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Aviva plc
Annual report
and accounts
2019
Foreword
The Strategic report on pages 1 to 53 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 Strategic report is only part of the Annual report and accounts
2019. The Strategic report was approved by the Board on 4 March
2020 and signed on its behalf by Maurice Tulloch, Chief Executive
Officer.
More information about Aviva can be found at www.aviva.com
in
include,
Non-Financial Information Statement
Under sections 414CA and 414CB of the Companies Act 2006, Aviva is
its Strategic Report, a non-financial
required to
information statement. The
these
regulations is included in Key performance indicators from page 7,
Business model from page 9, Our people from page 17, Corporate
responsibility from page 20 and Risk and risk management from
page 44.
required by
information
Contents
Strategic Report
01 At a glance
02 Chairman’s statement
04 Chief Executive Officer’s review
07 Key performance indicators
09 Business model
10 The external environment
11 Our strategy
14 Section 172 (1) statement and our stakeholders
17 Our people
20 Corporate responsibility
24 Chief Financial Officer’s review
27 Market review
44 Risk and risk management
49 Capital management
51 Our climate-related financial disclosure
Governance
55 Chairman’s Governance Letter
57 Our Board of Directors
59 Directors’ and Corporate Governance report
83 Directors’ remuneration report
IFRS financial statements
109 Independent auditors’ report
117 Accounting policies
132 Consolidated financial statements
139 Notes to the consolidated financial statements
264 Financial statements of the Company
Other information
275 Alternative Performance Measures
284 Shareholder services
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
At a glance
At a glance
We are a leading international Savings, Retirement and Insurance business serving 33 million customers. Our c.30,000 employees aim to
earn customers’ trust as the best place to save for the future, navigate retirement and insure what matters most to them.
Our purpose
‘With you today, for a better tomorrow’
Aviva has been looking after customers for more than 300 years. We are deeply invested in our people, our communities and the planet.
We’re here to be with people today as well as working for a better tomorrow.
Our business
We offer a wide range of products and solutions to help our customers and partners with their Savings, Retirement and Insurance needs.
From 2020, we have reorganised our business into five divisions:
UK Life
Investments, Savings &
Retirement
Annuities & Equity
Aviva Investors and UK
Release, Protection &
Savings & Retirement1
Health, Heritage
Asia Life
Singapore, China, India,
Indonesia, Vietnam
General Insurance
UK, Canada, Europe,
Singapore
Europe Life
France, Italy, Poland,
Ireland, Turkey
Read more in the ‘Business model’ and ‘Our strategy’ sections.
In the 2019 Strategic Report and 2019 Annual Report and Accounts, we continue to report the results of our businesses by market2 on the
basis they were managed in 2019. Read more in the ‘Market review’ section.
Our strategy
Our strategy is to simplify Aviva into a leading international Savings, Retirement and Insurance business delivering for our customers,
shareholders, communities and other stakeholders. We have three strategic priorities:
Deliver great customer outcomes:
Our focus is on being the best place to meet
our customers savings, retirement and
insurance needs
Invest in sustainable growth:
Our focus is on generating economic
returns and long-term value for our
shareholders
Excel at the fundamentals:
Our focus is on the core activities of
our business: underwriting, claims
management, investment performance and
cost efficiency
Read more about our strategy in the ‘Our strategy’ section.
Our Performance
Adjusted operating profit3
£3,184 million
2018 restated4: £3,004 million
IFRS profit before tax5
£3,374 million
2018: £2,129 million
Total dividend
30.9 pence
2018: 30.0 pence
Operating earnings per share6,7
60.5 pence
2018 restated4: 56.2 pence
Solvency II return on equity6
14.3%
2018: 12.5%
Solvency II cover ratio6,8
206%
2018: 204%
Cash remittances6
£2,597 million
2018: £3,137 million
Carbon emissions
reduction since 2010
66%
2018: 60%
Read more about our performance and financial targets in the ‘Key performance indicators’ and ‘Chief Financial Officer’s review’ sections.
1 UK Savings & Retirement is reported within UK Life in 2019.
2
3 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
In 2019 our markets are: UK Life, Aviva Investors, UK General Insurance, Canada, Europe and Asia.
to the ‘Other Information’ section within the Annual report and accounts for further information.
4 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets
(see note 1(b) of the Annual report and accounts). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have
been restated resulting in a reduction in the prior period Group adjusted operating profit of £112 million. There is no impact on profit before tax attributable to shareholders’ profit.
5 Profit before tax attributable to shareholders’ profit.
6 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.
7 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.
8 The estimated Solvency II position represents the shareholder view. Please refer to note 58 and the ‘Other Information’ section of the Annual report and accounts for more information.
Aviva plc Annual report and accounts 2019
01
Strategic report
Governance
IFRS financial statements
Other information
Chairman’s statement
Chairman’s
statement
2019 was a year of change for Aviva. We reshaped our strategy and
senior leadership team, while also facing a period of uncertainty in
the external business environment, driven by lower interest rates and
the UK decision to exit from the European Union.
On 4 March 2019, after a competitive process that included highly
respected and experienced internal and external candidates, the
Board was delighted to appoint Maurice Tulloch as Group Chief
Executive Officer (CEO). During the year, with the support of the
Board, Maurice initiated a review of our strategy in order to simplify
Aviva into a leading international savings, retirement and insurance
business delivering sustainable growth for shareholders and support
for our communities. This strategy will allow us to fulfil our vision to
earn our customers’ trust as the best place to save for the future,
navigate retirement and insure what matters most to them.
Our purpose
Throughout all of this change, it has been and continues to be our
core purpose which illuminates our path forward. We are proud to
say not only to our customers but to our people, our partners and our
communities, that we will be with you today, for a better tomorrow.
This means our customers can count on us to be there for them if
things go wrong and to put it right, and to help them plan for their
future. While the exact words used to express our purpose may have
evolved, this continues to be the underlying promise that we
navigate our company by, just as it has been over the last 323 years
of our corporate history.
Our customers
The absolute commitment our people show to our customers every
day also remains unchanged. I have always believed that their
determination to live up to our value of ‘Care More’ is one of our
greatest assets. This is one of the reasons why it was so important to
incorporate our people’s perspective as we set about creating a new
articulation of our shared purpose.
The human connections that our people forge with our customers
really are special. We are there to support them through some of the
most important decisions or emotional moments in their lives. By
drawing on our expertise and empathy to give them the best possible
outcome, we can make a real difference to people when it matters
most. And in doing so, we will ensure our financial strength and long-
term future.
Our stakeholders
In the Strategic report we describe how the Board takes into account
the interests of all our stakeholders. As an insurance company, we
also understand better than most the imperative to act with urgency
and conviction to help combat climate change. Although our
environmental credentials are well-established, we are committed to
doing more, both on our own account and in alliance with others. We
have invested £6 billion in green assets since 2015 alone, including
£3.8 billion in low carbon infrastructure (predominantly solar and
wind power) and £2.2 billion in green and sustainable bonds. We
expect this to increase significantly in the future.
In November 2019, Aviva signed up to the United Nations-convened
Net Zero Asset Owners Alliance which brings together some of the
world’s biggest pension funds and insurers to commit to net zero
greenhouse gas emissions in their investment portfolios by 2050. We
are also committed to aligning our business to the target set out in
the Paris Climate Agreement of limiting global warming to 1.5oC
above pre-industrial levels.
Our communities
As a company, we have always understood that our duty of care
reaches far beyond our customers to encompass all those who may
be touched by our actions. Whether it is through the use of the
volunteering leave granted to every UK employee each year, or
through our strategic partnership with the British Red Cross, our
people combine forces to build a future we all want to live in. This
year also saw the further development of the Aviva Foundation which
was created to use unclaimed shareholder assets to support good
causes. The Foundation has so far committed £3.7 million in funding
to projects that will support our communities and vulnerable
customers when they need it most. This has included donations to a
pilot project to provide a counselling package to vulnerable home
insurance customers experiencing trauma following a serious event
such as flooding; and funding a national programme to help people
over the age of 50 increase their employability skills and to promote,
among businesses, the benefits of being an age-friendly employer.
Changes to the Board
We have made a number of changes to our Board composition
during 2019 in addition to the appointment of Maurice Tulloch as
Group CEO. Andy Briggs and Tom Stoddard stepped down from the
Board and looked to pursue other opportunities; we wish them both
every future success. After a period as interim Group Chief Financial
Officer (CFO), Jason Windsor, formerly CFO of Aviva UK Insurance,
was appointed permanently to the role and also joined the Board of
Directors on 26 September 2019.
After nine years of distinguished service, including as Chair of the Risk
Committee, Mike Hawker retired from the Board on 31 March 2019.
Following his appointment as Chairman of the Royal Mail, Keith
Williams stepped down from the Board on 23 May 2019. On
31 December 2019, Glyn Barker and Claudia Arney both retired from
the Board; Glyn after eight years including a period as Senior
Independent Director and Claudia to focus on her expanded non-
executive roles elsewhere. I am extremely grateful to them all for the
valuable contributions they have made to the Board and
Committees of Aviva plc.
We were delighted to welcome three new Non-Executive Directors to
our Board this year, all with deep knowledge and experience of the
financial services industry. Patrick Flynn, previously Chief Financial
Officer of both ING and HSBC Insurance joined our Board on 16 July
2019. Patrick became Audit Committee Chair on 4 November 2019.
George Culmer was appointed as a Non-Executive Director of the
Company on 25 September 2019, having previously been Chief
Financial Officer of Lloyds Banking Group and RSA Insurance Group
plc. George assumed the role of Senior Independent Director
following the departure of Glyn Barker. We also announced the
appointment of Amanda Blanc with effect from 2 January 2020.
Amanda was previously CEO at AXA UK & Ireland, and CEO, EMEA &
Global Banking Partnerships at Zurich Insurance Group.
Aviva plc Annual report and accounts 2019
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Other information
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Other information
Chairman’s statement
Continued
Finally, on 21 January 2020, I announced my intention to retire as
Chairman during 2020. When I became Chairman in 2015, the Board
asked me to commit to serving for at least five years. Now that
Maurice has launched Aviva’s strategy, a new senior management
team is in place and the Board has been refreshed, it is also time for
a new Chairman. In the meantime, I remain committed to this great
organisation which I am confident will deliver for all its stakeholders.
It has been my privilege to serve as Chairman, and I would like to
thank the Board and indeed all my colleagues at Aviva for their
support during the last five years.
Our performance
In 2019, we further strengthened our Solvency II capital position1 and
grew Group adjusted operating profit2 by 6% to £3,184 million
(2018 restated3: £3,004 million). Group adjusted operating profit2
benefited from
in Canada and lower
expenses and debt costs. IFRS profit before tax4 increased to
£3,374 million (2018: £2,129 million), including higher Group adjusted
operating profit2 and positive investment variances driven by lower
interest rates and equity market gains.
improved performance
Dividend
At the full year 2018 results, we announced our move to a progressive
dividend policy. In line with this policy, the Board proposes a final
dividend for 2019 of 21.40 pence per share (2018: 20.75 pence per
share).
Looking ahead
Aviva faces the future with great optimism – accepting that it will hold
challenges, and confident that our strategy and resources mean that
we are well positioned to meet them and to prosper. This has been a
year of evolution for us. With our new leadership now in place, we are
aligned behind our strategy to create great outcomes for our
customers and other stakeholders, and to deliver sustainable growth
for our shareholders.
Sir Adrian Montague CBE
Chairman
4 March 2020
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.
2 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.
3 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see
note 1(b) of the Annual report and accounts). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been
restated resulting in a reduction in the prior period Group adjusted operating profit of £112 million. There is no impact on profit before tax attributable to shareholders’ profit.
4 Profit before tax attributable to shareholders’ profit.
Aviva plc Annual report and accounts 2019
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IFRS financial statements
Other information
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Other information
Chief Executive Officer’s review
Chief Executive
Officer’s review
Overview
Aviva made important changes to its business and leadership in 2019
and began to build operating momentum. This is reflected in our
improved results, which included:
• Solvency II return on equity1,2,3 of 14.3% (2018: 12.5%);
• Growth in Solvency II net asset value per share, up 31 pence to 423
pence (2018: 392 pence);
• Increased Solvency II capital surplus2 and Solvency II shareholder
respectively
ratio2,3 at £12.6 billion and 206%
cover
(2018: £12.0 billion and 204% respectively);
• Group adjusted operating profit4 up 6% to £3,184 million
(2018 restated5: £3,004 million); and
• Strong growth in operating earnings per share3,6, up 8% to 60.5
pence (2018 restated5: 56.2 pence).
