO15 2DP
Building a Future (Newham Schools) Limited
Mill NU Properties Limited
NU Developments (Brighton) Limited
NU Local Care Centres (Bradford) Limited
NU Local Care Centres (Chichester No.1) Limited
NU Local Care Centres (Chichester No.2) Limited
NU Local Care Centres (Chichester No.3) Limited
NU Local Care Centres (Chichester No.4) Limited
NU Local Care Centres (Chichester No.5) Limited
NU Local Care Centres (Chichester No.6) Limited
NU Local Care Centres (Farnham) Limited
Centrium 1, Griffiths Way
St Albans, United Kingdom, AL1 2RD
Opal (UK) Holdings Limited
Opal Information Systems Limited
Outsourced Professional Administration Limited
Synergy Financial Products Limited
29 Queen Anne’s Gate, London SW1H 9BU
CF Bentley Global Growth
30 Finsbury Square, London, EC2P 2YU
Defined Returns Limited
Invesco Emerging Markets Equity Fund
Invesco Global Health Care Fund
Invesco Funds Series – Invesco UK Equity Fund
NDF Administration Limited
United Kingdom Temperance and General
Provident Institution
42 Dingwall Road, Croydon, Surrey, CR0 2NE
Ballard Investment Company Limited
Health & Case Management Limited
43-45 Portman Square, London, W1H 6LY
Quantum Property Partnership (General Partner)
Limited2
Quantum Property Partnership (Nominee)
Limited2
4th Floor, New London House, 6 London Street,
London, EC3R 7LP
Polaris U.K. Limited
5 Lister Hill, Horsforth, Leeds, LS18 5AZ
Aspire Financial Management Limited
Living in Retirement Limited
Sinfonia Asset Management Limited
Tenet Business Solutions Limited
Tenet Client Services Limited
Tenet Financial Services Limited
Tenet Group Limited
Tenet Limited
Tenet Platform Services Limited
TenetConnect Limited
TenetConnect Services Limited
TenetFinancial Solutions Limited
TenetLime Limited
TenetSelect Limited
5 Old Broad Street, London EC2N 1A
Architas Multi-Manager Diversified Protector 70
Aviva plc Annual report and accounts 2018
237
Share Class1
Ordinary Shares
Ordinary Shares
Ordinary Shares
% held
100
100
100
Ordinary Shares
46
Ordinary Shares
45
Ordinary Shares
Ordinary Shares
100
100
Interest Shares
100
Ordinary Shares
40
Ordinary Shares
Ordinary A Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
OEIC
Ordinary Shares
Unit Trust
Unit Trust
Unit Trust
Ordinary Shares, Non Voting B
Shares
Company Limited by
Guarantee
Ordinary Shares
Ordinary Shares, Preference
Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
A Ordinary
Redeemable Ordinary Shares
Ordinary B Shares
Ordinary Shares
Ordinary A Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
OEIC
100
100
100
100
100
100
100
100
100
100
100
29
29
29
29
29
57
25
35
27
67
100
25
25
50
50
39
47
47
47
47
47
37
47
47
47
47
47
47
47
47
48
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
Company name
Architas Multi-Manager Diversified Protector 80
50 Stratton Street, London, W1J 8LL
Lazard Multicap UK Income Fund
7 Lochside View, Edinburgh, EH12 9DH
Origo Services Limited
7 Newgate Street, EC1A 7NX
AXA Ethical Distribution Fund
AXA Rosenberg American
AXA Rosenberg Asia Pacific Ex Japan
AXA Rosenberg Global
AXA Rosenberg Japan
8 Surrey Street, Norwich, Norfolk, NR1 3NG
Aviva Central Services UK Limited
Aviva Consumer Products UK Limited
Aviva Health UK Limited
Aviva Insurance UK Limited
Aviva UKGI Investments Limited
Gresham Insurance Company Limited
Healthcare Purchasing Alliance Limited2
London and Edinburgh Insurance Company
Limited
RAC Pension Trustees Limited
Solus (London) Limited
Synergy Sunrise (Broadlands) Limited
Argyll House, All Saints Passage, London, SW18
1EP
Freetricity Southeast Limited
c/o Anesco Limited, The Green Easter Park,
Benyon Road , Reading, RG7 2PQ
Homesun 2 Limited
Homesun 3 Limited
Homesun 4 Limited
Homesun 5 Limited
Homesun Limited
c/o James Fletcher, Mainstay, Whittington Hall,
Whittington Road, Worcester, WR5 2ZX
Aviva Investors GR SPV 1 Limited
Aviva Investors GR SPV 2 Limited
Aviva Investors GR SPV 3 Limited
Aviva Investors GR SPV 4 Limited
Aviva Investors GR SPV 5 Limited
Aviva Investors GR SPV 6 Limited
Aviva Investors GR SPV 7 Limited
Aviva Investors GR SPV 8 Limited
Aviva Investors GR SPV 9 Limited
Aviva Investors GR SPV 10 Limited
Aviva Investors GR SPV 11 Limited
Aviva Investors GR SPV 12 Limited
Aviva Investors GR SPV 13 Limited
Aviva Investors GR SPV 14 Limited
Aviva Investors GR SPV 15 Limited
Aviva Investors GR SPV 16 Limited
Aviva Investors GR SPV 17 Limited
East Farmhouse, Cams Hall Estate, Fareham,
PO16 8UT
IQUO Limited
Exchange House, Primrose Street, EC2A 2HS
BMO European Growth & Income Fund
BMO MM Navigator Balanced Fund
F&C European Capital Partners
Nations House, 3rd Floor, 103 Wigmore Street,
London, W1U 1WH
Cannock Designer Outlet (GP Holdings) Limited
Cannock Designer Outlet (GP) Limited
Cannock Designer Outlet (Nominee 1) Limited
Cannock Designer Outlet (Nominee 2) Limited
Pitheavlis, Perth, Perthshire, PH2 0NH
Aviva (Peak No.1) UK Limited
Aviva Insurance Limited
Aviva Investors (FP) Limited
Aviva Investors (GP) Scotland Limited
Pixham End, Dorking, Surrey, RH4 1QA
Aviva Administration Limited
Aviva Investment Solutions UK Limited
Aviva Management Services UK Limited
Bankhall Support Services Limited
DBS Financial Management Limited
DBS Management Limited
Friends AEL Trustees Limited
Friends AELLAS Limited
Friends AELRIS Limited
Friends Life and Pensions Limited
Friends Life Assurance Society Limited
Share Class1
OEIC
% held
35
OEIC
Ordinary Shares
OEIC
OEIC
OEIC
OEIC
OEIC
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary A Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
49
22
32
83
93
86
93
100
100
100
100
100
100
50
100
100
100
100
Ordinary Shares
100
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary A Shares
SICAV
OEIC
Private Equity
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
£1 Stock Shares
Ordinary Shares
Ordinary Shares
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
67
79
20
30
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Company name
Friends Life Company Limited
Friends Life Distribution Limited
Friends Life FPG Limited
Friends Life FPL Limited
Friends Life FPLMA Limited
Friends Life Holdings plc
Friends Life Limited
Friends Life WL Limited
Friends Provident Distribution Holdings Limited
Friends Provident Investment Holdings Limited
Friends Provident Life Assurance Limited
Friends Provident Managed Pension Funds
Limited
Friends SL Nominees Limited
Friends SLUA Limited
Gateway Specialist Advice Services Limited
Hengrove Park Bristol (Phase I) Management
Company Limited
London and Manchester Group Limited
Premier Mortgage Service Limited
SB Loan Administration Limited
Sesame Bankhall Group Limited
Sesame Bankhall Valuation Services Limited
Sesame General Insurance Services Limited
Sesame Limited
Sesame Regulatory Services Limited
Sesame Services Limited
Suntrust Limited
Undershaft FAL Limited
Undershaft FPLLA Limited
Undershaft SLPM Limited
Wealth Limited
St Helen’s, 1 Undershaft, London, EC3P 3DQ
1 Fitzroy Place Limited Partnership2
10-11 GNS Limited
11-12 Hanover Square LP2
11-12 Hanover Square Nominee 1 Limited2
11-12 Hanover Square Nominee 2 Limited2
130 Fenchurch Street LP2
130 Fenchurch Street Nominee 1 Limited2
130 Fenchurch Street Nominee 2 Limited2
1-5 Lowndes Square Management Company
Limited
2 Fitzroy Place Limited Partnership2
20 Gracechurch (General Partner) Limited
20 Gracechurch Limited Partnership
20 Lowndes Square Management Company
Limited
2-10 Mortimer Street (GP No 1) Limited2
2-10 Mortimer Street GP Limited2
2-10 Mortimer Street Limited Partnership2
30 Warwick Street LP2
30 Warwick Street Nominee 1 Limited2
30 Warwick Street Nominee 2 Limited2
30-31 Golden Square LP2
30-31 Golden Square Nominee 1 Limited2
30-31 Golden Square Nominee 2 Limited2
41-42 Lowndes Square Management Company
Limited
43 Lowndes Square Management Company
Limited
44-49 Lowndes Square Management Company
Limited
6-10 Lowndes Square Management Company
Limited
AI Special PFI SPV Limited
Ascot Real Estate Investments LP2
Ascot Real Estate Investments GP LLP2
Atlas Park Management Company Limited
Aviva Brands Limited
Aviva Commercial Finance Limited
Aviva Company Secretarial Services Limited
Aviva Credit Services UK Limited
Aviva Employment Services Limited
Aviva Europe SE
Aviva Insurance Services UK Limited
Aviva International Holdings Limited
Aviva International Insurance Limited
Aviva Investors 30 70 GLobal Eq Ccy Hedged Ind
Fund
Aviva Investors 40 60 Global Equity Index Fund
Aviva Investors 50 50 Global Equity Index Fund
Aviva Investors 60 40 Global Equity Index Fund
Aviva plc Annual report and accounts 2018
238
Share Class1
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary A Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary A Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary A Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Limited Partnership
Ordinary Shares
Limited Partnership
Ordinary Shares
Ordinary Shares
Limited Partnership
Ordinary Shares
Ordinary Shares
Ordinary Shares
Limited Partnership
General Partner
Limited Partnership
A Shares, B Shares
Ordinary Shares
Ordinary Shares
Limited Partnership
Limited Partnership
Ordinary Shares
Ordinary Shares
Limited Partnership
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Limited Partnership
Limited Partnership
Limited By Guarantee
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
ACS
ACS
ACS
ACS
% held
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
75
100
100
100
100
100
100
100
100
100
50
100
50
50
50
50
50
50
100
50
100
100
100
50
50
50
50
50
50
50
50
50
100
100
100
100
100
50
50
100
100
100
100
100
100
92
100
100
100
100
100
100
100
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
Company name
Aviva Investors Asia Pacific ex Japan Fund
Aviva Investors Asia Pacific Property Fund
Aviva Investors Balanced Life Fund
Aviva Investors Balanced Pension Fund
Aviva Investors Cash Fund
Aviva Investors Cautious Pension Fund
Aviva Investors Commercial Assets Nominee
Limited
Aviva Investors Commercial Assets GP Limited
Aviva Investors Continental Euro Equity Index
Fund
Aviva Investors Continental European Eq Alpha
Fund
Aviva Investors Corporate Bond Fund
Aviva Investors Dev Asia Pacific Ex Japan Eq Ind
Fund
Aviva Investors Dev Euro Ex UK Equity Index Fund
Aviva Investors Dev World Ex UK Equity Index Fund
Aviva Investors Developd Overseas Gov Bd Ex UK
Ind Fund
Aviva Investors Distribution Life Fund
Aviva Investors EBC GP Limited
Aviva Investors EBC Limited Partnership
Aviva Investors Employment Services Limited
Aviva Investors Europe Equity ex UK Fund
Aviva Investors European Property Fund
Aviva Investors Global Equity Alpha Fund
Aviva Investors Global Equity Fund
Aviva Investors Global Equity Income Fund
Aviva Investors Global Services Limited
Aviva Investors Ground Rent GP Limited
Aviva Investors Ground Rent Holdco Limited
Aviva Investors Holdings Limited
Aviva Investors Idx-Lkd Gilts Ovr 5 Yrs Idx Fund
Aviva Investors Index Linked Gilt Fund
Aviva Investors Infrastructure GP Limited
Aviva Investors Infrastructure Income Midco 6.1
Limited
Aviva Investors Infrastructure Income No.6B
Limited
Aviva Investors International Index Tracking Fund
Aviva Investors Japan Equity Alpha Fund
Aviva Investors Japan Equity Fund
Aviva Investors Japan Equity MoM 1 Fund
Aviva Investors Japanese Equity Index Fund
Aviva Investors London Limited
Aviva Investors Managed High Income Fund
Aviva Investors Money Market VNAV Fund
Aviva Investors Multi-Asset 40 85 Shares Index
Fund
Aviva Investors Multi-Asset III Fund
Aviva Investors Multi-Asset IV Fund
Aviva Investors Multi-Manager 20-60% Shares
Fund
Aviva Investors Multi-Manager 40-85% Shares
Fund
Aviva Investors Multi-Manager Flexible Fund
Aviva Investors Multi-Strategy Target Income Fund
Aviva Investors Multi-Strategy Target Return Fund
Aviva Investors Non-Gilt Bond All Stocks Index
Fund
Aviva Investors Non-Gilt Bond Over 15 Yrs Index
Fund
Aviva Investors Non-Gilt Bond Up To 5 Years Index
Fund
Aviva Investors North American Equity Fund
Aviva Investors North American Equity Index Fund
Aviva Investors Pacific Ex-Japan Equity Index Fund
Aviva Investors Pensions Limited
Aviva Investors Polish Retail GP Limited
Aviva Investors Polish Retail Limited Partnership
Aviva Investors Pre-Annuity Fixed Interest Fund
Aviva Investors Private Equity Programme 2008
Partnership
Aviva Investors Property Fund Management
Limited
Aviva Investors Real Estate Finance Limited
Aviva Investors Real Estate Limited
Aviva Investors Realm Energy Centres GP Limited
Aviva Investors REaLM Energy Centres No.1 LP
Aviva Investors Realm Infrastructure No.1 Limited
Share Class1
ACS
OEIC
ACS
ACS
OEIC
ACS
Ordinary Shares
Ordinary Shares
ACS
ACS
OEIC
ACS
ACS
ACS
ACS
ACS
Ordinary Shares
Limited Partnership
Ordinary Shares
ACS
OEIC
ACS
ACS
OEIC
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
ACS
ACS
Ordinary Shares
Ordinary Shares
Ordinary Shares
OEIC
ACS
ACS
OEIC
ACS
Ordinary Shares
OEIC
ACS
ACS
OEIC
OEIC
OEIC
OEIC
OEIC
OEIC
OEIC
ACS
ACS
ACS
ACS
ACS
ACS
Ordinary Shares
Ordinary Shares
Limited Partnership
ACS
Limited Partnership
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Limited Partnership
Ordinary Shares
% held
100
80
100
100
56
100
100
Company name
Aviva Investors Realm Infrastructure No.2 Limited
Aviva Investors Realm Infrastructure No.3 Limited
Aviva Investors Realm Infrastructure No.4A Limited
Aviva Investors Realm Infrastructure No.4B Limited
Aviva Investors Social Housing GP Limited
Aviva Investors Social Housing Limited
Aviva Investors Sterling Corporate Bond Fund
Aviva Investors Sterling Gilt Fund
Aviva Investors Stewardship Fixed Interest Fund
Aviva Investors Stewardship International Equity
Fund
Aviva Investors Stewardship UK Equity Fund
Aviva Investors Stewardship UK Equity Income
Fund
Aviva Investors Strategic Bond Fund
Aviva Investors Strategic Global Equity Fund
Aviva Investors UK Commercial Real Estate Senior
Debt LP
Aviva Investors UK CRESD GP Limited
Aviva Investors UK Eq Ex Aviva Inv Trusts Index
Fund
Aviva Investors UK Equity Alpha Fund
Aviva Investors UK Equity Income Fund
Aviva Investors UK Equity Income Fund
Aviva Investors UK Equity Index Fund
Aviva Investors UK Equity MoM 1 Fund
Aviva Investors UK Fund Services Limited
Aviva Investors UK Funds Limited
Aviva Investors UK Gilts All Stocks Index Fund
Aviva Investors UK Gilts Over 15 Years Index Fund
Aviva Investors UK Gilts Upto 5 Years Index Fund
Aviva Investors UK Index Tracking Fund
Aviva Investors UK Nominees Limited
Aviva Investors UK Opportunities Fund
Aviva Investors US Equity Index Fund
Aviva Investors US Large Cap Equity Fund
Aviva Overseas Holdings Limited
Aviva Public Private Finance Limited
Aviva Special PFI GP Limited
Aviva Special PFI LP
Aviva Staff Pension Trustee Limited
Aviva UK Digital Limited
Aviva UKLAP De-risking Limited
Axcess 10 Management Company Limited
Barratt House LP2
Barratt House Nominee 1 Limited2
Barratt House Nominee 2 Limited2
Barwell Business Park Nominee Limited
BIOMASS UK NO. 3 Limited
Biomass UK NO.1 LLP
Biomass UK No.2 Limited
Boston Biomass Limited
Boston Wood Recovery Limited
Capital Residential Fund
Capital Residential Fund Nominee No.1 Limited
Capital Residential Fund Nominee No.2 Limited
Cardiff Bay Gp Limited
Cardiff Bay Limited Partnership
CGU International Holdings BV
Chancery House London LP2
Chancery House London Nominee 1 Limited2
Chancery House London Nominee 2 Limited2
Chesterford Park2
Chesterford Park (General Partner) Limited2
Chesterford Park (Nominee) Limited2
Chichester Health (Holdings) Limited
Commercial Union Corporate Member Limited
Commercial Union Life Assurance Company
Limited
Commercial Union Trustees Limited
Cornerford Limited
COW Real Estate Investment General Partner
Limited
COW Real Estate Investment Limited Partnership
COW Real Estate Investment Nominee Limited
EES Operations 1 Limited
100
100
100
93
100
100
100
100
100
100
100
100
100
73
100
100
81
100
100
100
100
100
100
100
59
59
45
100
100
73
100
100
63
100
100
50
41
74
70
81
82
47
100
100
100
100
100
100
100
100
100
100
40
100
100
100
100
100
100
Share Class1
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Company Limited by
Guarantee
ACS
ACS
ACS
ACS
ACS
ACS
OEIC
ACS
Limited Partnership
Ordinary Shares
ACS
ACS
ACS
OEIC
ACS
OEIC
Ordinary Shares
Ordinary Shares
ACS
ACS
ACS
OEIC
Ordinary Shares
OEIC
ACS
ACS
Ordinary Shares
Ordinary Shares
Ordinary Shares
Limited Partnership
Ordinary Shares
Ordinary Shares
Ordinary Shares
Limited By Guarantee
Limited Partnership
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary A Shares
Deferred Shares
Limited Liability Partnership
‘A Shares
B Shares
C Shares
Deferred Shares’
Ordinary Shares
Ordinary Shares
Unit Trust
Ordinary Shares
Ordinary Shares
Ordinary Shares
Limited Partnership
Ordinary Shares
Limited Partnership
Ordinary Shares
Ordinary Shares
Limited Partnership
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Limited Partnership
Ordinary Shares
Ordinary Shares
% held
100
100
100
100
100
100
100
100
100
100
100
100
41
100
21
100
100
100
100
51
100
87
100
100
100
100
100
68
100
95
100
100
100
100
100
95
100
100
100
100
50
50
50
100
100
100
100
100
100
88
100
100
100
100
100
50
50
50
50
100
100
100
100
100
100
100
100
100
100
100
Aviva plc Annual report and accounts 2018
239
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
Company name
Fitzroy Place GP 2 Limited2
Fitzroy Place Management Co Limited2
Fitzroy Place Residential Limited2
Free Solar (Stage 2) Limited
Free Solar Holdco Limited
Friends Life Funds Limited
General Accident Executor and Trustee Company
Limited
Gobafoss General Partner Limited
Gobafoss Partnership Nominee No 1 Ltd
Hemel Hempstead Estate Management Limited
Hillswood Management Limited
Hooton Bio Power Limited
Houlton Commercial Management Company
Limited
Igloo Regeneration (Butcher Street) Limited2
Igloo Regeneration (General Partner) Limited2
Igloo Regeneration (Nominee) Limited2
Igloo Regeneration Developments (General
Partner) Limited2
Igloo Regeneration Developments (Nominees)
Limited2
Igloo Regeneration Developments LP2
Igloo Regeneration Partnership2
Igloo Regeneration Property Unit Trust2
IPE BV
Irongate House LP2
Irongate House Nominee 1 Limited2
Irongate House Nominee 2 Limited2
Lime Property Fund (General Partner) Limited
Lime Property Fund (Nominee) Limited
Lombard (London) 1 Limited
Lombard (London) 2 Limited
LUC Holdings Limited
Matthew Parker Street (Nominee No 1) Limited
Matthew Parker Street (Nominee No 2) Limited
Medium Scale Wind No.1 Limited
Mortimer Street Associated Co 1 Limited2
Mortimer Street Associated Co 2 Limited2
Mortimer Street Nominee 1 Limited2
Mortimer Street Nominee 2 Limited2
Mortimer Street Nominee 3 Limited2
New Broad Street House LP2
New Broad Street House Nominee 1 Limited2
New Broad Street House Nominee 2 Limited2
Norwich Union (Shareholder GP) Limited
Norwich Union Public Private Partnership Fund
NU 3PS Limited
NU Library For Brighton Limited
NU Offices for Redcar Limited
NU Schools for Redbridge Limited
NU Technology and Learning Centres (Hackney)
Limited
NUPPP (Care Technology and Learning Centres)
Limited
NUPPP (GP) Limited
NUPPP Nominees Limited
Opus Park Management Limited
Opus Park Management Limited
ORN Capital Services Limited
Paddington Central III GP Ltd
Paddington Central III Limited Partnership
Pegasus House and Nuffield House LP2
Pegasus House and Nuffield House Nominee 1
Limited2
Pegasus House and Nuffield House Nominee 2
Limited2
Porth Teigr Management Company Limited2
Property Management Company (Croydon) Ltd
Quantum Property Partnership2
Quarryvale One Limited
Quarryvale Three Limited
Renewable Clean Energy Limited
Rugby Radio Station (General Partner) Limited2
Rugby Radio Station (Nominee) Limited2
Rugby Radio Station Limited Partnership2
SE11 PEP Limited
Serviced Offices UK (Services) Limited2
Serviced Offices UK GP Limited2
Serviced Offices UK Limited Partnership2
Serviced Offices UK Nominee Limited2
Solar Clean Energy Limited
Southgate General Partner Limited
Share Class1
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
% held
50
50
50
100
100
100
100
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Limited by Guarantee
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Limited Partnership
Limited Partnership
Unit Trust
Ordinary Shares
Limited Partnership
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Limited Partnership
Ordinary Shares
Ordinary Shares
Ordinary Shares
Limited Partnership
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Limited By Guarantee
Limited Partnership
Ordinary Shares
Ordinary Shares
Limited Partnership
Limited Partnership
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Limited Partnership
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary B Shares
Ordinary Shares
Limited Partnership
Ordinary Shares
Ordinary Shares
Ordinary Shares
Limited Partnership
Ordinary Shares
Ordinary Shares
Ordinary A Shares
100
100
100
24
56
50
50
50
50
50
50
50
40
50
100
50
50
50
100
100
100
100
20
100
100
100
50
50
50
50
50
50
50
50
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
50
50
50
50
100
50
100
100
100
50
50
50
100
50
50
50
50
100
50
Company name
Southgate Limited Partnership
Southgate LP (Nominee 1) Limited
Southgate LP (Nominee 2) Limited