The Board of Directors has declared a final dividend of 21.40 pence
per share (2018: 20.75 pence). This results in a full year dividend for
2019 of 30.9 pence per share (2018: 30.0 pence), an increase of 3%.
Aviva has many positive attributes: high quality businesses, skilled
and dedicated staff, a leading focus on sustainability and ESG and a
large, loyal base of customers and intermediary partners. Our brand
resonates with our customers and partners due to our track record
of helping people to manage life’s uncertainties by saving for the
future, drawing a secure income in retirement and insuring what
matters most to them.
My goal is for Aviva’s portfolio of businesses to be best in class. We
will achieve this through a relentless focus on the customer and
commercial rigour as we execute our business plans and we will
reallocate capital to maximise performance. In short, we will run
Aviva better.
In 2019, our customer numbers were up 2% to 33.4 million and we
improved growth in premiums and managed assets. There is much
more to do, simplifying our business, reducing costs and navigating
competitive markets to make Aviva a stronger, simpler and better
company.
COVID-19 presents a new uncertainty in 2020. Our primary focus is
the operational readiness and safety for our customers and staff,
such that we continue to deliver on our promises. Our scale, diversity
and the strength of our balance sheet allows us to meet any
short-term challenges.
Structure, leadership and culture
In 2019, we made a number of changes to optimise our
organisational structure and
leadership. These changes were
necessary to simplify our ways of working, improve operational
efficiency and resilience. We now have greater focus, commercial
rigour and accountability throughout the organisation.
In the UK, we separated management of our life and general
insurance businesses, and our digital operations have been
integrated back into the businesses to improve efficiency and
customer delivery. Globally, we have reorganised our portfolio of
major markets and strategic investments into five divisions with clear
alignment of business model. Our objective is to compete and win in
our markets by providing great customer outcomes and excelling at
the fundamentals.
Aviva’s leadership team has been strengthened and we have
assembled a diverse and talented leadership group with proven
success within their respective fields. With a mixture of internal
promotions and external hires, my new team brings the expertise,
ambition and focus required to grow our business profitably. The
new team will help shape our culture, which remains focused on
providing the highest standard of service and value for customers,
maintaining leadership on environmental and social issues, while at
the same time fostering greater commerciality, efficiency and
accountability.
Progress against financial targets
At our capital markets day in November 2019, I outlined five key
financial objectives that Aviva is targeting for 2022. Delivering these
targets will provide a material enhancement
in business
performance and reinforce the sustainability of our progressive
dividend policy and medium-term growth ambitions. In 2019, we
made a strong start in pursuit of these objectives and we are on track
to achieve our targets:
Solvency II Return on equity1,2,3 (RoE) – 2022 target of 12%:
Aviva’s RoE1,2,3 was 14.3% in 2019, benefiting from favourable
assumption changes. Meeting our 2022 ambition of a sustainable
12% RoE1,2,3 will require improved underlying returns that will be
achieved through cost reductions, organic business growth and
active capital allocation to higher returning segments.
Operating capital generation3 (OCG) – targeting £7.5 billion in 2019-
22 inclusive:
In 2019, Group OCG3 totalled £2.3 billion, representing approximately
30% of our four-year target.
Cash inflows3 to centre – targeting £8.5 billion to £9.0 billion in
2019-22 inclusive:
Cash remittances3 were £2.6 billion
approximately 30% of our four-year target.
in 2019,
representing
Debt reduction – targeting £1.5 billion reduction in debt by 2022:
In 2019, we repaid £0.2 billion of subordinated debt, which was the
total amount maturing during the year. With debt maturities of
£2.7 billion in the next three years and continued strength in centre
liquidity levels and cash generation, we expect to achieve our target,
resulting in lower debt leverage3 and declining interest expense.
Operating expenses3 – targeting £300 million reduction in
controllable costs3 by 2022:
Controllable costs3 were £3,939 million in 2019 (2018: £3,968 million).
Within this, we achieved net savings of £72 million7 and incurred
implementation costs of £59 million. We anticipate £150 million of
savings (pre implementation costs) in our 2020 results, compared
with our 2018 baseline.
Includes Group centre, debt costs and other items not allocated to the markets.
1
2 The estimated Solvency II position represents the shareholder view. Please refer to note 58 and the ‘Other Information’ section of the Annual report and accounts for more information.
3 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.
4 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.
5 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see
note 2(b)). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been restated resulting in a reduction in the
prior period Group adjusted operating profit of £112 million and a reduction in operating earnings per share of 2.2 pence. There is no impact on profit before tax attributable to shareholders’ profit.
6 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.
7 Constant currency.
Aviva plc Annual report and accounts 2019
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Chief Executive Officer’s review
Continued
Deliver great customer outcomes
At Aviva, delivering great customer outcomes is one of our strategic
priorities. In 2019, our performance demonstrates that customers
continue to choose Aviva to meet their savings, retirement and
insurance needs. Across the Group, we have increased premium
volumes and customer fund inflows. We have made further progress
in service quality, with positive trends in net promoter scores,
customer retention and resolving customer complaints.
Our response to natural catastrophes such as the recent storms in
the UK showed Aviva at its best. We provided support to several
thousand customers, responding quickly by helping fix damaged
properties and using the latest technology to settle claims. We also
identified vulnerable customers and worked with our network of
suppliers to ensure these claims were given priority.
Natural catastrophes are happening with increased frequency
around the world and sustainability is now a key focus for
governments, corporates and the wider community. For many years,
Aviva has been at the forefront of efforts to combat climate change.
The products and services we provide are crucial in helping
customers to prepare for, and respond to the challenges that a
changing climate brings. We are also a leader in ESG, whether
actively
investing our customers’ savings, or managing their
retirement income. Aviva has been carbon neutral since 2006, is a
signatory to the UN sustainable development goals and
is
committed to being a net zero asset owner by 2050. ESG matters to
our customers, and it matters to Aviva.
Excel at the fundamentals
We aim to excel at the fundamentals and our 2019 results show the
progress we have made in running Aviva better.
In UK Life, we increased sales across our product suite. In
annuities & equity release, our capability in longevity data analytics,
asset origination and transaction structuring enabled us to grow new
business volumes by 29% to £6.2 billion (2018: £4.8 billion). We
delivered strong growth in bulk annuity sales, which included the first
tranche (£1.7 billion) from Aviva’s own staff pension scheme. In
protection, 2019 was more challenging. Whilst new business volumes
increased 4% to £1.9 billion (2018: £1.8 billion), adverse experience,
and higher reinsurance costs contributed to a reduction
in
profitability. We responded to these challenges by increasing
sophistication of our pricing, underwriting and customer
segmentation models.
In Investments, Savings & Retirement (IS&R), we improved customer
net inflows despite the uncertain backdrop weighing on investor
sentiment. UK Savings and Retirement net inflows1 were £7.5 billion
(2018: 6.8 billion) as we maintained our leading position in workplace
pensions, winning significant new mandates and delivering strong
client retention. We also continued to build momentum and increase
share in the platform market. In asset management, investment
performance has strengthened, with 84% of Aviva Investors’ funds
beating benchmark over a twelve month time horizon, while third-
£2.3 billion
party
(2018: negative £0.1 billion). Although 2019 was a challenging year for
profitability at Aviva Investors, with a lower opening asset position
and reduced asset origination weighing on results, the significant
improvement in investment performance and flows are a step in the
right direction.
inflows1
positive
rose
net
to
SME and mid-market has supported growth in new client acquisition
and attractive retention. Our general insurance combined operating
ratio (COR)1 increased to 97.5% (2018 restated2: 97.2%) though this
included an additional £113 million of costs allocated to the general
insurance business as a result of the realignment of our digital
operations. Excluding the 1.2 percentage point impact from these
costs, our COR would have been 96.3%. The key driver of
improvement was Canada, where we successfully responded to
in a
the auto
challenges
in
97.8%
point
5.3 percentage
(2018 restated2: 103.1%).
insurance market,
improvement
in COR
resulting
to
Our life businesses in Europe and Asia also expanded their customer
franchises in 2019, with new business volumes up 9% and 15%
respectively and European net fund inflows1 remaining robust at
£4.5 billion (2018: £4.2 billion). In France, in the face of significantly
lower interest rates, we increased unit linked new business volumes
46% through targeted campaigns and active engagement with our
distribution partners. In Poland, we successfully launched a new
protection product in the direct market and made a strong start in
auto-enrolment, winning nearly 400 new corporate pension schemes
covering more than 70,000 employees. In Singapore, we continued
to invest in our leading financial advisor network, which provides
customers with high levels of service and a wider array of product
and provider choice compared with the traditional agency model.
requires gross
An important element of our programme to run Aviva better is
improving our efficiency. In June, we announced plans to reduce our
controllable cost1 base by £300 million per annum, net of inflation.
(pre-inflation) savings of approximately
This
£500 million relative to our 2018 expense baseline of £4 billion. We
have made good progress so far, achieving savings of £72 million3 in
2019 and laying the groundwork necessary to increase savings to
approximately £150 million in 2020.
Invest in sustainable growth
There is no shortage of ambition at Aviva and we have continued to
invest in sustainable growth. This investment has been both direct,
through deploying capital to write new business, and indirect, to
improve the quality and cost effectiveness of our customer
propositions and further enhance our data and risk management
capability.
In November, we announced plans for Aviva Investors and our UK
savings businesses to form a combined business segment called
Investments, Savings & Retirement (IS&R). Under the leadership of
Euan Munro,
IS&R will bring together Aviva’s global asset
management capabilities with Aviva’s leading UK workplace pension
and platform operations. In addition to the growth potential of each
business, their alignment enables Aviva to provide customers with
unique, comprehensive solutions from accumulation of pension
wealth through to drawing a secure income in retirement. The
combination of an ageing society and increased private provision for
retirement make this an attractive long-term growth opportunity.
The £7.5 billion of net in-flows1 in savings and retirement and
£2.3 billion of third party net inflows1 in Aviva Investors demonstrates
that Aviva has the capability and the customer franchise to capture
this growth opportunity
In general insurance, net written premiums (NWP) increased 2% to
£9.3 billion (2018: £9.1 billion). We have continued to gradually and
deliberately shift our business mix, with NWP from commercial
customers rising 7% in the UK and 17% in Canada. Our focus on
providing superior service to customers and intermediaries in the
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.
2 Following the change in the definition of Group adjusted operating profit (see note 2(b)), COR now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of
these assets. Comparative amounts have been restated resulting in an increase in the prior period underwriting costs of £53 million and an increase in Group COR of 0.6%.
3 Constant currency.
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Continued
We continue to invest in digital and technology. The integration of
our digital activities into our business units will facilitate expense
savings as we scale back or stop some activities which are either
duplicated or judged not to offer future economic returns. However,
we are also aiming to improve the connectivity and co-ordination of
digital with our core customer facing businesses. As a result, we are
continuing to invest across the group in initiatives that reduce run
costs, enhance IT resilience and ensure that our businesses are able
to offer service to our customers and distribution partners that is fast,
fair and efficient.
Looking ahead
Aviva has made important structural changes and achieved good
progress in pursuing our first goal of operational improvement. Our
2019 results showed evidence of our potential, with improved
momentum on customer flows, assets and premiums, and a good
start on delivering our financial targets.
My objective remains to run Aviva better. We will improve business
performance enhancing returns through disciplined execution on
expenses and underwriting. We will focus capital and resources
where we can achieve competitive advantage and strong returns. We
will take robust action across the portfolio where our performance
falls short or where we can see a better way of delivering value to our
shareholders.
Our foundations are strong and we have the necessary ingredients to
succeed. Our franchises are well regarded by customers and
partners, our capital position and risk management capabilities
provide a secure footing. We have a team of talented colleagues
across the group who are passionate about building a better
tomorrow for our customers and providing attractive returns for our
shareholders.