Stonebridge Cross Management Company Limited
Stonebridge Cross Management Limited
SUE Developments Limited Partnership2
SUE GP LLP2
SUE GP Nominee Limited2
Sunrise Renewables (Barry) Limited
Swan Valley Management Limited
The Designer Retail Outlet Centres (General
Partner) Limited
The Designer Retail Outlet Centres (Mansfield)
General Partner Limited
The Designer Retail Outlet Centres (Mansfield) LP
The Designer Retail Outlet Centres (York) General
Partner Limited
The Designer Retail Outlet Centres (York) LP
The Gobafoss Partnership
The Ocean Marine Insurance Company Limited
The Square Brighton Limited
Tyne Assets (No 2) Limited
Tyne Assets Limited
Undershaft Limited
W Nine LP2
W Nine Nominee 1 Limited2
W Nine Nominee 2 Limited2
The Welsh Insurance Corporation Limited
The Yorkshire Insurance Company Limited
Aviva Investors UK Equity Dividend Fund
Chichester Health plc
Aviva Investors Energy Centres No.1 GP Limited
Swan Court Waterman’s Business Park,
Kingsbury Crescent, Staines, Surrey, TW18 3BA
Healthcode Limited
The Green, Easter Park, Benyon Road, Reading,
Berkshire, RG7 2PQ
Anesco Mid Devon Limited
Anesco South West Limited
Free Solar (Stage 1) Limited
New Energy Residential Solar Limited
Norton Energy SLS Limited
TGHC Limited
Wellington Row, York, YO90 1WR
Aviva (Peak No.2) UK Limited
Aviva Annuity UK Limited
Aviva Client Nominees UK Limited
Aviva Equity Release UK Limited
Aviva ERFA 15 UK Limited
Aviva Life & Pensions UK Limited
Aviva Life Holdings UK Limited
Aviva Life Investments International (Recovery)
Limited
Aviva Life Services UK Limited
Aviva Pension Trustees UK Limited
Aviva Trustees UK Limited
Aviva Wrap UK Limited
CGNU Life Assurance Limited
Friends Provident Pension Scheme Trustees
Limited
The Lancashire and Yorkshire Reversionary
Interest Company Limited
The Norwich Union Life Insurance Company
Limited
Synergy Sunrise (Sentinel House) Limited
Undershaft (NULLA) Limited
Whittington Hall, Whittington Road, Worcester,
Worecestershire, WR5 2ZX
Aviva Investors GR SPV16 Limited
61 Conduit Street London W1S 2GB
AKO Global UCITS-BF (AKOGUBF)
12 Throgmorton Avenue
BlackRock US Dynamic Fund
BlackRock Market Advantage Fund
Artemis Fund Managers Limited, 57-59 St
James’s Street, London SW1A 1LD
Artemis UK Special Situations Fund
Liontrust Fund Partners LLP, 2 Savoy Court
London WC2R 0EZ
Liontrust Sustainable Future Corporate Bond
Fund
Liontrust Sustainable Future UK Growth Fund
Share Class1
Limited Partnership
Ordinary Shares
Ordinary Shares
Limited by Guarantee
Limited By Guarantee
Limited Partnership
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary A Shares
Ordinary Shares
Limited Partnership
Ordinary Shares
Limited Partnership
Limited Partnership
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Limited Partnership
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Collective Investment Scheme
Ordinary Shares
Ordinary Shares
Ordinary C Shares, Ordinary E
Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
% held
50
50
50
100
100
50
50
50
100
100
50
100
97
100
97
100
100
100
100
100
100
50
50
50
100
100
100
100
100
20
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Ordinary Shares
100
Mutual Fund
Unit Trust
Unit Trust
Unit Trust
OEIC
OEIC
73
21
52
22
40
49
Aviva plc Annual report and accounts 2018
240
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
Company name
Liontrust Sustainable Future European Growth
Fund
Liontrust Sustainable Future Global Growth Fund
Liontrust Sustainable Future Absolute Growth
Fund
Liontrust UK Ethical Fund
Liontrust Sustainable Future Managed Fund
1 London Wall Place, London, UK
Schroder QEP US Core Fund
BlackRock Pensions,
33 King William Street
Undrly Aquila Cnt CcyH Glb Eq108010 2L
c/o Harper MacLeod Llp
The Cadoro, 45 Gordon Street
United Kingdom G1 3PE
Brockloch Rig Windfarm Limited
Crystal Rig III Limited
Old Bourchiers Hall New Road
Aldham, Essex
United Kingdom C06 3QU
County Broadband Holdings Limited
2nd Floor, 64-65 Vincent Square
United Kingdom SW1P 2NU
Fred. Olsen CBH Limited
Midlands House 4 Rock Road
Keynsham, England
United Kingdom BS31 1BL
Truespeed Communications LTD
Share Class1
OEIC
% held
52
Company name
Share Class1
Redeemable E1
% held
OEIC
OEIC
OEIC
OEIC
Unit Trust
OEIC
Ordinary Shares
Ordinary Shares
A Ordinary Shares Shares
B Ordinary Shares
54
64
72
76
40
65
49
49
59
Ordinary Shares
49
B Ordinary Shares
C Ordinary Shares
Ordinary Shares
Ordinary Shares D1
26
Tec Marina Terra Nova Way
Penarth, Wales
United Kingdom CF64 1SA
Wealthify Group Limited
Wealthify Limited
Pitheavlis, PERTH, Perthshire, PH2 0NH, United
Kingdom
Aviva Investors (FP) LP
United States
1209 Orange Street, City of Wilmington
DE 19801,
Aviva Investors Americas LLC
2222 Grand Avenue, Des Moines IA 50312
Aviva Investors North America Holdings, Inc
2711 Centreville Road, Suite 400, Wilmington,
New Castle, DE, 19808
UKP Holdings Inc.
AI-RECAP GP I, LLC
National Corporate Research Limited, 850 New
Burton Road, Suite 201, Dover, Delaware Kent
County 19904
Exeter Properties Inc.
Winslade Investments Inc.
Vietnam
10th Floor, Handi Resco Building, No. 521 Kim
Ma, Ba Dinh, Hanoi
Aviva Vietnam Life Insurance Company Limited
A Ordinary Shares
B Ordinary Shares
Ordinary Shares
60
60
Limited Partnership
100
Sole Member
Common Stock Of No Par
Value Shares
Common Stock Shares
Limited Partnership
Common Stock Wpv Shares
Common Stock Wpv Shares
100
100
100
100
95
100
Non-Listed Shares
90
1
Investment Company with Variable Capital (‘ICVC’)
Fond Common de Placement (‘FCP’)
Open Ended Investment Fund (‘OEIC’)
Société d ‘Investment à Capital Variable (‘SICAV’)
Undertaking for Collective Investment in Transferrable Securities (‘UCITS’)
Irish Collective Asset Management Vehicle (‘ICAV’)
Authorised Contractual Scheme (‘ACS’)
Organisme de Placement Collectif Immobilier (‘OPCI’)
Sociétés Civiles de Placement Immobilier (‘SCPI’)
2 Please see accounting policies (D) Consolidation principles, for further details on Joint Ventures and the factors on which joint management is based.
65 – Subsequent events
For details of subsequent events relating to:
• Acquisitions – refer to note 3
Aviva plc Annual report and accounts 2018
241
Strategic report
Governance
IFRS financial statements
Other information
Financial statements of the Company
Income statement
For the year ended 31 December 2018
Income
Net investment income
Expenses
Operating expenses
Other expenses1
Finance costs
Profit for the year before tax
Tax credit
Profit for the year after tax
Note
2018
£m
2017
£m
B
C
D
E
2,874
2,874
(246)
(8)
(519)
(773)
2,101
96
2,197
1,856
1,856
(217)
—
(527)
(744)
1,112
113
1,225
1 Other expenses include a charge of £8 million relating to goodwill payments to preference shareholders, which was announced on 30 April 2018, and associated administration costs (see note 35).
Statement of comprehensive income
For the year ended 31 December 2018
Profit for the year
Items that will not be reclassified to income statement
Remeasurements of pension schemes
Forfeited dividend income
Other comprehensive income/(loss), net of tax
Total comprehensive income for the year
Note
I
I
2018
£m
2,197
2017
restated1
£m
1,225
2
4
6
(2)
—
(2)
2,203
1,223
1 The Company has made a change in accounting policy whereby investments in subsidiaries and joint ventures held as available for sale investments under IAS 39 have been reclassified to being held at cost under IAS 27.
As a result, comparatives have been restated. See note A for further details.
Where applicable, the accounting policies of the Company are the same as those of the Group on pages 102 to 115. The notes identified
alphabetically on pages 246 to 252 are an integral part of these separate financial statements. Where the same items appear in the Group
financial statements, reference is made to the notes (identified numerically) on pages 123 to 241.
Aviva plc Annual report and accounts 2018
242
Strategic report
Governance
IFRS financial statements
Other information
Financial statements of the Company
Continued
Statement of changes in equity
For the year ended 31 December 2018
Balance at 1 January (restated)1
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Dividends and appropriations
Reserves credit for equity compensation plans
Shares issued under equity compensation plans
Shares purchased in buy-back
Redemption of fixed rate tier 1 notes
Aggregate tax effect
Balance at 31 December
For the year ended 31 December 2017 (restated)1
Balance at 1 January
Profit for the year
Other comprehensive loss
Total comprehensive income for the year
Dividends and appropriations
Reserves credit for equity compensation plans
Shares issued under equity compensation plans
Shares purchased in buy-back
Redemption of fixed rate tier 1 notes
Aggregate tax effect
Balance at 31 December
Ordinary
share
capital
£m
Preference
share
capital
£m
Share
premium
£m
Capital
redemption
Reserve
£m
Merger
reserve
£m
Equity
compensation
reserve
£m
Retained
earnings
£m
Note
Direct
capital
instrument
and fixed
rate tier 1
notes
£m
Total
equity
£m
1,003
—
—
—
—
—
2
(30)
—
—
200 1,207
—
—
—
—
—
7
—
—
—
—
—
—
—
—
—
—
—
—
975
200 1,214
16
33
32
32
36,I
E
14 6,438
—
—
—
—
—
—
—
—
—
—
—
—
—
30
—
—
—
—
44 6,438
111 3,555
— 2,197
6
—
— 2,203
— (1,189)
—
64
49
(55)
(600)
—
—
—
8
—
724 13,252
— 2,197
—
6
— 2,203
— (1,189)
—
64
—
3
—
(600)
—
—
—
8
120 4,026
724 13,741
Ordinary
share
capital
£m
Preference
share
capital
£m
Share
premium
£m
Capital
redemption
Reserve
£m
Merger
reserve
£m
Equity
compensation
reserve
£m
Retained
earnings
£m
Note
Direct
capital
instrument
and fixed
rate tier 1
notes
£m
Total
equity
£m
1,015
—
—
—
—
—
2
(14)
—
—
1,003
200 1,197
—
—
—
—
—
10
—
—
—
—
—
—
—
—
—
—
—
—
200 1,207
16
33
32
32
36,I
E
— 6,438
—
—
—
—
—
—
—
—
—
—
—
—
—
14
—
—
—
—
14 6,438
78 3,747
— 1,225
—
(2)
— 1,223
— (1,081)
—
77
42
(44)
(300)
—
(92)
—
16
—
1,116 13,791
1,225
(2)
1,223
(1,081)
77
10
(300)
(484)
16
—
—
—
—
—
—
—
(392)
—
111 3,555
724 13,252
1 The Company has made a change in accounting policy whereby investments in subsidiaries and joint ventures held as available for sale investments under IAS 39 have been reclassified to being held at cost under IAS 27.
As a result, comparatives have been restated. See note A for further details.
Where applicable, the accounting policies of the Company are the same as those of the Group on pages 102 to 115. The notes identified
alphabetically on pages 246 to 252 are an integral part of these separate financial statements. Where the same items appear in the Group
financial statements, reference is made to the notes (identified numerically) on pages 123 to 241.
Aviva plc Annual report and accounts 2018
243
Strategic report
Governance
IFRS financial statements
Other information
Financial statements of the Company
Continued
Statement of financial position
As at 31 December 2018
Assets
Non-current assets
Investments in subsidiaries
Investment in joint venture
Receivables and other financial assets
Deferred tax assets
Current tax assets
Current assets
Receivables and other financial assets
Prepayments and accrued income
Cash and cash equivalents
Total assets
Equity
Ordinary share capital
Preference share capital
Called up capital
Share premium
Capital redemption reserve
Merger reserve
Equity compensation reserve
Retained earnings
Direct capital instrument and tier 1 notes
Total equity
Liabilities
Non-current liabilities
Borrowings
Payables and other financial liabilities
Tax liabilities
Pension deficits and other provisions
Current liabilities
Borrowings
Payables and other financial liabilities
Pension deficits and other provisions
Other liabilities
Total liabilities
Total equity and liabilities
Note
2018
£m
2017
restated1
£m
1 January 2017
restated1
£m
F
F
G
H
H
G
32
35
32(b)
32(b)
I
I
I
36,M
K
L
H
J
K
L
J
31,788
123
5,401
9
89
31,788
123
3,680
9
255
31,788
123
5,941
156
135
37,410
35,855
38,143
414
10
15
2,028
9
87
321
11
82
37,849
37,979
38,557
975
200
1,175
1,214
44
6,438
120
4,026
724
1,003
200
1,203
1,207
14
6,438
111
3,555
724
1,015
200
1,215
1,197
—
6,438
78
3,747
1,116
13,741
13,252
13,791
6,699
12,815
—
45
6,450
9,900
—
48
19,559
16,398
251
4,206
—
92
978
7,192
5
154
6,638
13,098
4
42
19,782
642
4,198
5
139
24,108
24,727
24,766
37,849
37,979
38,557
1 The Company has made a change in accounting policy whereby investments in subsidiaries and joint ventures held as available for sale investments under IAS 39 have been reclassified to being held at cost under IAS 27. As a
result, comparatives have been restated. See note A for further details.
Approved by the Board on 6 March 2019
Thomas D. Stoddard
Chief Financial Officer
Where applicable, the accounting policies of the Company are the same as those of the Group on pages 102 to 115. The notes identified
alphabetically on pages 246 to 252 are an integral part of these separate financial statements. Where the same items appear in the Group
financial statements, reference is made to the notes (identified numerically) on pages 123 to 241.
Aviva plc Annual report and accounts 2018
244
Strategic report
Governance
IFRS financial statements
Other information
Financial statements of the Company
Continued
Statement of cash flows
For the year ended 31 December 2018
All the Company’s operating cash requirements are met by subsidiary companies and settled through intercompany loan accounts. As the
direct method of presentation has been adopted for these activities, no further disclosure is required. In respect of financing and investing
activities, the following items pass through the Company’s own bank accounts.
Cash flows from financing activities
Shares purchased in buy-back
Treasury shares purchased for employee trusts
Funding provided from subsidiaries
Repayment of loans owed to subsidiaries
New borrowings drawn down, net of expenses
Repayment of borrowings
Net repayment of borrowings1
Preference dividends paid
Ordinary dividends paid
Forfeited dividend income
Coupon payments on direct capital instrument and tier 1 notes
Interest paid on borrowings
Proceeds from issue of ordinary shares
Other2
Net cash (used in)/generated from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Exchange gains on cash and cash equivalents
Cash and cash equivalents at 31 December
2018
£m
2017
£m
(600)
(4)
2,564
—
3,023
(3,536)
(513)
(17)
(1,128)
4
(44)
(335)
8
(13)
(78)
(78)
87
6
15
(300)
—
2,365
(156)
1,265
(1,753)
(488)
(17)
(983)
—
(81)
(346)
10
—
4
4
82
1
87
1 On 28 September 2017, notification was given that the Group would redeem the $650 million fixed rate tier 1 notes. At that date, the instrument was reclassified as a financial liability of £484 million, representing its fair value
on translation into Sterling at that date. On 3 November 2017 the instrument was redeemed in full at a cost of £488 million. This included £4 million exchange losses subsequent to the reclassification which are included within
other operating costs within the income statement.
Includes £10 million relating to goodwill payments to preference shareholders, which was announced on 30 April 2018, and associated administration costs (see note 35) and a £3 million donation of forfeited dividend income
to a charitable foundation.
2
Where applicable, the accounting policies of the Company are the same as those of the Group on pages 102 to 115. The notes identified
alphabetically on pages 246 to 252 are an integral part of these separate financial statements. Where the same items appear in the Group
financial statements, reference is made to the notes (identified numerically) on pages 123 to 241.
Aviva plc Annual report and accounts 2018
245
Strategic report
Governance
IFRS financial statements
Other information
Notes to the financial statements of the Company
A – Changes in accounting policies
The Company has made a change in accounting policy whereby investments in subsidiaries and joint ventures held as available for sale
investments under IAS 39 have been reclassified to being held at cost under IAS 27. As per Group accounting policy D, investments in
subsidiaries, associates and joint ventures are recognised at cost less impairment. Investments are reviewed annually to test whether any
indicators of impairment exist. Where there is objective evidence that such an asset is impaired, the investment is impaired to its
recoverable value and any unrealised loss is recorded in the income statement. The revised policy provides more relevant and reliable
information as reserves are better aligned with distributable profits and cost is a factual measure which is complete, neutral and requires
less judgement.
The impact of the changes on the affected line items in the financial statements is set out below.
Impact of changes on income statement
(i)
There is no impact on the Company’s income statement.
(ii) Impact of changes on statement of comprehensive income
Profit for the year
Other comprehensive income
Effect analysed as:
Fair value gains on investments in subsidiaries and joint ventures
Remeasurements of pension schemes
Total comprehensive income for the year
(iii) Impact of changes on statement of financial position
Total assets
Effect analysed as:
Investment in subsidiaries
Investment in joint venture
Total equity and liabilities
Total equity
Effect analysed as:
Investment valuation reserve
Total Liabilities
B – Net investment income
Dividends received from subsidiaries
Interest receivable from group company loans held at amortised cost
Other income
Total
C – Operating expenses
(i) Operating expenses
Operating expenses comprise:
Staff costs and other employee related expenditure (see (ii) below)
Other operating costs
Net foreign exchange losses
Total
(ii) Staff costs
Total staff costs were:
Wages and salaries
Social security costs
Defined contribution schemes
Equity compensation plans (see (iii) below)
Termination benefits
Total
31 December 2017
Effect of
changes
£m
—
(707)
(707)
—
(707)
Restated
£m
1,225
(2)
—
(2)
1,223
As reported
£m
1,225
705
707
(2)
1,930
31 December 2017
As reported
£m
Effect of
changes
£m
Restated
£m
As reported
£m
1 January 2017
Effect of
changes
£m
Restated
£m
47,807
(9,828)
37,979
47,678
(9,121)
38,557
41,192
547
47,807
23,080
9,828
24,727
(9,404)
(424)
(9,828)
31,788
123
37,979
(9,828)
13,252
40,521
511
47,678
22,912
(8,733)
(388)
(9,121)
(9,121)
31,788
123
38,557
13,791
(9,828)
—
—
24,727
9,121
24,766
(9,121)
—
—
24,766
Note
P(iii)
P(i)
2018
£m
2,780
92
2
2,874
2017
£m
1,740
116
—
1,856
2018
£m
19
227
—
246
2018
£m
—
—
—
19
—
19
2017
£m
107
105
5
217
2017
£m
54
7
8
30
8
107
Aviva plc Annual report and accounts 2018
246
Strategic report
Governance
IFRS financial statements
Other information
Notes to the financial statements of the Company
Continued
C – Operating expenses continued
(ii) Staff costs continued
The Company is no longer charged staff costs directly by the UK employing entity. Staff costs in 2018 are included within other operating
costs as part of the overall recharges from the service company within the Group.
(iii) Equity compensation plans
All transactions in the Group’s equity compensation plans, which involve options and awards for ordinary shares of the Company, are
included in other operating costs. Full disclosure of these plans is given in the Group consolidated financial statements, note 33. The cost of
such options and awards is borne by all participating businesses and, where relevant, the Company bears an appropriate charge. As the
majority of the charge to the Company relates to directors’ options and awards, for which full disclosure is made in the directors’
remuneration report, no further disclosure is given here.
D – Finance costs
Interest payable on borrowings
Interest payable to group companies
Total
E – Tax
(i) Tax credited to the income statement
The total tax credit comprises:
Current tax
For this year
Prior year adjustments
Total current tax
Deferred tax
Origination and reversal of temporary differences
Total deferred tax
Total tax credited to income statement
Note
P(ii)
2018
£m
325
194
519
2017
£m
352
175
527
2018
£m
(94)
(2)
(96)
—
—
(96)
2017
£m
(253)
(3)
(256)
143
143
(113)
Unrecognised tax losses and temporary differences of previous years were used to reduce the deferred tax expense by £nil (2017: £nil).
(ii) Tax credited to other comprehensive income
There was no tax credited or charged to other comprehensive income in either 2018 or 2017.
(iii) Tax credited to equity
Tax credited directly to equity in the year, in respect of coupon payments on the direct capital instrument and fixed rate tier 1 notes,
amounted to £8 million (2017: £16 million).
(iv) Tax reconciliation
The tax on the Company’s profit before tax differs from the theoretical amount that would arise using the tax rate of the home country of
the Company as follows:
Profit before tax
Tax calculated at standard UK corporation tax rate of 19.00% (2017: 19.25%)
Reconciling items
Adjustment to tax charge in respect of prior years
Non-assessable dividend income
Disallowable expenses
Different local basis of tax on overseas profits
Change in future local statutory tax rates
Losses surrendered intra-group for nil value
Total tax credited to income statement
2018
£m
2017
£m
2,101
1,112
399
214
(2)
(528)
7
—
—
28
(96)
(3)
(335)
8
(4)
(19)
26
(113)
Finance Act 2016, which received Royal Assent on 15 September 2016, will reduce the rate of corporation tax to 17% from 1 April 2020. The
reduction in rate from 19% to 17% has been used in the calculation of the Company’s deferred tax assets and liabilities at 31 December
2018.
Aviva plc Annual report and accounts 2018
247
Strategic report
Governance
IFRS financial statements
Other information
Notes to the financial statements of the Company
Continued
F – Investments in subsidiaries and joint venture
(i) Subsidiaries
Movements in the Company’s investments in its subsidiaries are as follows:
At 1 January
At 31 December
2018
£m
2017
restated
£m
31,788
31,788
31,788
31,788
At 31 December 2018, the Company has two wholly owned subsidiaries, both incorporated in the UK. These are General Accident plc and
Aviva Group Holdings Limited. Aviva Group Holdings Limited is an intermediate holding company, while General Accident plc has
preference shares listed on the London Stock Exchange. The principal subsidiaries of the Aviva Group at 31 December 2018 are set out in
note 63 to the Group consolidated financial statements.
(ii) Joint venture
At 31 December 2018, the Company’s investment in the joint venture, Aviva-COFCO Life Insurance Co. Limited has a cost of £123 million
(2017: £123 million).
G – Receivables and other financial assets
Loans due from subsidiaries held at amortised cost
Amount due from subsidiaries held at amortised cost
Total
Expected to be recovered in less than one year
Expected to be recovered in more than one year
Fair value of these assets approximate to their carrying amounts.
H – Tax assets and liabilities
(i) Current tax
Current tax assets recoverable in more than one year are £89 million (2017: £255 million).
(ii) Deferred tax
(a) The balance at 31 December comprises:
Deferred tax assets
Net deferred tax assets
(b) The net deferred tax asset arises on the following items:
Pensions and other post retirement obligations
Net deferred tax assets
Note
P(i)
P(iii)
2018
£m
5,401
414
5,815
414
5,401
5,815
2017
£m
5,410
298
5,708
2,028
3,680
5,708
2018
£m
9
9
2018
£m
9
9
2017
£m
9
9
2017
£m
9
9
Aviva plc Annual report and accounts 2018
248
Strategic report
Governance
IFRS financial statements
Other information
Notes to the financial statements of the Company
Continued
I – Reserves
Balance at 1 January 2017 (restated)2
Arising in the year:
Profit for the year
Remeasurements of pension schemes
Dividends and appropriations
Reserves credit for equity compensation plans
Issue of share capital under equity compensation scheme
Shares purchased in buy-back
Redemption of fixed rate tier 1 notes3
Aggregate tax effect
Balance at 31 December 2017 (restated)2
Arising in the year:
Profit for the year
Remeasurements
Forfeited dividend income4
Dividends and appropriations
Reserves credit for equity compensation plans
Issue of share capital under equity compensation scheme
Shares purchased in buy-back
Aggregate tax effect
Balance at 31 December 2018
Merger
reserve
£m
6,438
Equity
compensation
reserve1
£m
Retained
earnings
£m
78
3,747
—
—
—
—
—
—
—
—
—
—
—
77
(44)
—
—
—
6,438
111
—
—
—
—
—
—
—
—
—
—
—
—
64
(55)
—
—
1,225
(2)
(1,081)
—
42
(300)
(92)
16
3,555
2,197
2
4
(1,189)
—
49
(600)
8
6,438
120
4,026
1 See notes 33(d) and 38 for further details of balances included in Equity compensation reserve.
2 The Company has made a change in accounting policy whereby investments in subsidiaries and joint ventures held as available for sale investments under IAS 39 have been reclassified to being held at cost under IAS 27. As a
result, comparatives have been restated. See note A for further details.