Maurice Tulloch
Group Chief Executive Officer
4 March 2020
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Key performance indicators
Key performance
indicators
We use a number of financial and non-financial metrics to help the Board and senior management assess performance against three
dimensions: our strategic priorities (excel at the fundamentals, deliver great customer outcomes, invest in sustainable growth); our vision to
earn our customers’ trust as the best place to meet their savings, retirement and insurance needs; and our purpose: to be with you today, for
a better tomorrow. These metrics are reviewed regularly to ensure that they remain appropriate.
These metrics include Alternative Performance Measures (APMs) which are non-GAAP measures that are not bound by the requirements of
IFRS. 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.
Changes to KPIs
In November 2019 we announced our new strategy, which is set out in more detail in the ‘Our strategy’ section. We also announced five
financial targets focussed on economic value:
• Solvency II return on equity1 – 2022 target of 12%
• Operating Capital Generation1 – targeting £7.5 billion in 2019-22 inclusive
• Cash inflows to Group1 – targeting £8.5 billion– £9.0 billion in 2019-22 inclusive
• Cost reduction – targeting £300 million reduction in controllable costs1 by 2022
• Debt leverage1 – targeting £1.5 billion reduction in debt by 2022
The KPIs to assess performance against these new targets have been included in the analysis below and in the Chief Financial Officer’s review.
New KPIs are identified by the symbol .
N
Non-financial KPIs
Customer Net Promoter Score® (NPS®)
NPS® is our measure of customer advocacy and we use it in nine of our markets to measure the likelihood
of a customer recommending Aviva relative to our competitors. Our relationship NPS® survey shows four
years of sustained high levels of customer advocacy in a challenging marketplace. We are working hard to
earn customers trust by making things simple for customers thereby improving customer outcomes.
R
Number of markets in 2019:
at or above market average: 7
2018: 8 2017: 7
below market average: 2
2018: 1 2017: 2
Employee engagement
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 down three percentage points to 73%, due to a period of uncertainty and change,
however, the proportion of employees recommending Aviva as a great place to work is at an all-time high.
Carbon emissions reduction
Since 2010 we have reduced carbon emissions (CO2e)2 from our day-to-day operations by 66% beating our
2020 target of a 50% reduction and making strong progress to our 70% reduction by 2030 target. We are a
carbon-neutral company, offsetting the remaining emissions through projects that have benefited the lives of
over one million people since 2012. In 2019 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 £717 million in low carbon infrastructure investments over the year.
2019:
73%
2018: 76%
2017: 75%
2019:
66%
Reduction since 2010
2018: 60%
2017: 53%
Financial KPIs
Group adjusted operating profit3
Group adjusted operating profit3 increased by 6% to £3,184 million, which included significantly
improved performance in Canada and lower expenses and debt costs. See the ‘Market review’ section for
further details of the performance of our markets in the year.
R
2019:
£3,184 million
2018: £3,004 million4
2017: £2,975 million4
.
Symbol denotes key performance indicators used as a base to determine or modify remuneration.
R
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.
2 CO2e data includes emissions from our buildings, business travel, water and waste to landfill.
3 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.
4 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see
note 1(b) of the Annual report and accounts). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been
restated resulting in a reduction in the prior period Group adjusted operating profit of £112 million (2017: £93 million). There is no impact on profit before tax attributable to shareholders’ profit
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Key performance indicators
Continued
Financial KPIs continued
Profit before tax attributable to shareholders’ profit (PBT)
Profit before tax attributable to shareholders’ profit increased to £3,374 million mainly due to growth in
adjusted operating profit1, and positive investment variances driven by lower interest rates, narrowing
credit spreads and equity market gains.
Operating earnings per share1,2
Operating earnings per share1,2 increased by 8% to 60.5p, mainly reflecting the growth in adjusted
operating profit3.
R
Solvency II Return on equity1
Group Solvency II return on equity1 has increased by 1.8pp over the year primarily as a result of significant
favourable assumption and modelling changes. See the ‘Market review’ section for further details of the
performance of our markets in the year.
N
Solvency II Operating Capital Generation1
Group Operating Capital Generation1 is £0.9 billion lower due to management actions impacting the
Solvency Capital Requirement. See the ‘Market review’ section for further details of the performance of
our markets in the year.
R N
R
Cash remittances1
In 2019 cash remittances1 from our markets decreased to £2,597 million (2018: £3,137 million, including
£1.25 billion special remittances from UK Life). Within this, UK Life delivered £1,387 million (including
£500 million of special remittances), and higher remittances were received from Canada, Europe and
Asia.
Controllable costs1
Controllable costs1 decreased by 1% to £3,939 million. The decrease in controllable costs1 mainly reflects
our focus on efficiency, partially offset by targeted spend on growth initiatives and IT simplification.
N
Solvency II debt leverage1
Solvency II debt leverage1 has reduced by 2pp to 31%. This was due to a reduction in debt and an increase
in Solvency II total regulatory own funds over 2019.
N
Estimated Solvency II shareholder cover ratio1,5
We continue to maintain our strong financial position. During the year, the estimated Solvency II
shareholder cover ratio1,4 has strengthened by 2pp to 206% (2018: 204%) primarily as a result of total
capital generation, partly offset by the payment of the Aviva plc dividend and repayment of hybrid debt.
R
Value of new business on an adjusted Solvency II basis1
Value of new business on an adjusted Solvency II basis (VNB)1 measures growth and is the source of future
cash flows in our life businesses. VNB1 increased by 2% to £1,224 million, mainly driven by growth in Bulk
Purchase Annuity VNB1 in the UK.
Combined operating ratio1
The combined operating ratio (COR)1 is a measure of general insurance profitability. The lower the COR1
is below 100%, the more profitable we are. Reported COR1 is broadly in line with 2018, with a better COR1
in Canada offset by adverse movements in our other businesses. See the ‘Market review’ section for
further details of the performance of our markets in the year.
2019:
£3,374 million
2018: £2,129 million
2017: £2,003 million
2019:
60.5p
2018: 56.2p4
2017: 53.0p4
2019:
14.3%
2018: 12.5%
2019:
£2,259 million
2018: £3,198 million
2019:
£2,597 million
2018: £3,137 million
2017: £2,398 million
2019:
£3,939 million
2018: £3,968 million
2017: £3,840 million
2019:
31%
2018: 33%
2019:
206%
2018: 204%
2017: 198%
2019:
£1,224 million
2018: £1,202 million
2017: £1,243 million
2019:
97.5%
2018: 97.2%4
2017: 97.2%4
Symbol denotes key performance indicators used as a base to determine or modify remuneration.
R
1 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.
2 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.
3 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.
4 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see
note 1(b) of the Annual report and accounts). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been restated
resulting in a reduction in the prior period Group adjusted operating profit of £112 million (2017: £93 million). There is no impact on profit before tax attributable to shareholders’ profit. Following the change in the definition of
Group adjusted operating profit, COR and operating earnings per share have also been restated to include the amortisation and impairment of internally generated intangible assets. Comparative amounts have been restated
resulting in an increase in prior period COR of 0.6% (2017: 0.6%) and a reduction in the prior period operating earnings per share of 2.2 pence (2017: 1.8 pence).
5 The estimated Solvency II position represents the shareholder view. Please refer to note 58 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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Business model
Business model
Aviva exists to help our 33 million customers make the most out of life, to plan for the future, and to know that if things go wrong we will be
with them to put it right. Aviva is a leading international Savings, Retirement and Insurance business and the largest multi-line insurer in the
UK, our home market. We also operate in Europe, Canada and Asia.
Our business model defines us, differentiates us and helps us meet our customer’s needs…
Our businesses
We have simplified our business
into five new business divisions1:
• Investments, Savings &
Our channels
Our customers can engage with
us through multiple distribution
and service channels:
• Digital applications
• Direct to customer
• Intermediaries, including tied
Our strengths
We have unique strengths as a
business that gives us a
significant competitive
advantage:
• Strong technical skills
• Innovative analytical
Retirement
• UK Life
• General Insurance
• Europe Life
• Asia Life
agents and brokers
capabilities
• Strategic partnerships and
bancassurance arrangements
• Diversified distribution
• Robust capital position
• Leading customer franchise
• Well recognised brand
Our skills
We have a wide range and blend
of skills:
• Customer service
• Underwriting
• Risk management
• Claims management
• Digital innovation
• Data Science
• Asset and liability management
…through our products and solutions…
Investments and Savings
• Individual savings
• Workplace savings
• Advice and guidance
• Investments and asset management
Retirement
• Annuities
• Equity release mortgages
• Drawdown
• Pensions
…from which cash and premiums are received…
Customers invest their savings with us. For a
their
fee, we manage and administer
investments so they can grow their savings or
secure an income in the future
Customers pay us premiums which we
reinvest to provide them with income in their
retirement, via a
regular
payments or by releasing the money tied up
in their property
lump sum,
Insurance
• Personal lines e.g. motor, home
• Commercial lines
• Protection
• Health
Customers pay insurance premiums which
we use to pay claims, protecting what
matters to them. Our scale enables us to
pool the risks and maintain capital strength,
so we are there for our customers when they
need us
…and sustainable value is created for…
Shareholders
We invest carefully so we can
sustainable, growing
deliver
for our shareholders.
returns
Customers
Our customers benefit from a
range of solutions to meet their
needs, with easy access when
and how they want it.
Communities
We play a significant role in our
communities,
including as a
major employer and a long-term
responsible investor.
People
Our aim is for our people to
achieve their potential within
collaborative and
a diverse,
customer-focused organisation.
30.9 pence
Total 2019 dividend up 3%
£33.2 billion
Paid out in benefits and claims to
our customers in 2019
Over 2,000
Community projects supported
in 2019, helping over 1.2 million
people
73%
Our
score in 2019
employee
engagement
Read more about our business at www.aviva.com/about-us/who-we-are-and-what-we-do
1 From 2020.
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The external environment
The external environment
Our strategy has been developed to respond to and anticipate the following opportunities and challenges posed by the external environment
and long-term trends impacting our industry. We acknowledge the risks these trends present and aim to turn these into opportunities for
growth and delivery of our strategy.
impact
Political and macroeconomic impact
Political and macroeconomic
the operating
factors can
environment of our businesses in the UK and abroad. These include the
continuation of modest economic growth, falling interest rates, political
tensions in the UK and Europe around the finalisation of Brexit, trade
pressure between the US and China, and potential volatility around the
upcoming US elections.
Active governments and regulators
Increasingly, governments are promoting private provision and reforms of
services once funded by the State (e.g. pensions, healthcare) while
regulators remain focused on customer outcomes, enforcing conduct and
prudential supervision (e.g. Solvency II) as well as standardising insurance
accounting (e.g. IFRS 17).
Continuous advancement in technologies
‘Big data’ and advances in Artificial Intelligence are leading to new levels of
simplicity, convenience and speed. These new technologies are offering
advancements to traditional healthcare, allowing people to live longer, and
access to new mobility options, in some cases moving from private
ownership towards more efficient and cleaner modes of transport, while at
the same time also increasing the challenges around the ethical use of data.
Climate change and sustainability
Climate change has increased the frequency of extreme weather events.
These extreme weather events have resulted in an increase in political
focus, regulation and focus on the economic and social impact of climate
change. At the same time, customers have become more attentive to the
environmental, social and governance (ESG) aspects of their saving and
investment decisions.
New risks emerging in a connected world
New risks are emerging as a result of technological advancements in the
provision and use of personal data, uninterrupted access to services,
sharing of information, demise of traditional jobs, as well as development
of new skills and capabilities – these changes can create demand for new
saving, retirement and insurance products and solutions.
In 2019, global GDP growth fell to its lowest rate since the
financial crisis in 2008
2.8%
Source: IMF World Economic Outlook, October 2019
Increase in proportion of UK employees automatically enrolled
in a workplace pension scheme between 2012 and 2019
32%
Source: Automatic enrolment, The Pensions Regulator, October 2019
Expected increase in productivity caused by impact of Artificial
Intelligence technologies by 2035.
40%
Source: Accenture, 2019
Increase in annual inflows to ESG funds between 2018 and 2019
53%
Source: Morningstar, October 2019
Estimated economic damage from cyber-attacks in 2018
$600 billion
Source: Munich Re, 2020
Read more about our risk management in the ‘Risk and risk management’ section of this Strategic report.
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Our strategy
Our strategy
On 4 March 2019, Aviva announced Maurice Tulloch’s appointment
as Chief Executive Officer. Following his appointment, Maurice
outlined his plans for a thorough review of the Group and business
division strategies.