3 On 28 September 2017, notification was given that the Group would redeem the 8.25% US $650 million fixed rate tier 1 notes. At that date, the instrument was reclassified as a financial liability of £484 million, representing its
fair value on translation into Sterling at that date. The resulting foreign exchange loss of £92 million has been charged to retained earnings.
4 The Company has commenced a shareholder forfeiture programme, where the shares of shareholders who Aviva has lost contact with over the last 12 years will be forfeited and sold on. Any associated unclaimed dividends
will be reclaimed by the Company. After covering administration costs, the majority of the money will be put into a charitable foundation.
The tax effect of £8 million (2017: £16 million) is recognised in respect of coupon payments of £44 million (2017: £81 million) on the direct
capital instrument and tier 1 notes.
J – Pension deficits and other provisions
(i) Carrying amounts
Total IAS 19 obligations to staff pension schemes
Other provisions
Total provisions
Other provisions primarily include amounts set aside for costs of compensation, litigation and staff entitlements.
(ii) Movements on other provisions
At 1 January
Additional provisions
Unused amounts reversed
Charge to income statement
Utilised during the year
At 31 December
K – Borrowings
The Company’s borrowings comprise:
Subordinated debt
Senior notes
Commercial paper
Total
All the above borrowings are stated at amortised cost.
2018
£m
45
—
45
2018
£m
5
10
(2)
8
(13)
—
2017
£m
48
5
53
2017
£m
—
5
—
5
—
5
2018
£m
5,586
1,113
251
6,950
2017
£m
6,009
751
668
7,428
Aviva plc Annual report and accounts 2018
249
Strategic report
Governance
IFRS financial statements
Other information
Notes to the financial statements of the Company
Continued
K – Borrowings continued
Maturity analysis of contractual undiscounted cash flows:
Within 1 year
1 – 5 years
5 – 10 years
10 – 15 years
Over 15 years
Total contractual undiscounted cash flows
Principal
£m
251
708
673
—
5,365
6,997
Interest
£m
315
1,231
1,490
1,441
2,923
2018
Total
£m
566
1,939
2,163
1,441
8,288
7,400
14,397
Principal
£m
978
266
444
—
5,791
7,479
Interest
£m
333
1,311
1,591
1,589
3,282
8,106
2017
Total
£m
1,311
1,577
2,035
1,589
9,073
15,585
Where subordinated debt is undated, the interest payments have not been included beyond 15 years. Annual interest payments in future
years for these borrowings are £49 million (2017: £49 million).
The fair value of the subordinated debt at 31 December 2018 was £5,831 million (2017: £7,046 million), calculated with reference to quoted
prices. The fair value of the senior debt at 31 December 2018 was £1,113 million (2017: £756 million), calculated with reference to quoted
prices. The fair value of the commercial paper is considered to be the same as its carrying value.
Further details of these borrowings and undrawn committed facilities can be found in the Group consolidated financial statements,
note 52, with details of the fair value hierarchy in relation to these borrowings in note 23.
L – Payables and other financial liabilities
Loans due to subsidiaries
Amount due to subsidiaries
Total
Expected to be recovered in less than one year
Expected to be recovered in more than one year
Note
P(ii)
P(iii)
2018
£m
12,815
4,206
17,021
4,206
12,815
2017
£m
13,008
4,084
17,092
7,192
9,900
17,021
17,092
M – Direct capital instrument and tier 1 notes
Details of the direct capital instrument and tier 1 notes are given in the Group consolidated financial statements, note 36. The 6.875%
£210 million STICS are reflected in the Company financial statements at a value of £224 million (2017: £224 million) following the transfer at
fair value from Friends Life Holdings plc on 1 October 2015.
N – Contingent liabilities
Details of the Company’s contingent liabilities are given in the Group consolidated financial statements, note 55.
O – Risk management
Risk management in the context of the Group is considered in the Group consolidated financial statements, note 59.
The business of the Company is managing its investments in subsidiaries and joint venture operations. Its risks are considered to be the
same as those in the operations themselves, and full details of the major risks and the Group’s approach to managing these are given in the
Group consolidated financial statements, note 59. Such investments are held by the Company at cost in accordance with accounting
policy D.
Financial assets, other than investments in subsidiaries and joint ventures, largely consist of amounts due from subsidiaries. As at the
balance sheet date, these receivable amounts were neither past due nor impaired. The credit quality of receivables and other financial
assets is monitored by the Company, and provisions are made for expected credit losses. There are no material expected credit losses over
the lifetime of the financial assets.
Financial liabilities owed by the Company as at the balance sheet date are largely in respect of borrowings (details of which are provided in
note K and the Group consolidated financial statements, note 52) and loans owed to subsidiaries. Loans owed to subsidiaries were within
agreed credit terms as at the balance sheet date.
Interest rate risk
Loans to and from subsidiaries are at either fixed or floating rates of interest, with the latter being exposed to fluctuations in these rates.
The choice of rates is designed to match the characteristics of financial investments (which are also exposed to interest rate fluctuations)
held in both the Company and the relevant subsidiary, to mitigate as far as possible each company’s net exposure.
All of the Company’s long-term external borrowings are at fixed rates of interest and are therefore not exposed to changes in these rates.
However, for short term commercial paper, the Company is affected by changes in these rates to the extent the redemption of these
borrowings is funded by the issuance of new commercial paper or other borrowings. Further details of the Company’s borrowings are
provided in note K and the Group consolidated financial statements, note 52.
Aviva plc Annual report and accounts 2018
250
Strategic report
Governance
IFRS financial statements
Other information
Notes to the financial statements of the Company
Continued
O – Risk management continued
Interest rate risk continued
The effect of a 100 basis point increase/decrease in interest rates on floating rate loans due to and from subsidiaries and on refinancing
short term commercial paper as it matures would be a decrease/increase in profit before tax of £104 million (2017: decrease/increase of
£114 million). The net asset value of the Company’s financial resources is not materially affected by fluctuations in interest rates.
Currency risk
The Company’s direct subsidiaries are exposed to foreign currency risk arising from fluctuations in exchange rates during the course of
providing insurance and asset management services around the world. The exposure of the subsidiaries to currency risk is considered from
a Group perspective in the Group consolidated financial statements, note 59(c)(v).
The Company faces exposure to foreign currency risk through some of its borrowings which are denominated in Euros. However, most of
these borrowings have been on-lent to a subsidiary which holds investments in Euros, generating the net investment hedge described in
the Group consolidated financial statements, note 60(a).
Liquidity risk
Liquidity risk is the risk of not being able to make payments as they become due because there are insufficient assets in cash form. The
Company’s main sources of liquidity are liquid assets held within the Company and its subsidiary Aviva Group Holdings Limited, and
dividends received from the Group’s insurance and asset management businesses. Sources of liquidity in normal markets also include a
variety of short and long-term instruments including commercial papers and medium and long-term debt. In addition to the existing liquid
resources and expected inflows, the Company maintains significant undrawn committed borrowing facilities from a range of leading
international banks to further mitigate this risk.
Maturity analysis of external borrowings and amounts due to and by subsidiaries are provided in notes G and K respectively.
P – Related party transactions
The Company had the following related party transactions.
Loans to and from subsidiaries are made on normal arm’s-length commercial terms. The maturity analysis of the related party loans is as
follows:
(i) Loans owed by subsidiaries
Maturity analysis
Within 1 year
1 – 5 years
Over 5 years
Total
2018
£m
—
3,485
1,916
5,401
2017
£m
1,730
754
2,926
5,410
The interest received on these loans is £92 million (2017: £116 million). See note B.
On 1 January 2013, Aviva International Holdings Limited, an indirect subsidiary, transferred the following loan liabilities with the Company
to Aviva Group Holdings Limited, its direct subsidiary:
• An unsecured loan of €250 million, entered into on 7 May 2003 accruing interest at fixed rate of 5.5% with settlement to be paid at
maturity in May 2033. As at the statement of financial position date, the total amount drawn down on the facility was £224 million
(2017: £222 million).
On 23 December 2014, the Company provided an unsecured revolving credit facility of £2,000 million to Aviva Group Holdings Limited, its
subsidiary, with an initial maturity date of 3 September 2018 which was subsequently extended to 31 December 2023. The facility accrues
interest at 75 basis points above 6 month LIBOR. As at the statement of financial position date, the total amount drawn down on the facility
was £1,752 million (2017: £1,286 million).
On 27 June 2016, the Company provided an unsecured loan of C$446 million to Aviva Group Holdings Limited, its subsidiary, with a
maturity date of 27 June 2046. The loan accrues interest at 348 basis points above 6 month CDOR. As at the statement of financial position
date, the total amount drawn was £256 million (2017: £263 million).
On 30 September 2016, the Company provided the following loans to Aviva Group Holdings Limited, its subsidiary:
• An unsecured loan of €850 million with a maturity date of 30 September 2021. The loan accrues interest at 115 basis points above
12 month EURIBOR with settlement to be paid at maturity. As at the statement of financial position date, the total amount drawn was
£700 million (2017: £754 million).
• An unsecured loan of €650 million with a maturity date of 5 July 2023. The loan accrues interest at a fixed rate of 1.54% with settlement to
be paid at maturity. As at the statement of financial position date, the total amount drawn down on the facility was
£584 million (2017: £577 million).
• An unsecured loan of €700 million with a maturity date of 3 July 2024. The loan accrues interest at a fixed rate of 1.64% with settlement to
be paid at maturity. As at the statement of financial position date, the total amount drawn down on the facility was
£628 million (2017: £621 million).
• An unsecured loan of €900 million with a maturity date of 4 December 2025. The loan accrues interest at a fixed rate of 1.74% with
settlement to be paid at maturity. As at the statement of financial position date, the total amount drawn down on the facility was
£808 million (2017: £799 million).
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IFRS financial statements
Other information
Notes to the financial statements of the Company
Continued
P – Related party transactions continued
(i) Loans owed by subsidiaries continued
On 21 November 2016, the Company provided an unsecured loan of €500 million to Aviva Group Holdings Limited, its subsidiary, with a
maturity date of 27 October 2023. The loan accrues interest at a fixed rate of 1.75% with settlement to be paid at maturity. As at the
statement of financial position date, the total amount drawn was £449 million (2017: £444 million).
(ii) Loans owed to subsidiaries
Maturity analysis of contractual undiscounted cash flows:
Within 1 year
1 – 5 years
Over 5 years
Total
Principal
£m
—
12,815
—
12,815
Interest
£m
131
514
—
645
2018
Total
£m
131
13,329
—
Principal
£m
3,108
9,900
—
13,460
13,008
Interest
£m
122
390
—
512
2017
Total
£m
3,230
10,290
—
13,520
The interest paid on these loans is £194 million (2017: £175 million). See note D.
On 3 September 2013 Aviva Group Holdings Limited, its subsidiary, provided an unsecured rolling credit facility of €250 million to the
Company, accruing interest at 75 basis points above 6 month LIBOR and with an initial maturity date of 3 September 2018, which was
subsequently extended to 31 December 2023. The total amount drawn down on the facility at 31 December 2018 was £nil (2017: £nil).
On 14 December 2017, the Company renewed its facility with GA plc, its subsidiary, of £9,990 million and the Board approved the extension
of the maturity of the loan by five years from 31 December 2017 to 31 December 2022. The other terms of the loan will remain unchanged,
including the rate of interest payable by the Company to GA plc (65 basis points above 3 month LIBOR and in the event that the LIBOR rate
is less than zero, the rate shall be deemed to be zero). As at 31 December 2018, the loan balance outstanding was £9,770 million
(2017: £9,900 million). This loan is secured against the ordinary share capital of Aviva Group Holdings Limited. The loan agreement also
includes a penalty interest charge of 1% above the interest rate if any amounts payable under the loan agreement remain outstanding.