On 20 November 2019, we presented our refreshed strategy, purpose
and vision, which are set out below.
‘I am committed to running Aviva better. We will excel at the basics,
giving customers a simpler, faster and more convenient service.
Getting these fundamentals right will result in a simpler, stronger,
better Aviva, while also improving returns for shareholders.’
– Maurice Tulloch, CEO
Our purpose
With you today, for a better tomorrow
Our purpose is the reason Aviva exists. Our roots reach back to 1696
and since those early days, we have been there for our customers
when it really matters. We are here to help them make the most of
life and know that if things go wrong, we will be with them to put it
right. Our purpose inspires us to do the right thing. It reflects that we
are deeply invested in our customers, our communities, our people
and our planet. By caring more today we will leave a legacy to be
proud of.
Our vision
To earn customers’ trust as the best place to save for the future,
navigate retirement and insure what matters most to them.
Our vision is ambitious but grounded. It is about being brilliant in our
core areas of expertise and focusing where we have the strongest
opportunities to make a meaningful difference.
Our strategy
Our strategy is to simplify Aviva into a leading international
savings, retirement and insurance business delivering for our
customers, shareholders, and communities.
We understand the fast-changing world around us and the
implications these changes have on the needs of our customers. Our
strategy aims to provide our customers with simplicity, speed and
convenience, ensuring reliable service, good value products and
transparent communication.
Under our new strategy we have set out three strategic priorities:
• Deliver great customer outcomes;
• Excel at the fundamentals;
• Invest in sustainable growth;
and we have simplified our operating model into five new business
divisions.
We will deliver great customer outcomes
What this means
Our focus will be on meeting our customers’ savings, retirement and
insurance needs. We will simplify the way in which we interact with
and serve our customers, promote resolution as early as possible and
enhance our digital platforms. Through our well-known brand, it is
our vision that customers will recognise Aviva as the best place to
meet their savings, retirement and insurance needs.
We believe that this will lead to growth in new customers and
improved retention of existing customers. We will monitor our
progress through metrics including our trust and net promotor
scores.
We will excel at the fundamentals
What this means
Our focus will be on the core activities of our business: underwriting,
claims management, investment performance and cost efficiency.
We will maximise our use of data and analytics and continue to
digitise our business.
By pursuing strong performance across the fundamentals, we will
embed a performance culture across our business.
We plan to achieve our cost saving target of £300 million over the
next three years. We have achieved a £72 million saving in 2019 and
initiatives are in place to deliver £150 million in our 2020 results,
compared with our 2018 baseline.
We will invest in sustainable growth
What this means
Our focus will be investing with a clear commercial benefit. We will be
selective with the opportunities we pursue and invest where we can
generate economic returns and long-term value for our shareholders.
By adopting a rigorous investment framework, focused on value and
capital return, we expect to generate increasing revenues, fund flows,
capital, cash and profit.
We plan to invest £1.3 billion over the next three years in areas such
as IT simplification, transformation of UK customer experience and
mandated regulatory change.
When we get these priorities right, we succeed
Our three strategic priorities focus our actions to deliver our strategic
and financial objectives. Evidence has shown that when we focus on
these priorities, we deliver value for our customers, shareholders and
communities, for example:
• By delivering great outcomes to our customers and their advisors
we increased fund flows in our UK Advisor and Workplace Savings
business, where assets under administration1 grew by 73% (FY15 –
2019)
• By excelling at the fundamentals of underwriting in our General
Insurance business, our UK digital aggregator QuoteMeHappy has
grown by c.1.4 million customers since inception, while remaining
efficient at a low expense ratio
• By being excellent at investment performance and technical
expertise in our UK Life business, we have invested sustainably in
the bulk purchase annuities market, growing new business from
£2.6 billion in 2018 to £4.0 billion in 2019 as measured by the
present value of new business premiums1 (PVNBP).
As part of the strategy update in November 2019, we also set out new
financial targets. These new targets focus on long-term economic value
generation and confirm our commitment to deliver on our plan to
reduce debt and maintain the progressive dividend policy and financial
strength of the Group. Further information on the new financial targets
can be found in the ‘Key performance indicators’ section.
Our values
Our four values are at the heart of how we do business. They are
how we must operate:
• We Care More about our customers, our partners, our colleagues
and the communities where we live and work
• We look for opportunities to Kill Complexity. We want to make
things simpler for our customers and for each other so that we can
all focus on what matters
• We Never Rest and have the ambition to be the best we can be
• And we Create Legacy, taking a long-term view to build a better
and more sustainable future for everyone
1 This is an Alternative Performance Measure (APM) which provides useful information to supplement an understanding of our financial performance. Further information on APMs, including 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
Our strategy
Continued
Our businesses
Under our new strategy, we have simplified our operating model
into five new business divisions1:
• Investments, Savings & Retirement
• UK Life
• General Insurance
• Europe Life
• Asia Life
This simplified operating model enables each business to focus on
their strategic, commercial and operational priorities while still
benefiting from overall synergies between divisions.
We expect all business divisions to deliver both cash flows and
growth, however the balance will differ for each. This provides us with
choices on how we allocate our capital and resources and ensures
we generate the highest returns.
Below we set out an overview of each of these five new business
divisions, including their updated strategy, key priorities and
financial ambitions.
Investments, Savings & Retirement
Overview
Helping people meet their savings and retirement needs is one of the
biggest challenges facing our communities. We have created a new
division that will take on this challenge and provide us with an
exciting growth opportunity. This division brings together our global
asset manager, Aviva Investors, and our modern UK Savings &
Retirement business2 to create a wealth and asset management
business. This business will serve a fast-growing market as
consumers look to save for their future, safeguard against the
unknown and enjoy income in their retirement years.
We are uniquely positioned to win in this business. We have a market
leading brand, we are currently number one3 in UK Workplace
Pensions by assets under administration4 (AuA) and as at 2019 Aviva
Investors assets under management4 (AuM) was £346 billion.
With a large customer base, scale of assets and strong advisor
relationships, this division is well positioned for growth. It will also
draw on our strong track record and expertise in the area of
responsible investing.
‘As we implement our plans, Aviva will become the leading provider of
mass market savings and retirement solutions in the UK and the owner
of a strong international asset management brand, serving third
parties and global Aviva insurance businesses. I think it’s an exciting
future’ – Euan Munro, CEO5
from
the strong
social and governance
Key priorities for 2020:
investment performance,
• Realise value
environmental,
leadership,
distribution reach and platform capability built over the last five
years by: growing AuM by winning third party mandates at Aviva
Investors, growing AuA by capturing more of the workplace and
adviser markets in UK Savings & Retirement and growing Aviva
Investors AuM across workplace and individual savings, by offering
tailored and appropriate
to our
customers
investment propositions
(ESG)
• Deliver holistic client and customer led propositions that unlock
new segments of the market
• Build a strong Investments, Savings & Retirement brand to
reposition ourselves in the market
• Deliver a market leading customer and client experience
Financial targets
• By 2022, annual net fund flows4 of £10 billion from third party
investors for Aviva Investors and £10 billion for UK Savings &
Retirement.
UK Life
Overview
From 2020, our UK Life division incorporates three lines of business:
annuities & equity release, protection & health and heritage. This
division is key in generating sustainable cash flow.
We are already a leading provider within each of these three lines,
evidenced by a strong franchise and leading market share positions,
including: number one in individual annuities, number two in group
protection and number two in individual protection. Across these
lines we have a full suite of capabilities, including data analytics,
underwriting, asset-liability management, scale efficiencies and
access to Aviva Investors’ solutions.
Our focus for UK Life is two-fold:
• Generate significant levels of capital and cash flow
• Recycle some of that capital to write profitable new business.
‘UK Life is a fantastic business which I am incredibly proud to be
leading. It has a central role to play in Aviva’s success. My clear
objective for this business is to deliver dependable growth in long-term
cash flows’ – Angela Darlington, CEO
Key priorities for 2020:
• Expand our annuity business with capital efficient growth in bulk
purchase annuities to increase long-term cash-flows
• Capitalise on data analytics, scale and modelling techniques to
better understand our target customers, distributors and risks, and
to develop more focused pricing algorithms and services, which
are attractive to new and existing customers and enhances overall
performance
• Manage heritage savings to minimise operational complexity and
optimise capital use
• Increase automation and digitisation to improve cost efficiency
Financial targets (Combined Investments, Savings & Retirement
and UK Life)
• Solvency II return on capital4 of 9.5% and cash inflows4 to Group of
£4.25-£4.75 billion (cumulative 2019 – 2022) and a special cash
inflow4 to Group of £0.5 billion (UK Life, 2019).
General Insurance
Overview:
Our General Insurance division helps protect our customers from loss
in the event of damage to their property or assets, or injury to
themselves or others for which they are responsible. We offer a wide
a range of products to personal and business customers, including
motor, home, travel and pet insurance, commercial property, liability
and specialty covers such as classic car and boiler breakdown.
We provide General Insurance at scale in the UK and Canada and
have an attractive European business operating in France, Ireland,
Italy and Poland. We hold the number one market position in the UK,
and number two in Canada and Ireland.
Our focus is on generating sustainable profitable growth through
improving speed, simplicity and efficiency for our customers. In the
UK, we have aligned our UK digital business with our UK General
Insurance business to help deliver this. We will also build on our
leading insurance expertise to expand our commercial lines business
whilst continuing to optimise our potential in personal lines.
1 From 2020.
2 UK Savings & Retirement is reported within UK Life in 2019.
3 Number one by bundled workplace AuA, Broadridge UK DC & Retirement Income, 2018.
4 This is an Alternative Performance Measure (APM) which provides useful information to supplement an understanding of our financial performance. Further information on APMs, including reconciliation to the financial
statements (where possible), can be found in the ‘Other information’ section of the Annual report and accounts.
5 Subject to regulatory approval.
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Our strategy
Continued
‘We will be the best in the market at fundamentals. We will focus on
speed of execution and we will simplify our business. Financial
discipline in all decisions will be a core requirement. We will hold each
other to account and there will be no excuses’ – Colm Holmes, CEO
Key priorities for 2020:
• Further develop our multi-channel distribution capability and
strengthen the awareness of our brand
• Continue to evolve the savings mix towards capital efficient unit
Key priorities for 2020:
• Focus on simplicity, speed and efficiency for our customers to
strengthen growth and profitability across our business. To date
we have already reduced the personal lines product suite by more
than a quarter, and we continue to invest in our ‘self-serve’ claims
technology
• Expand our commercial lines business by continuing to extend our
strong small and medium enterprises position to mid-market and
Global Corporate & Specialty portfolios
• Continue to deliver the recovery in Canada, following a 5.3pp
improvement to combined operating ratio1 in 2019 and expand by
leveraging on our brokers and partnership with Royal Bank of
Canada, which was recently extended to 2036
Financial targets
• Cash inflows1 to Group of £2.0 – £2.5 billion (cumulative, 2019 –
2022), combined operating ratio1 of 95% (2022), Solvency II return
on capital1 of 14% (2022) and achieve net written premium growth
of 20% (2022 vs. 2018)
Europe Life
Overview:
Our Europe Life division offers a range of insurance savings,
investment and protection products to customers who want to make
the most of their money, plan for the future and protect against the
unexpected. We operate across five countries, France, Italy, Poland,
Ireland and Turkey and have eight million customers.
Europe Life has diverse distribution and focuses on maintaining a
capital efficient product mix. We hold several strong market
positions, including number two in Poland, number four in Ireland
and number five in Italy. We have also grown our policyholder
reserves to £120 billion at 2019.
Our focus will continue to be generating sustainable growth, while
actively managing the low interest rate environment. We will achieve
this by:
• Continuing to transform the product mix from guaranteed savings
towards capital light products
• Expanding and investing in our distribution channels
• Focusing on the fundamentals of insurance to drive operational
efficiencies, and
• Leveraging expertise and technology from across the Group
‘It’s my privilege to present our strategy for the European businesses,
which continues to be a significant contributor to the Aviva Group. We
contribute a material portion of the group operating profits and are an
important part of the wider Aviva story’ – Patrick Dixneuf, CEO
linked and hybrid products
• Increase sales of protection products across our life customer base
• Simplify propositions and increase automation and digitisation to
improve cost efficiency
Financial targets
• Solvency II return on capital1 of 9.5% (2022) and cash inflows1 to
Group of £0.75 – £1.25 billion (cumulative 2019 – 2022)
Asia Life
Overview:
Asia Life comprises our businesses in Singapore, China, India,
Indonesia, Vietnam and Hong Kong.