(iii) Other transactions
Services provided to related parties
Subsidiaries
Income
earned
in year
£m
2,780
2018
Receivable
at year end
£m
Income
earned
in year
£m
20171
Receivable
at year end
£m
414
1,740
298
1 Following a review of the Company’s related party classifications, comparative amounts in respect of services provided to related parties have been amended from those previously reported. The balances exclude loans owed
by subsidiaries.
Income earned relates to dividends. The Company incurred expenses in the year of £0.5 million (2017: £0.2 million) representing audit fees
paid by the Company on behalf of subsidiaries. The Company did not recharge subsidiaries for these expenses.
The related parties’ receivables are not secured and no guarantees were received in respect thereof. The receivables will be settled in
accordance with normal credit terms.
Services provided by related parties
Subsidiaries
Expense
incurred
in year
£m
2018
Payable
at year end
£m
Expense
incurred
in year
£m
20171
Payable
at year end
£m
224
4,206
182
4,084
1 Following a review of the Company’s related party classifications, comparative amounts in respect of services provided by related parties have been amended from those previously reported. The balances exclude loans owed
to subsidiaries.
Expenses incurred relates to operating expenses. All the Company’s operating cash requirements are met by subsidiary companies and
settled through intercompany loans.
The related parties’ payables are not secured and no guarantees were given in respect thereof. The payables will be settled in accordance
with normal credit terms. Details of guarantees, indemnities and warranties given by the Company on behalf of related parties are given in
note 55(f).
Key management
The directors and key management of the Company are considered to be the same as for the Group. Information on both the Company and
Group key management compensation can be found in note 62.
Q – Subsequent events
There are no subsequent events to report.
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IFRS financial statements
Other information
Other information
In this section
Alternative performance measures
Shareholder services
Page
254
259
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Other information
Alternative Performance Measures
Alternative
Performance
Measures
In order to fully explain the performance of our business, we discuss
and analyse our results in terms of financial measures which include
a number of alternative performance measures (APMs). APMs are
non-GAAP measures which are used to supplement the disclosures
prepared in accordance with other regulations such as International
Financial Reporting Standards (IFRS) and Solvency II. We believe
these measures provide useful information to enhance the
understanding of our financial performance. However, APMs should
be viewed as complementary to, rather than as a substitute for, the
figures determined according to other regulations.
The APMs utilised by Aviva may not be the same as those used by
other insurers and may change over time. These metrics are
reviewed annually and updated as appropriate to ensure they
remain an effective measurement that underpins the objectives for
the Group.
This section includes a definition of each APM and additional
information, including a reconciliation to the relevant amounts in
the IFRS Financial Statements and, where appropriate, commentary
on the material reconciling items.
There are no new APMs or changes to existing APMs in 2018.
Assets under management (AUM) and assets under administration
(AUA)
Assets under management (AUM) represent all assets managed or
administered by or on behalf of the Group, including those assets
managed by third parties. AUM include managed assets that are
reported within the Group’s statement of financial position and
those assets belonging to external clients outside the Aviva Group
which are therefore not included in the Group’s statement of
financial position.
Consistent with previous years, assets under administration (AUA)
comprise AUM plus assets managed by third parties on platforms
administered by Aviva Investors.
Both AUM and AUA are monitored as they reflect the potential
earnings arising from investment returns and fee and commission
income and measure the size and scale of the Group’s fund
management business.
A reconciliation of AUM to amounts appearing in the Group’s
statement of financial position is shown below.
AUM managed on behalf of Group companies
Assets included in statement of financial position1
Financial investments
Investment properties
Loans
Cash and cash equivalents
Other
Less: third party funds included above
AUM managed on behalf of third parties2
Aviva Investors3
UK Platform4
Other
Total AUM
2018
£bn
2017
£bn
305
11
29
47
1
393
(19)
374
64
23
9
96
470
319
11
28
44
1
403
(19)
384
72
20
11
103
487
Includes assets classified as held for sale.
1
2 AUM managed on behalf of third parties cannot be directly reconciled to the financial statements.
3 Following a review of AUM managed on behalf of third parties, comparative amounts for Aviva Investors
have been amended from those previously reported to reflect the fact that certain crossholdings had not
been correctly eliminated on consolidation. The effect of this change is to reduce total AUM by £2.5 billion at
31 December 2017.
4 UK Platform relates to the assets under management in the UK long-term savings business.
Cash remittances‡ #
Cash paid by our operating businesses to the Group, comprised of
dividends and interest on internal loans. Dividend payments by
operating businesses may be subject to insurance regulations that
restrict the amount that can be paid. The business monitors total
cash remittances at a Group level and in each of its markets.
Cash remittances eliminate on consolidation and hence are not directly
reconcilable to the Group’s IFRS consolidated statement of cash flows.
Combined operating ratio (COR)‡
A financial measure of general insurance underwriting profitability
calculated as total underwriting costs in our insurance entities
expressed as a percentage of net earned premiums. A COR below
100% indicates profitable underwriting.
The COR does not include the impact of any changes in the discount
rate used for estimating lump sum payments in settlement of bodily
injury claims.
The Group reported COR is shown below.
Incurred claims – GI & Health (as per note 5)1
Adjusted for the following:
Incurred claims – Health
Impact of change in the discount rate used in
settlement of bodily injury claims
Total incurred claims (included in COR)
Total commissions and expenses (included in COR)2
Total underwriting costs
Net earned premiums – GI & Health (as per note 5)
Adjusted for:
Net earned premiums – Health
Net earned premiums (included in COR)
Combined operating ratio
2018
£m
2017
£m
(6,400)
(6,533)
633
(190)
677
—
(5,957)
(2,765)
(5,856)
(2,813)
(8,722)
(8,669)
9,887
9,882
(857)
(906)
9,030
8,976
96.6%
96.6%
1 Corresponds to the sum of claims and benefits paid, net of recoveries from reinsurers and the change in
insurance liabilities, net of reinsurance per note 5.
2 Commission and expenses consists of fee and commission income, fee and commission expense and other
operating expenses included within the general insurance & health segmental income statement (per note
5) adjusted to an earned basis and to remove the health business.
# symbol denotes key performance indicators used as a base to determine or modify remuneration.
‡ denotes APMs which are key performance indicators. There have been no changes to the APMs used by the Group during period under review.
.
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Alternative Performance Measures
Continued
The normalised accident year combined operating ratio is derived
from the COR (as defined in this section) with adjustments made to
exclude the impact of prior year reserve development and weather
claims variations versus expectations, gross of the impact of profit
sharing arrangements. These adjustments are made so that the
underlying performance of the Group can be assessed excluding
factors that might distort the trend in the claims ratio on a year on
year basis.
Claims ratio
A financial measure of the performance of our general insurance
business which is calculated as incurred claims expressed as a
percentage of net earned premiums, which can be derived from the
COR table above.
Excess centre cash flow
This represents the cash remitted by business units to the Group
centre less central operating expenses and debt financing costs.
Excess centre cash flow is a measure of the cash available to pay
dividends, reduce debt or invest back into our business.
These amounts eliminate on consolidation and hence are not
directly reconcilable to the Group’s IFRS consolidated statement of
cash flows.
Group adjusted operating profit‡#
Group adjusted operating profit is a non-GAAP APM which
is reported to the Group chief operting decision maker for the
purpose of decision making and for internal performance
management of the Group’s operating segments that incorporates
an expected return on investments supporting the life and non-life
insurance businesses. The various items excluded from group
adjusted operating profit, but included in IFRS profit before tax, are:
Investment variances, economic assumption changes and short-
term fluctuation in return on investments
Group adjusted operating profit for the life insurance business is
based on expected investment returns on financial investments
backing shareholder and policyholder funds over the reporting
period, with allowance for the corresponding expected movements
in liabilities. The expected rate of return is determined using
consistent assumptions between operations, having regard to local
economic and market forecasts of investment return and asset
classification. For fixed interest securities classified as fair value
through profit or loss, the expected investment returns are based
on average prospective yields for the actual assets held less an
adjustment for credit risk. Where such securities are classified as
available for sale the expected return comprises interest or dividend
payments and amortisation of the premium or discount at
purchase. The expected return on equities and properties is
calculated by reference to the opening 10-year swap rate in the
relevant currency plus an appropriate risk margin.
Group adjusted operating profit includes the effect of variances in
experience for non-economic items, such as mortality, persistency
and expenses, and the effect of changes in non-economic
assumptions. This would include movements in liabilities due to
changes in discount rate arising from discretionary management
decisions that impact on product profitability over the lifetime of
products. Changes due to economic items, such as market value
movement and interest rate changes, which give rise to variances
between actual and expected investment returns, and the impact of
changes in economic assumptions on liabilities, are disclosed
separately outside Group adjusted operating profit.
Group adjusted operating profit for the non-life insurance business
is based on expected investment returns on financial investments
backing shareholder funds over the period. Expected investment
returns are calculated for equities and properties by multiplying the
opening market value of the investments, adjusted for sales and
purchases during the year, by the long-term rate of return. This rate
of return is the same as that applied for the long-term business
expected returns. The long-term return for other investments is the
actual income receivable for the period.
Changes due to market value movements and interest rate changes,
which give rise to variances between actual and expected
investment returns, are disclosed separately outside Group adjusted
operating profit. The impact of changes in the discount rate applied
to claims provisions is also disclosed outside Group adjusted
operating profit.
The exclusion of short-term investment variances from this APM
reflects the long-term nature of much of our business. The Group
adjusted operating profit which is used in managing the
performance of our operating segments excludes the impact of
economic factors, to provide a comparable measure year on year.
Impairment, amortisation and profit or loss on disposal
Group adjusted operating profit also excludes impairment of
goodwill, associates and joint ventures; amortisation and
impairment of other intangibles; amortisation and impairment of
acquired value of in-force business; and the profit or loss on
disposal and remeasurement of subsidiaries, joint ventures and
associates. These items principally relate to merger and acquisition
activity which we view as strategic in nature, hence they are
excluded from the Group adjusted operating profit APM as this is
principally used to manage the performance of our operating
segments when reporting to the Group chief operating decision
maker.
Other items
These items are, in the Directors’ view, required to be separately
disclosed by virtue of their nature or incidence to enable a full
understanding of the Group’s financial performance. Other items at
2018 comprise:
• A movement in the discount rate used for estimating lump sum
payments in settlement of bodily injury claims which resulted in a
gain of £190 million (see note 43(b)). Consistent with the
presentation of the change in the Ogden discount rate in 2016, this
is reported outside of Group adjusted operating profit
• A charge of £63 million relating to the UK defined benefit pension
scheme as a result of the requirement to equalise members’
benefits for the effects of Guaranteed Minimum Pension (see note
51(b)). This is reported outside of Group adjusted operating profit
as the additional liability arose as a consequence of a High Court
judgement in October 2018 in the case involving Lloyds Banking
Group; and does not reflect the financial performance of the
Group for the year
• A charge of £10 million relating to goodwill payments to
preference shareholders, which was announced on 30 April 2018,
and associated administration costs (see note 35)
• A release of a provision of £78 million relating to the sale of Aviva
USA in 2013, which represents the reversal of an item previously
excluded from Group adjusted operating profit
• A gain of £36 million relating to negative goodwill on the
acquisition of Friends First (see note 3), which is excluded from
Group adjusted operating profit for consistency with the
treatment of impairment of goodwill
There were no Other items in 2017.
Group adjusted operating profit is presented before and after
integration and restructuring costs. These costs are only reported to
the extent that they are significant, and not otherwise absorbed
within operating costs.
The Group adjusted operating profit APM should be viewed as
complementary to IFRS GAAP measures. It is important to consider
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Other information
Alternative Performance Measures
Continued
Group adjusted operating profit and profit before tax together to
understand the performance of the business in the period.
The table below presents a reconciliation between our consolidated
operating profit and profit before tax attributable to shareholders’
profits.
United Kingdom – Life
United Kingdom – General Insurance
Canada
Europe
Asia
Aviva Investors
Other Group activities
Group adjusted operating profit before tax attributable
to shareholders’ profits
Integration and restructuring costs
Group adjusted operating profit before tax after
integration and restructuring costs
Adjusted for the following:
Investment return variances and economic assumption
changes on life business
Short-term fluctuation in return on investments on non-
life business
Economic assumption changes on general insurance
and health business
Impairment of goodwill, associates and joint ventures
and other amounts expensed
Amortisation and impairment of intangibles
Amortisation and impairment of acquired value of in-
force business
Profit on the disposal and re-measurement of
subsidiaries, joint ventures and associates
Other
Adjusting items before tax
2018
£m
1,909
415
47
1,011
262
151
(679)
2017
£m
1,764
411
46
1,059
191
201
(604)
3,116
3,068
—
(141)
3,116
2,927
(197)
34
(476)
(345)
1
(7)
(13)
(209)
(49)
(197)
(426)
(495)
102
231
135
—
(987)
(924)
Profit before tax attributable to shareholders’ profits
2,129
2,003
Net asset value (NAV) per share
NAV per share is calculated as the equity attributable to
shareholders of Aviva plc, less preference share capital (both within
the consolidated statement of financial position), divided by the
actual number of shares in issue as at the balance sheet date.
NAV per share is used to monitor the value generated by the
Company in terms of the equity shareholders’ face value per share
investment and enables comparability.
Net fund flows
Net fund flows is one of the measures of growth used by
management and is a component of the movement in the life and
platform business managed assets (excluding UK with-profits)
during the period. It is the difference between the inflows (being
IFRS net written premiums plus deposits received under investment
contracts) and outflows (being IFRS net paid claims plus
redemptions and surrenders under investment contracts).
It excludes market and other movements.
Operating expenses
The day-to-day expenses involved in running the business are
classified as operating expenses. A reconciliation of operating
expenses to the IFRS consolidated income statement is set out
below:
Other expenses (IFRS income statement)
Less: amortisation and impairment
Less: foreign exchange gains/(losses)
Other acquisition costs
Claims handling costs
Integration and restructuring costs
Less: Other costs
Operating expenses
2018
£m
3,843
(658)
(28)
954
336
—
(421)
4,026
2017
£m
3,537
(678)
(49)
892
330
(141)
(113)
3,778
Operating expenses exclude impairment of goodwill, associates and
joint ventures; amortisation and impairment of other intangible
assets; amortisation and impairment of acquired value of in-force
business; and the profit or loss on disposal and remeasurement of
subsidiaries, joint ventures and associates. These items relate to
merger and acquisition activity which we view as strategic in nature,
hence they are excluded from the operating expenses APM as this is
principally used to manage the performance of our operating
segments.
Other acquisition costs and claims handling costs are included as
these are considered to be controllable by the operating segments
and directly impact their performance.
There have been no costs classified as integration and restructuring
in the year. In 2017, these costs relate to integration costs in the UK
and Canada, and restructuring costs in the UK and Europe. It is
possible that significant integration and restructuring activity
undertaken in the future may result in the related costs being
excluded from operating profit.
Operating expenses excludes other costs based on management’s
assessment of their nature or incidence that are not representative
of underlying operating expenses and would distort the year on year
operating expenses trend. Other costs represent a reallocation
based on management’s assessment of ongoing maintenance of
business units and in 2018 includes movements in provisions set
aside in respect of ongoing regulatory compliance as well as an
increase of £175 million product governance provision relating to a
historical issue over pension arrangement advised sales by Friends
Provident, of which over 90% of cases relate to pre-2002 (see note 50
– Pension deficits and other provisions).
Operating earnings per share (EPS)‡#
Operating EPS1 is calculated based on the Group adjusted operating
profit attributable to ordinary shareholders net of tax, deducting
non-controlling interests, preference dividends and the direct
capital instrument (DCI) and tier 1 note coupons divided by the
weighted average number of ordinary shares in issue, after
deducting treasury shares. Operating EPS is used by management to
determine the dividend payout ratio target and hence a useful APM
for users of the financial statements. A reconciliation between
Operating EPS and Basic EPS can be found in note 15.
1
In 2016 and 2017 adjustments were made to the Group calculation of Operating EPS for the purposes of
calculating Executive Directors' bonus and long-term incentive plans. These adjustments are described in
the Annual Report on Remuneration.
Present value of new business premiums (PVNBP)
PVNBP measures the additional value to shareholders of sales in the
Group’s life insurance business. PVNBP is derived from the present
value of new regular premiums expected to be received over the
term of the new contracts plus 100% of single premiums from new
business written in the financial period and is expressed at the point
of sale. The discounted value of regular premiums is calculated
using the same methodology as for Value of new business on an
adjusted Solvency II basis (VNB). PVNBP also includes any changes
to existing contracts which were not anticipated at the outset of the
contract that generate additional shareholder risk and associated
premium income of the nature of a new policy.
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Other information
Alternative Performance Measures
Continued
The table below presents a reconciliation of sales to IFRS net written
premiums.
Present value of new business premiums
Investment sales
General insurance and health net written premiums
Long-term health and collectives business
Total sales
Effect of capitalisation factor on regular premium long-
term business1
JVs and associates2
Annualisation impact of regular premium long-term
business3
Deposits4
Investment sales5
IFRS gross written premiums from existing long-term
business6
Long-term insurance and savings business premiums
ceded to reinsurers
Total IFRS net written premiums
Analysed as:
Long-term insurance and savings net written premiums
General insurance and health net written premiums
2018
£m
2017
£m
40,763
4,799
9,968
(3,840)
40,795
7,888
10,035
(5,213)
51,690
53,505
(12,726)
(257)
(11,412)
(618)
(247)
(10,329)
(4,799)
(281)
(10,953)
(7,888)
4,776
4,765
(1,775)
(1,741)
26,333
25,377
16,365
9,968
15,342
10,035
26,333
25,377
1 Discounted value of regular premiums expected to be received over the term of the new contract, adjusted
for expected levels of persistency.
2 Total long-term new business sales include our share of sales from joint ventures and associates. Under
IFRS, premiums from these sales are excluded.
3 The impact of annualisation is removed in order to reconcile the non-GAAP new business sales to IFRS
premiums.
4 Under IFRS, only the margin earned from non-participating investment contracts is recognised in the IFRS
5
income statement.
Investment sales included in total sales represent the cash inflows received from customers investing in
mutual fund type products such as unit trusts and OEICs.
6 The non-GAAP measure of sales focuses on new business written in the period under review while the IFRS
income statement includes premiums received from all business, both new and existing.
Return on Equity (RoE)#
The RoE1 calculation is based on Group adjusted operating profit,
after tax attributable to ordinary shareholders expressed as a
percentage of weighted average ordinary shareholders’ equity
(excluding non-controlling interests, preference share capital and
direct capital instrument and tier 1 notes).
1
In 2016 and 2017 adjustments were made to the Group calculation of RoE for the purposes of calculating
Executive Directors' bonus and long-term incentive plans. These adjustments are described in the Annual
Report on Remuneration.
Solvency II
Available capital resources determined under Solvency II are
referred to as ‘own funds’. This includes the excess of assets over
liabilities in the Solvency II balance sheet, calculated on best
estimate, market consistent assumptions and net of transitional
measures on technical provisions (TMTP), subordinated liabilities
that qualify as capital under Solvency II, and off-balance sheet own
funds.
The Solvency II regime requires insurers to hold own funds in excess
of the Solvency Capital Requirement (SCR). The SCR is calculated at
Group level using a risk based capital model which is calibrated to
reflect the cost of mitigating the risk of insolvency to a 99.5%
confidence level over a one year time horizon – equivalent to a 1 in
200 year event – against financial and non-financial shocks. As a
number of subsidiaries utilise the standard formula rather than a
risk based capital model to assess capital requirements, the overall
Group SCR is calculated using a partial internal model, and it is
shown after the impact of diversification benefit.
The reconciliation from total Group equity on an IFRS basis to
Solvency II own funds is presented below.
Total Group equity on an IFRS basis
Elimination of goodwill and other intangible assets1
Liability valuation differences (net of transitional
deductions)2
Inclusion of risk margin (net of transitional deductions)
Net deferred tax3
Revaluation of subordinated liabilities
Other accounting differences4
Estimated Solvency II net assets (gross of
non-controlling interests)
Difference between Solvency II net assets and own
funds5
Estimated Solvency II own funds6
2018
£bn
18.5
(7.8)
19.2
(3.3)
(1.1)
(0.6)
(0.3)
2017
£bn
19.1
(9.8)
22.0
(3.2)
(1.3)
(0.7)
(0.1)
24.6
26.0
(1.0)
23.6
(1.3)
24.7
1
2
Includes £1.8 billion (2017: £1.9 billion) of goodwill and £6.0 billion (2017 £7.9 billion) of other intangible
assets comprising acquired value of in-force business of £2.9 billion (2017: £3.3 billion), deferred acquisition
costs (net of deferred income) of £2.8 billion (2017: £2.9 billion) and other intangibles of £0.3 billion (2017:
£1.7 billion).
Includes the adjustments required to reflect market consistent principles under Solvency II whereby non-
insurance assets and liabilities are measured using market value and liabilities arising from insurance
contracts are valued on a best estimate basis using market-implied assumptions.
3 Net deferred tax includes the tax effect of all other reconciling items in the table above which are shown
gross of tax.
4 Includes valuation adjustments and the impact of the difference between consolidation methodologies
under Solvency II and IFRS.
5 Regulatory adjustments to bridge from Solvency II net assets to own funds include recognition of
subordinated debt capital and non-controlling interests.
6 The estimated Solvency II position represents the shareholder view only.
A number of key performance metrics relating to Solvency II are
utilised to measure and monitor the Group’s performance and
financial strength:
• Solvency II shareholder cover ratio‡
• Value of new business on an adjusted Solvency II basis (VNB)‡
• Operating Capital Generation (OCG)#
Definitions and additional information in respect of each of these
metrics is included within this section.
Solvency II shareholder cover ratio‡
The estimated Solvency II shareholder cover ratio is an indicator of
the Group’s balance sheet strength which is derived from own funds
divided by the SCR using a ‘shareholder view’. The shareholder view
is considered by management to be more representative of the
shareholders’ risk-exposure and the Group’s ability to cover the SCR
with eligible own funds, and aligns with management’s approach to
dynamically manage its capital position. In arriving at the
shareholder position, the following adjustments are typically made
to the regulatory Solvency II position:
• The contribution to the Group’s SCR and own funds of the most
material fully ring fenced with-profits funds and staff pension
schemes in surplus are excluded. These exclusions have no impact
on Solvency II surplus as these funds are self-supporting on a
Solvency II capital basis with any surplus capital above SCR not
recognised.
• A notional reset of the transitional measure on technical
provisions (TMTP), calculated using the same method as used for
formal TMTP resets. This presentation avoids step changes to the
Solvency II position that arise only when the formal TMTP reset
points are triggered. The TMTP is amortised on a straight-line
basis over 16 years from 1 January 2016 in line with the Solvency II
rules.
• Pro forma adjustments are made if the Solvency II shareholder
cover ratio does not fully reflect the effect of transactions or
capital actions that are known as at each reporting date. Such
adjustments may be required in respect of planned acquisitions
and disposals, group reorganisations and adjustments to the
Solvency II valuation basis arising from changes to the underlying
regulations or updated interpretations provided by EIOPA. These
adjustments have been made in order to show a more
representative view of the Group’s solvency position.
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Strategic report
Governance
IFRS financial statements
Other information
Alternative Performance Measures
Continued
A summary of the Group’s Solvency II position is shown in the table
below.
Own Funds
Solvency Capital Requirement
Estimated Solvency II Surplus at 31 December
Estimated Shareholder Cover Ratio
2018
£bn
2017
£bn
23.6
(11.6)
24.7
(12.5)
12.0
204%
12.2
198%
Value of new business on an adjusted Solvency II basis (VNB)‡
VNB measures the additional value to shareholders created through
the writing of new life business in the period. It reflects Solvency II
assumptions and allowance for risk and is defined as the increase in
Solvency II own funds resulting from business written in the period,
including the impact of interactions between in-force and new
business, adjusted to:
i)
remove the impact of the contract boundary restrictions under
Solvency II;
ii) allow for businesses which are not within the scope of the
Solvency II own funds (e.g. UK and Asia Healthcare, retail fund
management and UK equity release); and
iii) include the impacts of tax and ‘look through profits’ in service
companies (where not included in Solvency II) and deduct the
impacts of non-controlling interests.
These adjustments are considered to reflect a more realistic basis
than the prudential Solvency II rules. The VNB is derived from the
present value of projected pre-tax distributable profits generated by
new business plus a risk margin.