Our business in Singapore contributed 77% to Asia’s total value of
new business in 2019. Here, we are a leader in the financial advisor
channel and operate a profitable business offering protection and
savings products. Our aim is to continue to grow our market share
and further extend our lead in the financial advisor and employee
benefits segments with a broad customer footprint across private
and public sectors.
In China, our joint venture company in partnership with COFCO
continues to deliver strong growth, especially in the agency and
broker channels, alongside margin expansion. Our plan is to further
invest and extend these competitive advantages and continue to
outperform our peers in value creation and profit growth.
In November 2019, we announced the sale of our stake in our Hong
Kong joint venture, Blue, to our partner Hillhouse Capital, subject to
regulatory approval. We are also in discussions with our partners in
relation to our business in Vietnam and joint venture in Indonesia.
‘Asia continues to be the growth engine for the insurance industry
worldwide. Despite intense competition, Aviva focuses on leveraging
our unique competitive advantages in individual Asian markets to
continue to outperform our peers’ – Chris Wei, CEO
Key priorities for 2020:
• Extend our lead in the financial advisor channel in Singapore
• Further invest in agency and productivity growth in China
• Maintain a value-focused approach in product mix and margins
• Streamline regional support functions to enhance efficiency
Financial targets (Singapore)
• Double digit Value of New Business1 (VNB) and profit growth
Read about our businesses at www.aviva.com/investors/our-
strategy.
1 This is an Alternative Performance Measure (APM) which provides useful information to supplement an understanding of our financial performance. Further information on APMs, including 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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Section 172 (1)
statement and our
stakeholders
Overview
We report here on how our directors have performed their duty under
Section 172 (s.172) of the Companies Act 2006, and this statement
reflects the contribution by the Aviva Group to the performance of
Aviva plc. S.172 sets out a series of matters to which the directors’
must have regard in performing their duty to promote the success of
the Company for the benefit of its shareholders, which includes
having regard to other stakeholders. Where this statement draws
upon information contained in other sections of the Strategic report,
this is signposted accordingly1.
Our Board considers it crucial that the Company maintains a
reputation for high standards of business conduct. The Board is
responsible for setting, monitoring and upholding the culture,
values, standards, ethics, brand and reputation of the Company to
ensure that our obligations to our shareholders, employees,
customers and others are met. Management drives the embedding
of the desired culture throughout the organisation. The Board
monitors adherence to our policies and compliance with local
corporate governance requirements across the Group and is
committed to acting where our businesses fail to act in the manner
we expect of them.
Our Board is also focussed on the wider social context within which
our businesses operate, including those issues related to climate
change which are of fundamental importance to the planet’s well-
being. A detailed explanation of how Aviva continues to manage the
impact of its business on the environment is outlined in the
‘Corporate responsibility’ section of the Strategic report.
Our culture
As the provider of financial services to millions of customers, Aviva
seeks to earn their trust by acting with integrity and a deep sense of
responsibility at all times. We look to build relationships with all our
stakeholders based on openness and continuing dialogue.
Our culture is shaped by our clearly defined purpose – with you
today, for a better tomorrow – to help ensure we do the right thing in
Aviva. Throughout our business, we are proud that our people live by
our core value of Care More for our customers, for each other and for
the communities we serve. We value diversity and inclusivity in our
workforce and beyond, and the ‘Our people’ section of this report
sets out the strength of Aviva’s culture in this regard and how that
underpins everything we do every day.
Key strategic decisions in 2019
For each matter which comes before the Board, the Board considers
the likely consequences of any decision in the long-term and
identifies stakeholders who may be affected, and carefully considers
their interests and any potential impact as part of the decision-
making process.
In June 2019, we announced that our life and general insurance
businesses in the UK will be managed separately, with our digital
direct business integrated into UK General Insurance. This will enable
stronger accountability and greater management focus on the UK’s
leading life and general insurance business. We also disclosed that
we are targeting a £300 million per annum reduction in controllable
costs2 by 2022 (net of inflation), which will involve 1,800 role
reductions across the Group.
In November 2019, we announced the outcome of a comprehensive
strategic review of our business. Our strategy is to simplify Aviva into
a leading international savings, retirement and insurance business
delivering for our customers, shareholders and communities. We will
achieve this by delivering great customer outcomes, excelling at the
fundamentals and investing in sustainable growth. These actions will
drive higher returns for our shareholders.
The Board determined that in order to progress its agreed strategic
priorities, Aviva should be simplified into five operating divisions
from 2020. This included the creation of a new business division;
Investments, Savings & Retirement (IS&R). IS&R brings together Aviva
Investors and our UK Life Savings & Retirement businesses to look
after all stages of customers’ savings and retirement needs.
As a result of our strategic review, we announced in November 2019
that we will retain our businesses in Singapore and China. We agreed
the sale of our stake in our Hong Kong joint venture, Blue, to our
partner Hillhouse Capital Group, and we are in discussions with our
partners in relation to our business in Vietnam and joint venture in
Indonesia. For further information on all these decisions, see ‘Our
strategy’ in this Strategic report.
Our key financial decisions made during the year, including the
adoption of a progressive dividend policy, our targeted £1.5 billion
debt reduction and our planned investment of c.£1.3 billion in our
operating businesses in the period to 2022, were all made in line with
our long-term strategic goal of sustainable value creation. A full
account of our financial performance is contained in the Chief
Financial Officer’s review within this Strategic Report.
1 The s.172 statements of our qualifying subsidiaries will be made available on the Aviva plc website.
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 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
Stakeholder engagement
The table below sets out our approach to stakeholder engagement during 2019:
Stakeholders Why are they important to Aviva?
What is our approach to engaging with them?
Customers
Our purpose, ‘with you today, for a
better tomorrow,’ captures the reason
we exist as a business. Understanding
important to our 33 million
what’s
customers
is key to our long-term
success.
• The Board receives regular reporting on customer outcomes and customer-
related strategic initiatives throughout the year. We conducted reviews of the
‘customer journey’ within Aviva and of trust in the Aviva brand.
• The Board closely monitors customer metrics and engages with the leadership
team to understand the issues if our performance does not meet our customers’
expectations. This is also reflected at each of our subsidiary boards.
Our people
Our people’s commitment to serving
our customers is essential for us to
deliver on our vision to earn customers’
trust as the best place to save for the
future, navigate retirement, and insure
what matters most to them.
Suppliers
We operate in conjunction with a wide
range of suppliers to deliver services to
our customers. It is vital that we build
strong working relationships with our
intermediaries, including around risk
management and customer service.
• During 2019, we reviewed our Board committee structures and repurposed the
Governance Committee to the Customer, Conduct and Reputation Committee to
ensure comprehensive scrutiny of all customer-related areas.
• The Board continues to monitor and review developments concerning changes
to our IT platforms which will allow us to simplify and support service delivery to
our customers.
• For further information on how we engage with our customers, please see the
reports from each of our business divisions in the ‘Market review’ section of this
Strategic report.
• Through employee forums, global internal communications and informal
meetings, the directors engage with our people on a wide range of matters and
act on the outputs of our annual global engagement survey.
• The Chairman also chairs the Evolution Council (a diverse group of high calibre
leaders from across the business), involving them in discussions related to the
Group strategy and incorporating their insight into their final decisions. Council
meetings are attended by a number of Non-Executive Directors.
• Our directors have also attended meetings of Your Forum, our fully elected
employee forum representing UK employees.
• We believe these methods of engagement with Aviva employees are effective in
building and maintaining trust and communication; allowing for openness,
honesty and transparency and increasing innovation and productivity within the
business. These methods of engagement also act as a platform for Aviva
employees to influence change in relation to matters that affect them.
• In line with our talent management programme, talent breakfasts were held with
the Board and high potential employees.
• Our people share in the business’ success as shareholders through membership
of our global share plans.
• We are committed to recruiting, training and retaining the best talent we can find.
We are proud to have been a pioneer in some areas of employee benefits,
including providing six months paid parental leave for all UK employees. The
Chairman remains a member of the 30% Club, a business-led organistion
committed to accelerating progress towards better gender balance at all levels of
organisations. Further information on our approach can be found in the ‘Our
people’ section of this Strategic report.
• Our directors maintain oversight of the management of our most important
suppliers and our operating subsidiary boards regularly review and report on their
performance. During the year, we successfully progressed our migration to a new
data centre infrastructure provider, including partial migration to the Cloud.
• Our Board reviews the actions we have taken to prevent modern slavery and
associated practices in any part of our supply chain and approves our Modern
Slavery Statement each year.
• All supplier-related activity is managed in line with the Group Procurement and
Outsourcing business standard. This ensures that supply risk is managed
appropriately in relation to customer outcomes, data security, corporate
responsibility, and financial, operational, contractual and brand damage caused
by inadequate oversight or supplier failure.
• An important part of our culture is the promotion of high legal, ethical,
environment and employee related standards within our business and also
among our suppliers. Before working with any new suppliers, we provide them
with our Supplier Code of Behaviour, and our interaction with them is guided by
our Business Ethics Code.
• In the UK, Aviva is a signatory of the Prompt Payment Code which sets high
standards for payment practices. We are a Living Wage employer in the UK, and
our supplier contracts include a commitment to paying eligible employees not
less than the Living Wage in respect of work provided to Aviva in the UK.
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Continued
Stakeholders Why are they important to Aviva?
Communities We
recognise
the
to our
volunteering,
importance of
communities
contributing
through
community
investment, and long-term partnerships
with non-governmental organisations,
and as a major insurance company we
are fully engaged in building resilience
against the global impact of climate
change.
Regulators
insurance company, we are
As an
subject to financial services regulations
and approvals in all the markets we
operate in.
Shareholders Our retail and institutional shareholders
are the owners of the Company.
What is our approach to engaging with them?
• The Board receives regular updates on our community activities, including our
strategic partnership with the British Red Cross, and our community investment
directed through the Aviva Community Fund and the Aviva Foundation.
• During the year, the Governance Committee supported the Board in this area by
reviewing our Group Corporate Responsibility strategy and overseeing its
implementation. This oversight will continue in 2020 through the Customer,
Conduct and Reputation Committee.
• Aviva and the British Red Cross have been working in partnership since 2016 to
build safer and stronger communities in the UK and beyond, and many of our
people have volunteered in support of this work including as Community Reserve
Volunteers and through a Global Mapathon, to help map some of the world’s most
vulnerable communities, who otherwise could not easily be reached by aid
organisations in crises.
• Through the Aviva Foundation, we support the World Benchmarking Alliance
which develops benchmarks to encourage sustainable business practices in
relation to the UN Sustainable Development Goals. For further information, see
the ‘Corporate responsibility’ section of this Strategic report.
• Aviva was the first global insurer to become carbon neutral in 2006 and we
continue to offset 100% of any remaining carbon emissions.
• More on how the Board incorporates climate-related risks and opportunities into
our governance, strategy and risk management operations is included in ‘Our
climate-related financial disclosures’ in this Strategic report.
• As the subject of close and continuous supervision by our regulators, we maintain
constructive and open relationships with them. We have a programme of regular
meetings between the directors and our UK regulators.
• This includes engagement on the management of our climate risk responsibilities
to meet the requirements of the Prudential Regulation Authority’s 2019
supervisory statement, ‘Enhancing banks’ and insurers’ approaches to managing
the financial risks from climate change’.
• The Customer, Conduct and Reputation Committee enables continued focus in
this area through its oversight of the regulatory landscape.
• 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, Senior Independent Director and Executive Directors have a
programme of meetings with institutional investors during the year. The Board
also receives regular briefings from our corporate brokers on investors’ views.
• A shareholder newsletter is published on aviva.com every quarter and provides
shareholders with publicly available information including recent Board changes,
financial or strategic updates, and information about our Aviva Foundation
projects.
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Our people
Our people
Our people are at the heart of our business. They play an integral role
in fulfilling our purpose to be with you today, for a better tomorrow.