Operating assumptions
The operating assumptions used are derived from an analysis of
recent operating experience to give a best estimate of future
experience. When these assumptions are updated, the year-to-date
VNB will capture the impact of the assumption change on all
business sold that year.
Economic assumptions
VNB is calculated using economic assumptions as at the point of
sale, taken as those appropriate to the start of each quarter. For
contracts that are repriced more frequently, weekly or monthly
economic assumptions have been used. Dealing with each of the
principal economic assumptions in turn:
• The risk-free interest rate curves used to calculate VNB reflect the
basic risk-free interest rate curves (including the credit risk
adjustment) published by EIOPA on their website.
• The volatility adjustment is intended to reflect temporary
distortions in spreads on government bonds based on rates
prescribed by EIOPA.
• The matching adjustment (MA) is an increase applied to the risk-
free rate used to value insurance liabilities where the cash flows
are relatively fixed and well matched by assets intended to be held
to maturity with relatively fixed cash flows (resulting in additional
yield from illiquidity risk).
Matching adjustment (MA)
A MA is applied to certain obligations based on the expected
allocation of assets backing new business at each year-end date.
This allocation may be different to the MA applied at the portfolio
level. Aviva applies a MA to certain obligations in UK Life, using
methodology which is set out in the Solvency and Financial
Condition Report.
The matching adjustment used for 2018 UK new business (where
applicable) was 105 bps (2017 restated1: 132 bps).
1 The 2017 matching adjustment has been restated to reflect an allowance for credit risk and investment
expenses.
New business margin
New business margin is calculated as value of new business on an
adjusted Solvency II basis (VNB) divided by the present value of new
business premiums (PVNBP), and expressed as a percentage.
Operating capital generation (OCG)#
OCG is the Solvency II surplus movement in the period due to
operating items. The calculation of OCG is consistent with previous
years.
For life business, OCG is split into the impact of new business,
earnings from existing business and other OCG, where other OCG
includes the impact of capital actions and non-economic
assumption changes. OCG excludes economic variances and
economic assumption changes. The expected investment returns
assumed within earnings from existing business are consistent with
the returns within Group adjusted operating profit.
An analysis of the components of OCG is presented below:
Adjusted Solvency II VNB (gross of tax and
non-controlling interests)
Allowance for Solvency II contract boundary rules
Differences due to change in business in scope
Tax & Other1
Solvency II Own Funds impact of new business
(net of tax and non-controlling interests)
Solvency II SCR impact of new business
Solvency II surplus impact of new business
Life earnings from existing business
Life Other OCG2
Life Solvency II OCG
GI, Health, FM & Other Solvency II OCG
Total Solvency II OCG
2018
£bn
1.2
—
(0.2)
(0.3)
0.7
(0.9)
(0.2)
1.6
1.8
3.2
—
3.2
2017
£bn
1.2
—
(0.2)
(0.3)
0.7
(0.8)
(0.1)
1.6
0.9
2.4
0.2
2.6
1 Other includes the impact of ‘look through profits’ in service companies (where not included in Solvency II)
and the reduction in value when moving to a net of non-controlling interests basis.
2 Other OCG includes the impact of capital actions and non-economic assumption changes.
Aviva plc Annual report and accounts 2018
258
Strategic report
Governance
IFRS financial statements
Other information
Shareholder services
Shareholder
services
2019 Financial Calendar
Ordinary dividend timetable:
Final
Interim**
Ordinary ex-dividend date
11 April 2019
15 August 2019
Dividend record date
12 April 2019
16 August 2019
Last day for Dividend Reinvestment
8 May 2019
5 September 2019
Plan and currency election
Dividend payment date*
30 May 2019 26 September 2019
Other key dates:
Annual General Meeting
2018 interim results announcement
11 am on 23 May 2019
8 August 2019
* Please note that the ADR local payment date will be approximately four business days after the proposed
dividend date for ordinary shares.
** These dates are provisional and subject to change
Dividend payment options
Shareholders are able to receive their dividends in the following
ways:
• Directly into a nominated UK bank account
• Directly into a nominated Eurozone bank account
• The Global Payment Service provided by our Registrar,
Computershare. This enables shareholders living outside of the
UK and the Single Euro Payments Area to elect to receive their
dividends or interest payments in a choice of over 125
international currencies
• The Dividend Reinvestment Plan enables eligible shareholders to
reinvest their cash dividend in additional Aviva ordinary shares
You can find further details regarding these payment options at
www.aviva.com/dividends and register your choice by contacting
Computershare using the contact details opposite, online at
www.aviva.com/online or by returning a dividend mandate form.
You must register for one of these payment options to receive any
dividend payments from Aviva.
Manage your shareholding online
www.aviva.com/shareholders:
General information for shareholders.
www.aviva.com/online:
You can access Computershare online services and log in using your
Computershare details to:
• Change your address
• Change payment options
• Switch to electronic communications
• View your shareholding
• View any outstanding payments
Annual General Meeting (AGM)
The 2019 AGM will be held at The Queen Elizabeth II Centre, Broad
Sanctuary, Westminster, London SW1P 3EE, on Thursday, 23 May
2019, at 11am.
Details of each resolution to be considered at the meeting and
voting instructions are provided in the Notice of AGM, which is
available on the Company’s website at www.aviva.com/agm. The
voting results of the 2019 AGM will be accessible on the Company’s
website at www.aviva.com/agm shortly after the meeting.
Aviva plc strategic report
The strategic report sets out a review of Aviva’s business, addressing
key issues such as its business model, strategy and principal risks
and uncertainties facing the business. The strategic report forms
part of the annual report and accounts. However, shareholders can
also elect to receive Aviva’s standalone strategic report as an
alternative to the full annual report and accounts by contacting
Computershare using the contact details below.
Shareholder contacts:
Ordinary and preference shares – Contact:
For any queries regarding your shareholding, please contact
Computershare:
• By telephone: 0371 495 0105
We are open Monday to Friday, 8.30am to 5.30pm UK time,
excluding public holidays. Please call +44 117 378 8361 if calling
from outside of the UK
• By email: AvivaSHARES@computershare.co.uk
• In writing: Computershare Investor Services PLC, The Pavilions,
Bridgwater Road, Bristol, BS99 6ZZ
American Depositary Receipts (ADRs) – Contact:
For any queries regarding Aviva ADRs, please contact Citibank
Shareholder Services (Citibank):
• By telephone: 1 877 248 4237 (1 877-CITI-ADR)
We are open Monday to Friday, 8.30am to 6pm US Eastern
Standard Time, excluding public holidays. Please call +1 781 575
4555 if calling from outside of the US
• By email: Citibank@shareholders-online.com
• In writing: Citibank Shareholder Services, PO Box 43077,
Providence, Rhode Island, 02940-3077 USA
Group Company Secretary
Shareholders may contact the Group Company Secretary:
• By email: Aviva.shareholders@aviva.com
• In writing: Kirstine Cooper, Group Company Secretary, St Helen’s,
1 Undershaft, London, EC3P 3DQ
• By telephone: +44 (0)20 7283 2000
Aviva plc Annual report and accounts 2018
259
Strategic report
Governance
IFRS financial statements
Other information
deduction of charges for our unit-linked products that may require
retrospective compensation to our customers; the effect of
fluctuations in share price as a result of general market conditions
or otherwise; the effect of simplifying our operating structure and
activities; the effect of a decline in any of our ratings by rating
agencies on our standing among customers, broker-dealers, agents,
wholesalers and other distributors of our products and services;
changes to our brand and reputation; changes in government
regulations or tax laws in jurisdictions where we conduct business,
including decreased demand for annuities in the UK due to changes
in UK law; the inability to protect our intellectual property; the effect
of undisclosed liabilities, integration issues and other risks
associated with our acquisitions; and the timing/regulatory
approval impact, integration risk and other uncertainties, such as
non-realisation of expected benefits or diversion of management
attention and other resources, relating to announced acquisitions
and pending disposals and relating to future acquisitions,
combinations or disposals within relevant industries, the policies,
decisions and actions of government or regulatory authorities in the
UK, the EU, the US or elsewhere, including the implementation of
key legislation and regulation. For a more detailed description of
these risks, uncertainties and other factors, please see the ‘Risk and
risk management’ section of the strategic report.
Aviva undertakes no obligation to update the forward looking
statements in this announcement or any other forward-looking
statements we may make. Forward-looking statements in this
report are current only as of the date on which such statements are
made.
This report has been prepared for, and only for, the members of the
Company, as a body, and no other persons. The Company, its
directors, employees, agents or advisers do not accept or assume
responsibility to any other person to who this document is shown or
into whose hands it may come, and any such responsibility or
liability is expressly disclaimed.
Cautionary statement
This document should be read in conjunction with the documents
distributed by Aviva plc (the ‘Company’ or ‘Aviva’) through The
Regulatory News Service (RNS).
This announcement contains, and we may make other verbal or
written ‘forward-looking statements’ with respect to certain of
Aviva’s plans and current goals and expectations relating to future
financial condition, performance, results, strategic initiatives and
objectives. Statements containing the words ‘believes’, ‘intends’,
‘expects’, ‘projects’, ‘plans’, ‘will’, ‘seeks’, ‘aims’, ‘may’, ‘could’,
‘outlook’, ‘likely’, ‘target’, ‘goal’, ‘guidance’, ‘trends’, ‘future’,
‘estimates’, ‘potential’ and ‘anticipates’, and words of similar
meaning, are forward-looking. By their nature, all forward-looking
statements involve risk and uncertainty. Accordingly, there are or
will be important factors that could cause actual results to differ
materially from those indicated in these statements. Aviva believes
factors that could cause actual results to differ materially from
those indicated in forward-looking statements in the
announcement include, but are not limited to: the impact of
ongoing difficult conditions in the global financial markets and the
economy generally; the impact of simplifying our operating
structure and activities; the impact of various local and
international political, regulatory and economic conditions; market
developments and government actions (including those arising
from the referendum on UK membership of the European Union);
the effect of credit spread volatility on the net unrealised value of
the investment portfolio; the effect of losses due to defaults by
counterparties, including potential sovereign debt defaults or
restructurings, on the value of our investments; changes in interest
rates that may cause policyholders to surrender their contracts,
reduce the value of our portfolio and impact our asset and liability
matching; the impact of changes in short or long-term inflation; the
impact of changes in equity or property prices on our investment
portfolio; fluctuations in currency exchange rates; the effect of
market fluctuations on the value of options and guarantees
embedded in some of our life insurance products and the value of
the assets backing their reserves; the amount of allowances and
impairments taken on our investments; the effect of adverse capital
and credit market conditions on our ability to meet liquidity needs
and our access to capital; changes in, or restrictions on, our ability
to initiate capital management initiatives; changes in or inaccuracy
of assumptions in pricing and reserving for insurance business
(particularly with regard to mortality and morbidity trends, lapse
rates and policy renewal rates), longevity and endowments; a
cyclical downturn of the insurance industry; the impact of natural
and man-made catastrophic events on our business activities and
results of operations; our reliance on information and technology
and third-party service providers for our operations and systems;
the inability of reinsurers to meet obligations or unavailability of
reinsurance coverage; increased competition in the UK and in other
countries where we have significant operations; regulatory approval
of extension of use of the Group’s internal model for calculation of
regulatory capital under the European Union’s Solvency II rules; the
impact of actual experience differing from estimates used in valuing
and amortising deferred acquisition costs (DAC) and acquired value
of in-force business (AVIF); the impact of recognising an impairment
of our goodwill or intangibles with indefinite lives; changes in
valuation methodologies, estimates and assumptions used in the
valuation of investment securities; the effect of legal proceedings
and regulatory investigations; the impact of operational risks,
including inadequate or failed internal and external processes,
systems and human error or from external events (including cyber
attack); risks associated with arrangements with third parties,
including joint ventures; our reliance on third-party distribution
channels to deliver our products; funding risks associated with our
participation in defined benefit staff pension schemes; the failure to
attract or retain the necessary key personnel; the effect of systems
errors or regulatory changes on the calculation of unit prices or
Aviva plc Annual report and accounts 2018
260
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Aviva plc
St Helen’s, 1 Undershaft
London EC3P 3DQ
+44 (0)20 7283 2000
www.aviva.com
Registered in England
Number 2468686
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