Our focus for 2019 has been on continuing to transform Aviva’s
culture, making Aviva a great place to work with the people and skills
we need to grow our business, and to simplify what we do and how
we do it, so our people can maximise their focus on our customers.
Our diverse global workforce is made up of 31,181 colleagues, with
more than 15,000 colleagues in our home market in the UK.
Our strategy
Our global people strategy sets out how we will accelerate the
delivery of Aviva’s strategy from the inside out. We will:
• Help our people to connect their work to our purpose and to our
customers.
• We launched Emerging Leaders@Aviva – a new talent programme
to spot and develop potential leaders early in their careers. There
was significant interest with 1,000 applications for 134 places.
There has been a strong gender and diversity mix (60% of
participants are female), with very positive results to date.
• Our Women in Leadership Programme designed to accelerate high
potential women for substantial business roles evolved. 170
women have now gone through the programme with 41%
subsequently being promoted or taking on a broader role.
• It has been a very successful year for our Global Graduate
Leadership Programme, with 51 graduates rolling off the
programme and securing roles across the breadth of Aviva. 31 new
graduates started in September (48% female).
• We’ve improved our on-demand learning offering with our
migration to LinkedIn Learning, tying learning more closely to
career progression and performance.
• We’ve continued to build and develop a professional internal
global coaching faculty of around 100 “jobs-plus” coaches,
providing valuable support and challenge to enhance the
performance of our people.
• Recruit, retain and develop the very best people, focusing
especially on the fundamentals of insurance.
• Make our leaders accountable and empower them and their teams
to act in line with our values, with an increased focus on
performance.
Engaging our people
In 2019 our global Voice of Aviva survey focused on
• Business: Strategic Direction, Insurance Fundamentals, Leadership
behaviours and
• People: Colleague Engagement, Colleague Wellbeing and
• Embed inclusion throughout the business, making Aviva a place
Colleague Development.
where everyone can be themselves.
Our values
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
challenge ourselves to learn about the cutting edge and harness it.
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 central to the work we do. We
continue to build a digitally-enabled, life-long learning culture at
Aviva, and focus on developing our talent and coaching capability.
Highlights from 2019 include:
• We completed the global rollout of our flagship leadership
programme – Leading for Growth. Over 2,000 leaders have now
gone through the programme, and markets have been trained to
provide ongoing delivery for remaining leaders and new recruits.
Engagement remains high at 73% but is slightly down on 2018 (76%)
due to a period of uncertainty and change. Although confidence in
our strategy has fallen since the 2018 Voice of Aviva survey, this shift
was to a ‘wait and see’ position as the 2019 survey was performed
just before the new Aviva strategy was announced in November 2019.
Verbatim comments reinforced this view with colleagues saying they
were eagerly anticipating the new strategy and what this meant for
them, as well as suggesting ways to improve customer service and
how to make Aviva more commercially minded. However, colleagues
also said they want more simplicity in processes and structures to
help them to deliver this.
Pride, motivation and advocacy remain strong and consistent. The
proportion of employees recommending Aviva as a great place to
work is at an all-time high. Significantly more colleagues believe that
Aviva cares for their health and wellbeing (up 6 points to 80%) and
there have also been solid uplifts in the view that Aviva is a place
where people are free from judgement or discrimination. This result
in 2019 (82%) is now 13 points higher than in 2015 – a major
improvement on Aviva’s culture of inclusion in a short space of time.
There is also a strong link between improvements on this metric and
those colleagues who feel they have greater freedom to make
decisions in their job.
Within Aviva we continue to take our responsibility to consult very
seriously. We have a positive and constructive relationship with the
trade union Unite as well as a
fully elected all-employee
representative body (Your Forum). 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. During 2019, a full re-election
process took place with the appointment of over ten employee
representatives across the UK. We provided training and coaching for
new and existing representatives to ensure that they had the skills
and capabilities required to undertake this important role.
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Our people
Continued
The representative bodies meet regularly with the Members of the
Aviva Leadership Team throughout the year as well as 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.
Following the launch of the Learning Agreement with Unite the Union
in 2018, we have continued to see excellent examples of
collaborative working, which has resulted
in
employees using the Apprenticeship Levy as well as building and
fostering a culture of personal development and learning.
increase
in an
In 2019, we hosted a one-day conference on the topic of Redefining
Resolution, following the successful launch and implementation of
our Conflict Resolution and Mediation policy. The event was
attended by nearly 200 external guests from a very broad spectrum
of employers, highlighting how Aviva is helping to change the
workplace and bring in new ideas through our policy agenda.
We have continued to attend and speak at a large number of public
and governmental events to talk about Aviva policies, in particular
around our market-leading Equal Parental Leave policy.
Diversity and Inclusion
Diversity and Inclusion are key to Aviva being a sustainable,
successful business. An inclusive culture ensures employees are
happier, can be 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 2019, we had 31% female leaders (2018: 31%). This has
been achieved through targeted female development programmes,
diverse short lists and a leadership team committed to change. In the
UK, our mean and median gender pay gap and gender bonus gaps
have all reduced marginally compared to the last two years. Whilst
we welcome this movement, the change is minimal. It’s too early to
tell whether the actions we’re taking are having a sustainable impact.
We’re committed to driving long term change and continue to focus
on recruitment, progression and retention.
improving our ethnic diversity
We are also committed to
representation within our employee population and have launched
an Ethnic Minority Leadership programme as well as sponsoring
Uncovering Different Women, a report highlighting ethnic minorities
in female resource groups and networks.
In November, we saw the second anniversary of our Equal Parental
Leave policy. This policy has seen us as a first mover in the majority
of our markets.
identity;
One of our drivers for an inclusive culture comes through our
employee communities which were launched across all markets in
2018. There are six communities covering race and religion and social
mobility; gender;
caring
sexuality and gender
responsibilities; age and mental and physical health. Over 6,000
employees have joined these communities so far. They act as a lobby
group and conscience to the organisation and are actively sponsored
by all members of the Aviva Leadership Team. Aviva does not have
just one accountable executive for Diversity and Inclusion; all
members are. Some of the notable contributions from the
communities have been participating for the first time in Poland
Pride, a series of activities marking Black History month, an event on
the topic of Menopause and making sunflower lanyards available to
colleagues (a discreet way for people with hidden disabilities to show
they need additional support).
We have over 31,000 people working in our offices from Norwich to
Singapore. Each of our colleagues brings unique knowledge and
experience, attitudes and ambitions. It’s important to us that
everyone is involved including those with visible and invisible
disabilities. We make reasonable adjustments for our people and
also for candidates who are interested in working for us. As a
Disability Confident Employer; a Government scheme that supports
employers to make the most out of the talents that disabled
colleagues can bring to our organisation, we will interview every
disabled applicant that meets the minimum criteria for the job and
offer Workplace Adjustment Passports to colleagues. Our AvivAbility
community is for all colleagues with an interest in disability and
engages with Aviva and the wider community to build interest
around the topic of Visible and Invisible disabilities to increase
awareness and acceptance of all disabilities and highlight the value
that these individuals bring.
Health and wellbeing
We remain focussed on our employee health and wellbeing as vital
to our success and growth. Our employees believe we’re getting it
right, as our Voice of Aviva Survey in September 2019 saw global
colleagues score 80% for “Aviva values my health and wellbeing”
(rising from 74% the previous year), and for the UK specifically the
score was 82%.
In 2019, we’ve continued to deliver our Wellbeing@Aviva programme
in the UK. We reviewed elements in place since it launched in 2017,
making sure it continues to meet our colleagues’ needs, and adding
to it where appropriate. We continue to support colleagues to Be
Healthy, Be Mindful, Be Secure and Be Awesome – supporting their
physical, mental, financial and social wellbeing.
Some specific highlights from 2019 include:
• The launch of Digital GP – giving our UK colleagues free access to a
GP via an app 24/7. From January 2019 to September 2019, 4,185
colleagues had registered on the app, with 1,301 GP appointments,
1,093 prescriptions and 170 specialist referrals made.
• We continue to offer colleagues the yearly free Headspace app –
with over a million minutes of meditation since the launch of the
programme. We also continue to train our leaders on mental
health awareness. As a result, over 90% of leaders now feel they are
comfortable having conversations about mental health with their
team/peers and managers. They also know about and are
comfortable signposting colleagues to the resources available to
them.
• We rolled out wider financial wellbeing support including
– The Mid Life MOT – visiting each of our UK locations to support
the wealth, work and wellbeing of our 45+ population. The
sessions booked up quickly, and voluntary attendance averaged
82%. Designed to boost confidence in wealth, work and
wellbeing, and to raise awareness of where colleagues could
seek support, the sessions met their goal with attendees scoring
a 22% increase in confidence and a 34% increase in awareness of
where to get support.
– Continued to deliver the My Retirement My Way seminar to
colleagues close to retirement, with sessions booked up within a
few days of being announced and oversubscribed.
– Created new presentations on Company pension and Reward, to
make sure colleagues understand what they receive from being
an Aviva employee.
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Continued
Our plans for 2020
In 2020, our People priorities will be focused around the role our
people play in delivering Aviva’s refreshed strategy. We will build on
the best of our culture, becoming more performance led and focused
on customer outcomes. We will help our people connect to our
purpose and the difference we can all make to Aviva’s success.
At 31 December 2019, we had the following gender split:
Board membership
Male
6
Female1
3
Senior management
Male
888
Female
402
Aviva Group employees
Male
15,193
Female
15,988
The average number of employees during 2019 was 31,791
(2018: 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.
1
Independent Non-Executive Director Claudia Arney retired with effect from 31 December 2019. Amanda Blanc was appointed as an Independent Non-Executive Director with effect from 2 January 2020.
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Corporate responsibility
Corporate
responsibility
At Aviva, we know that in order to earn the trust of our customers we
need to act responsibly and sustainably every day. Only then will we
be able to meet our strategic priorities and live out our purpose to
be: ‘with you today, for a better tomorrow.’
As a company we aim to do the right thing for the long term. We are
deeply invested in our people, our customers, our communities and
our planet. By caring more today, we can leave a legacy of which we
can be proud.
A forward-looking approach
In 2019, as part of our commitment to bring our business into line
with the Paris Agreement (a United Nations-backed global treaty to
limit global warming), we committed to ensuring our assets have a
‘net zero’ carbon impact by 2050. Aligned to this we are also in the
process of refreshing our wider responsible and sustainable business
strategy (2020-2025), based on insight from over 9,000 stakeholders
across the world. We look forward to sharing more on our new
strategy in 2020.
This year also marks the end of our previous five-year Corporate
Responsibility (CR) strategy. We are proud to have met or beaten a
number of our ambitious targets over this period, including reducing
our CO₂e emissions by 66% since 2010 (target: 50% reduction),
supporting 4.8 million beneficiaries through our CR programmes
(target: 2.5 million) and investing over £3.8 billion in low carbon
infrastructure since 2015 (target: £2.5 billion).
The following sections outline the key areas of progress we have
made over the course of 2019.
Putting the customer at the centre of everything we do.
In order to deliver great customer outcomes, we are committed to
helping our 33 million customers protect what’s important to them
and save for a bright future. In 2019 we paid out £33.2 billion in
benefits and claims around the world.
We know the importance of providing excellent customer service, as
demonstrated through our businesses’ Net Promoter Scores®, which
are our measures of customer advocacy. Seven out of nine of our
businesses are at or above the market average NPS®, which
quantifies the likelihood of a customer recommending Aviva.
But 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).
Our more than 60 green or accessible products and services across
the world enable our customers to be more environmentally
responsible or give them easier access to the protection they need
for themselves and their families. (More details can be found in our
Corporate
on
www.aviva.com/social-purpose).
Responsibility
Reporting
Criteria
2019
In the UK last year, we launched a pilot with Moneyline (a leading not-
for-profit social lender) offering a home contents insurance product.
This is designed to support low-income, financially excluded
customers and can be arranged at the same time as taking out a
short-term loan.
This will provide lessons on how to encourage low income
households to take up insurance protection against financial loss.
In Aviva Singapore, we are going beyond paying out critical illness
claims and are partnering with the Singapore Red Cross to set up a
pilot ‘Disability Fund’ for our customers. This fund will help them use
their pay-out effectively by paying for subsidised services such as
transport to and from medical appointments, rehabilitation at a day
activity centre and digital home monitoring to keep people safe.
Aviva Poland’s anti-smog campaign continues to benefit customers.
Over the last two years the campaign has seen us fund the addition
of 400 external air quality sensors to the national network, with over
half of these sensors placed in areas voted for by the public. The
sensors are accompanied by a downloadable app, to help people
keep track of pollution in their city and adjust their actions
accordingly for the good of their health.
Creating a better tomorrow for our planet
To create a better tomorrow, we need to look after the planet we call
home. Our plan to help tackle climate change is backed by our long
history as a leader in sustainable practices.
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.
Our operational global greenhouse gas emissions data 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) in respect of Aviva’s
Group-wide operations 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 2019. The table below
shows the absolute operational carbon emissions:
Tonnes CO2e
Scope 1
Scope 2
Scope 3
Absolute CO2e*
Carbon offsetting**
Total net emissions
2019
2018
2017
14,207
21,340
14,628
50,175
(50,175)
—
16,198
25,012
17,739
58,949
(58,949)
—
17,915
31,280
19,305
68,500
(68,500)
—
* 2019 Assurance provided by PricewaterhouseCoopers LLP available at www.aviva.com/CRkpisandassurance2019
** Carbon offsetting through the acquisition and surrender of emissions units on the voluntary and compliance markets.
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:
2019
2018
2017
CO2e tonnes per
employee
1.0
1.6
1.6
CO2e per
£m GWP
1.61
2.06
2.48
To date globally we have achieved a 66% reduction in CO₂e against
our 2010 baseline and we have committed to align our business to
the 1.5°C Paris targets, as outlined in the climate-related financial
disclosure section of this Strategic report.
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Corporate responsibility
Continued
As well as cutting our emissions every year, we have offset any
remaining emissions to ensure our business impacts have been
‘carbon neutral’ since 2006. We have helped make over 1.2 million
people’s lives better since 2012 through our carbon offsetting
projects. This includes provision of household water filters in Laos
and Cambodia, providing safe water.
In 2019 we completed the installation of an innovative solar car port
at one of our UK offices – Norwich Horizon. From April until the end
of October, 89% of the daytime electricity demand for the office was
covered by the solar carport, with the rest coming from renewably
sourced energy via the national grid. Our award-winning Smart
Building Management approach
in Ireland has also reduced
electricity use by 3% and gas use by 25% from May to December 2019.
At the start of 2019, Aviva UK exited underwriting the standalone
operational fossil fuel power market as part of its commitment to
help tackle climate change. In July 2019 we became a founding
signatory of the Powering Past Coal Alliance Finance Principles. Then
in November we launched ‘Aviva Renewable Energy’ – an integrated
large
package of
companies in the complex market of renewable energy, including
onshore windfarms, solar power and battery storage. Overall, we
have significantly reduced Aviva’s underwriting exposure to coal to
practically zero.
insurance designed specifically to support
Aviva has a proud heritage in sustainability and was the first global
insurer to become carbon-neutral in 2006, while Aviva Investors has
invested £6 billion in green assets on behalf of Aviva and external
clients since 2015. This
low-carbon
infrastructure, such as wind farms and solar panels, and £2.2 billion
in green bonds.
includes £3.8 billion
in
Under the Carbon Reduction Commitment Energy Efficiency
Scheme, we reported total emissions of 55,374 tonnes of CO₂e in
2019 costing £1,013,344. This mandatory scheme is limited to UK
business emissions from building energy and includes the property
portfolio of our investment funds managed by Aviva Investors.
Having acknowledged the growing numbers of our customers,
colleagues and partners speaking up about the issue of plastics, our
workplaces are now free of single-use plastic containers in all our
markets bar one, which has a roadmap to do so in the first half of
2020.
More details of our environmental KPI data and our independent
assurance process can be found at:
www.aviva.com/CRkpisandassurance2019.
Making an impact in communities
Since 2015, we have invested over £67.6 million in our communities,
including £16 million in 2019 (2018: £17.6 million). This has helped
4.8 million people during the last five years (1.2 million in 2019) and
supported over 9,800 local community projects (2,080 in 2019). This
beats our 2015-2020 target of 5,000 projects.
The last five years of our Aviva Community Fund programme has
supported over 3,000 local projects in ten Aviva markets, investing
over £13 million to help build capability and capacity in the charity
sector. In 2019 Aviva France continued their ambitious Aviva La
Fabrique programme, which saw 46 social entrepreneurs awarded a
share of one million euros following over 1.5 million public votes. The
Aviva La Fabrique Impact Fund was also set up to allow investors the
opportunity to invest in these social enterprises.
Aviva Canada, a major general insurer, is also linking its core business
expertise to its community investment. In 2019, the business
launched its new social impact platform, Aviva Take Back Our Roads,
which aims to make Canadian roads and school zones safer for all.
includes on-the-ground community
The data-driven platform
projects, adoption of innovative safety products and technology, and
utilises our employees’ expertise to help solve road safety issues.
In total, 11,600 of our people globally have contributed more than
68,200 volunteering hours to support their local communities
throughout 2019. They also gave or fundraised over £2.1 million.
Last year the Aviva Foundation in the UK invested unclaimed assets
of shareholders through grants and social enterprise investments. In
2019 the Foundation has now committed to giving £3.7 million to
nine non-profit organisations and social enterprises that, working
with our business, can support our communities and vulnerable
customers. This has included funding counselling for vulnerable
home insurance customers who experience trauma following serious
events such as flooding.
In 2019 we renewed our strategic partnership with the British Red
Cross for a further two years. This has enabled us to continue to work
together to make communities safer, stronger and more resilient in
times of uncertainty and crisis. This in turn will help them to recover
quicker when a disaster strikes. Projects in 2019 have included the
launch of an innovative ‘forecast-based financing’ initiative. This
resulted in Aviva supporting the Indonesian Red Cross in developing
an early action protocol in Indonesia. Once completed, the protocol
will be activated when severe flooding is forecasted, building
resilience by enabling communities to act and be helped before crisis
strikes and therefore reducing the impact it has on their lives. In
support of this project, over 450 of our people mapped over 60,000
buildings in urban Indonesia in one week. These maps will help the
Red Cross to prioritise who and what could be impacted during a
disaster and determine the help they will receive ahead of time.
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 2019).
We have a zero-tolerance approach to acts of bribery and corruption.
To manage this risk, 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, and supporting Minimum
Compliance Standards, guide 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.
At a Group level, the Chief Risk Officer provides Aviva’s Board
Governance Committee1 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 2019, 89 cases were reported through Speak
Up (2018: 50), with four related to bribery and corruption concerns.
59 cases reached conclusion, and 30 remain under investigation.
There has been no material litigation arising from any case reported
in 2019.
1 From 1 January 2020 this Committee has become the Customer, Conduct and Reputation Committee. Further details are available in the Governance Report in the Annual Report and Accounts.
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Corporate responsibility
Continued
We conduct due diligence when recruiting and engaging external
partners. At the end of 2019, 98% of our UK and Ireland registered
suppliers have agreed to abide by our Code of Behaviour (or provided
a reason why they didn’t do so, for example, because they have their
own existing code of behaviour). Our Code of Behaviour outlines the
way in which we commit to behave in our dealings with each other
and includes guidance on financial crime laws and regulations.
who, based on their sector, are at a higher risk of being exposed to
modern slavery. Since 2018 we have completed 18 assessments,
with no cases of modern slavery being discovered at Aviva or in our
supply chain. The assessments provide suppliers with the
opportunity to spot any potential risks or control gaps which we
then work with them to address. In 2019 we have conducted
modern slavery training for key employees in five markets.
We continue to work with our suppliers to promote the real Living
Wage and include a Living Wage clause in all appropriate contracts.
We are also working with the Living Wage Foundation to pilot and
implement the new Living Wage Foundation standard, ‘Living Hours’,
to ensure that workers have sufficient, predictable hours, for which
we won the Global Sourcing Association Award 2019 for Social
Programme of the Year.
Our Board Governance Committee1 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. Kirstine Cooper, Group General
Counsel and Company Secretary, is the Aviva Leadership Team
member responsible for corporate responsibility and sustainability,
and the topic has been covered by the Board Governance
Committee1 three times during the course of 2019, as well as once at
the Aviva plc Board and twice at the Board Risk Committee.
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/corpor
ate-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 the ‘Risk and risk management’ section and in
‘Our climate-related financial disclosure’ sections of this Strategic
report.
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.
Our support for human rights
We are committed to supporting the human rights and anti-modern
slavery agenda both within the organisation through our operations,
and outside of it through partnerships and collaboration.
Our human rights policy2 identifies our main stakeholders and 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.
Within our own operations, in 2019 we:
• Completed human rights due diligence in a number of key markets,
reviewing their risk approach in areas including governance,
employees, customers and investments. To date, 15 markets have
completed an impact assessment including the UK, China, Turkey,
Vietnam, Singapore, Italy and India. The assessments allow
markets to prioritise the most important actions to enhance Aviva’s
work on human rights.
• Engaged key suppliers on the topic of human rights and conducted
modern slavery threat assessments on a range of those suppliers
We also work with trusted partners to enhance our approach. This
includes the Slave Free Alliance, whose insights we use to both
improve our strategic approach to modern slavery, and to train our
staff across different markets on human rights and modern slavery
issues. These workshops have ensured our people understand the
complexities of modern slavery and human trafficking, help them to
spot the signs of it, and teach them how to respond in the event that
a case is identified. We also continue our work with the UN Global
Compact as part of the UK Working Group on modern slavery.
Finally, we use our influence and connections to bring others
together and enhance the industry’s wider understanding of, and
impact on human rights. For example, we worked with the World
Benchmarking Alliance (WBA) in 2019 to organise and host the official
launch of the third Corporate Human Rights Benchmark (CHRB) 2019
rankings, in our role as funder and founding member.
For our complete modern slavery statement, please see:
www.aviva.com/modernslaverystatement.
Towards a more sustainable future
Aviva is not just an insurer but an investor in the economy, investing
in buildings, infrastructure projects and companies around the world
to help our customers save for their future. We do this, in part,
through Aviva Investors (AI), our global asset management company
with a heritage in responsible investing dating back to the early
1970s.
We invest responsibly with Environmental, Social and Governance
(ESG) considerations a central pillar of our investment process3,
because we believe it minimises risk and allows us to spot
opportunities for our customers, empowering them to make more
informed decisions. This process includes areas like climate change,
human rights, plastics and gender diversity.
During 2019 Aviva Investors enhanced their responsible investment
processes and embarked on a global, company-wide initiative to
fully embed them across all asset classes. We have reached some
important milestones. These include:
• Establishing a new responsible investment philosophy, setting out
our responsible investment commitments as a business.
• Agreeing and implementing specific ESG integration policies for
each of our investment functions: Credit, Equities, Multi-Asset and
Macro, Real Assets and Solutions.
• Developing a framework for new products and solutions that meet
the specific needs and values of our clients including building a
Sustainable Outcomes Funds Range linked to the United Nations
Sustainable Development Goals (SDGs). We have already launched
the first two products in the range – the Sustainable Income and
Growth Fund and the Climate Transition European Equities Fund –
and will develop several more in the next three years.
• Working with Aviva UK Life to design funds for customers who want
more bespoke solutions. For example, in July 2019 Aviva UK
launched the ‘Stewardship lifestyle strategy’ – a workplace pension
default investment strategy, marking the first time an investment
strategy has been solely based on the Aviva Investors Stewardship
Funds. These funds were also then launched onto Aviva UK’s
Adviser Platform, providing a new ethical and ESG option for
pension customers.
1 From 2020 this Committee has become the Customer, Conduct and Reputation Committee. Further details are available in the Governance Report in the Annual Report and Accounts.
2 Our humans rights policy can be found at www.aviva.com/content/dam/aviva-corporate/documents/socialpurpose/pdfs/policies-responses/20171025-Human-Rights-Policy-Final.pdf
3 Please note there are no specific ESG restrictions on the Investment Manager’s decision.
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Corporate responsibility
Continued
We also continue to play our role as a responsible asset owner
engaging with the companies, projects and assets we own on issues
such as climate change, human rights and diversity. For example,
Aviva Investors worked with other
investors on a resolution
encouraging the oil and gas company British Petroleum to do more
to show how its strategy is consistent with meeting the Paris
Agreement – which passed with 96% support at its AGM.
We believe in the need to encourage change not just with the
companies we invest in, but in our industry and economy as a whole.
In September 2019, Maurice Tulloch, Global CEO, attended the UN
General Assembly in New York to demonstrate our commitment to
be a company that makes a difference. We know that an
unsustainable planet creates huge risks for our business and our
customers – so we engage with governments and policymakers to try
and fix the financial system and make sure more money goes
towards building a sustainable future. At the event he talked about
the need for a Marshall Plan for the planet, an ambitious plan to
change the financial system for the better.
We continue our support of the World Benchmarking Alliance (WBA),
alongside the United Nations Foundation. The Alliance is committed
to establishing public, transparent and authoritative league tables,
ranking companies on their contribution to the SDGs. In 2019 the
WBA published their first two rankings on sustainable seafood and
climate change. In 2020 this will be accelerated with the publication
of a suite of rankings addressing food and agriculture, digital
inclusion and gender equality and empowerment.
figures) and
the accompanying
Corporate Responsibility (CR) key performance indicators (including
limited assurance
2017-2019
statement by PwC can be found in Aviva’s Environmental, Social and
Governance Data sheet on www.aviva.com/social-purpose. Our CR
Summary 2019 will be released later in 2020. More details of our
internal diversity, inclusion and wellbeing approach can be found in
the ‘Our people’ section of this Strategic report.
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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
IFRS profit before tax4
Solvency II return on equity2,5,6
Solvency II operating own funds
generation2,6
Solvency II operating capital
generation2,6
Cash remittances2
Controllable costs2
Debt leverage2
Estimated Solvency II shareholder
cover ratio2,6
Value of new business on an
adjusted Solvency II basis2
Combined operating ratio2
2019
£m
3,184
60.5p
3,374
14.3%
Restated7
2018
£m
3,004
56.2p
2,129
12.5%
Sterling
Change
Sterling %
change
180
4.3p
1,245
1.8pp
6%
8%
58%
—
2,257
2,022
235
12%
2,259
2,597
3,939
31%
3,198
3,137
3,968
33%
(939)
(540)
(29)
(2)pp
(29)%
(17)%
(1)%
—
206%
204%
2pp
1,224
97.5%
1,202
97.2%
22
0.3pp
—
2%
—
As set out in the ‘Our strategy’ section, in November 2019 we
announced new financial targets focused on economic value. We
also announced that we have simplified our operating model into
five new business divisions from 2020. The ‘Market review’ section
sets out the main changes relating to the new divisions and
summarises the performance of our markets during 2019 on the
basis on which they were managed during the year.
In the Business performance review on the next page, our 2019
performance against our new targets has been presented having
regard to the new business divisions. UK Life and Investments,
Savings & Retirement have been presented together for both the
Solvency II operating capital generation2 and Solvency II return on
capital2 metrics. This is consistent with the targets presented at the
capital markets day in November 2019. Other key performance
indicators have been presented separately for UK Life and Aviva
Investors.
Overview
In 2019, the external environment provided both positives and
challenges. Economic growth was subdued across most developed
economies and government bond yields fell sharply in the second
half of the year, moving into negative territory in a number of
European countries. However, equity markets rebounded and were
supportive for asset values. The political backdrop remained a
source of uncertainty, particularly in the UK, where the December
general election weighed on confidence and activity across the
economy.
Aviva is designed to perform whatever the external environment and
made good operational progress in 2019, delivering increases in
customer activity levels and profitability across our businesses.
Group adjusted operating profit1 increased 6% to £3,184 million
(2018 restated7: £3,004 million) while Solvency II return on equity2,5,6
was 14.3% (2018: 12.5%), continuing to benefit from favourable
assumption changes.
We also further strengthened our financial position. Our Solvency II
capital surplus6 rose to £12.6 billion (2018: £12.0 billion), with an
increase in the cover ratio2,6 to 206% (2018: 204%). As planned, we
reduced debt by £0.2 billion in 2019, leading to a reduction in our
leverage ratio2 to 31% (2018: 33%). Cash remittances2 of £2.6 billion
(2018: £3.1 billion) were again very strong. At
the end of
£2.4 billion
was
February 2020,
(February 2019: £1.6 billion).
liquidity
centre
our
Reflecting our operational momentum and strong
financial
fundamentals, the Board of Directors has declared a final dividend of
21.4 pence per share, resulting in a 3% increase in the full year
dividend per share to 30.9 pence (2018: 30.0 pence).
Economic returns
At our capital markets day in November 2019, we outlined our
intention to increase Aviva’s focus on economic performance in our
financial communication. This reflects the importance of economic
metrics in how we manage the business: the allocation of capital and
other resources across the Group and the trading decisions we make
each day. Economic returns ultimately support a sustainable
dividend and our ability to invest to grow the company.
In 2019, Aviva generated Solvency II operating own funds2,6 of
in RoE2,5,6 of 14.3%
£2.3 billion
(2018: 12.5%). Solvency II operating capital generation (OCG)2 was
£2.3 billion (2018: £3.2 billion).
(2018: £2.0 billion)
resulting
Our economic results continued to benefit from significant levels of
longevity reserve reductions in our UK Life business, active balance
sheet management and other modelling and assumption changes.
As a result, net management actions added 6.2% to the Group return
on equity2,5,6 (2018: 3.2%) and £0.8 billion to OCG2 (2018: £1.7 billion).
In 2018, OCG2 also benefited from a number of actions such as model
changes that reduced our solvency capital requirement (SCR).
We remain prudently reserved for life expectancy in our UK annuity
portfolio, although in light of recent trends witnessed in 2019, we
expect longevity reserve releases to be materially lower in future
periods. As a result, while management actions are expected to make
a positive contribution to capital generation and RoE over time, we
reaffirm our guidance that this is likely to be at a much lower level
than has been the case in 2018 and 2019.
On an underlying basis (excluding net management actions), return
on equity2,5,6 was 8.1% (2018: 9.3%) and OCG2 was £1.4 billion
(2018: £1.5 billion). Our results benefited from improved returns in
general insurance, particularly from Canada, and a reduction in debt
interest and corporate centre expenditure. However, this was offset
by lower returns from our life businesses which were affected by the
loss of temporary transitionals on new business, experience
variances in the UK, and lower new business profitability in Europe
due to record low interest rates.
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.
IFRS profit before tax attributable to shareholders’ profit.
Includes Group centre, debt costs and other items not allocated to the markets.
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
5
6 The estimated Solvency II position represents the shareholder view. Please refer to note 58 and the ‘Other information’ section of the Annual report and accounts for more information.
7 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see
note 2(b)). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been restated resulting in a reduction in the
prior period Group adjusted operating profit of £112 million. There is no impact on profit before tax attributable to shareholders’ profit. Following the change in the definition of Group adjusted operating profit, COR and operating
earnings per share have also been restated to include the amortisation and impairment of internally generated intangible assets. Comparative amounts have been restated resulting in an increase in prior period COR of 0.6%
and a reduction in the prior period operating earnings per share of 2.2 pence.
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Chief Financial Officer’s review
Continued
To achieve our 12% RoE3 target in 2022, an increase in underlying
economic returns is planned. This improvement will include lower
costs,
improved operating experience, higher new business
profitability and prioritisation of capital to product and business
segments offering superior returns.
Business performance review
Our operational progress in 2019 was reflected in improved IFRS
results. Group adjusted operating profit1
to
£3,184 million (2018 restated2: £3,004 million), which in turn gave rise
to 8% growth in operating earnings per share3,4 to 60.5 pence
(2018 restated2: 56.2 pence). IFRS profit before tax increased to
£3,374 million (2018: £2,129 million) helped by positive investment
variances, and this led to basic EPS of 63.8 pence (2018: 38.2 pence).
increased 6%
related
UK Life and Investments, Savings & Retirement (IS&R)
In UK Life and Investments, Savings & Retirement, own funds
generation3,5 was £1,314 million (2018: £1,663 million), giving rise to
return on capital3,5 of 9.5% (2018: 11.3%). The reduction in results was
due to the loss of transitional benefits on new business, adverse
experience variances
to persistency, expenses and
challenges in the protection market, and lower Group adjusted
operating profit1 from Aviva Investors where revenues were impacted
by lower opening assets under management in higher margin
propositions and divestment of our European indirect real estate
business in 2018. Positive assumption changes related to longevity
reserves of approximately £0.8 billion were partially offset by a
£175 million provision in relation to a heritage pension product
where certain pension policyholders may not have been adequately
informed of switching options available to them. While financial
results were lower, in 2019, we achieved higher sales and customer
net inflows1 across our life and savings businesses. This underpinned
asset growth of 19%
long-term savings to £138 billion
(2018: £116 billion), 9% in annuities & equity release to £67 billion
(2018: £62 billion) and 5%
Investors to £346 billion
in Aviva
(2018: £331 billion), supporting a positive outlook for future financial
results in our UK Life and Savings segments.
in
General Insurance
General Insurance results improved in 2019, with own funds
generation3,5 increasing to £628 million (2018: £532 million) and
return on capital3,5 of 14.0% (2018: 11.7%). The improvement in
results was principally driven by a recovery in profitability in Canada
where pricing and underwriting actions we took in response to
industry-wide challenges in the auto insurance market helped drive
a 5.3 percentage point improvement in the combined operating ratio
(COR)3 to 97.8% (2018 restated2: 103.1%). We are continuing to aim for
a 96% or better COR3 in Canada in 2020. In the UK, reported COR3 in
2019 has been affected by higher costs following its incorporation of
UK Digital during the year. Adjusting for these changes, our UK COR3
was up 0.6 percentage points to 97.9%, with solid results in
commercial lines offset by weaker performance in personal lines. In
Europe we maintained attractive profitability with a COR3 of 95.7%
(2018 restated2: 93.5%) despite adverse
loss experience.
Weather had a favourable impact on our COR3 of 1.0 percentage
point relative to long-term average (2018: 0.1% unfavourable) while
prior year reserve development (PYD) had a favourable 1.7% impact
(2018: 2.3% favourable).
large
Europe Life
In Europe Life, we have balanced long-term franchise value with the
requirement to actively manage the current environment of very low,
and in some cases, negative government bond yields. Own funds
generation3,5
increased to £574 million (2018: £384 million) and
included assumption changes of £181 million spread across our
France, Italy and Ireland businesses. This in turn gave rise to an
improvement in return on capital to 10.3% (2018: 6.9%). New
£13.8 billion
business
(2018: £12.6 billion) demonstrating the strength of our distribution
networks and customer appetite for our products. Strong volume
growth was achieved in France (+32%) and Poland (+28%). However,
the own funds contribution from new business declined to
£167 million (2018: £253 million) due to low yields. We will continue to
address the challenges from low yields through proactive balance
sheet management and a constructive approach to distribution and
product mix management.
(PVNBP)3
volumes
rose
9%
to
Asia Life
In Asia Life, own funds generation increased 30% to £187 million
(2018: £144 million) and return on capital3,5 rose to 12.7% (2018: 9.7%).
Our businesses in Asia have continued to grow profitably in our larger
markets while successfully narrowing
losses elsewhere. New
business volumes from our continuing operations in Asia increased
22% to £2.7 billion (2018: £2.2 billion) with double digit growth
achieved in Singapore and China. This gave rise to Value of new
business on an adjusted Solvency II basis (VNB)3 in Asia of
£210 million (2018: £194 million), representing growth of 9%.
Corporate centre
Corporate centre costs reduced to £183 million (2018: £216 million) as
we commenced initiatives aimed at streamlining our head office and
reducing project spending, while debt interest expense fell to
£255 million (2018: £280 million). The loss from other operations
narrowed to £26 million (2018: £212 million loss) primarily as a result
of digital and other costs being realigned to our business units.
Operating expenses3
Total operating expenses3 were £4,119 million (2018: £4,138 million)
with reductions in controllable costs3 partly offset by an increase in
levies and premium taxes to £180 million (2018: £170 million).
Controllable costs fell to £3,939 million (2018: £3,968 million).
Savings of £72 million6 were mainly derived from our lean group
centre initiative and reduced project spend, although we reinvested
some of these savings in other areas including IT modernisation and
proposition development. Implementation costs associated with the
cost reduction programme and our spend on IFRS 17 was
£59 million.
Capital and liquidity
At the end of 2019, our Solvency II surplus5 was £12.6 billion
(2018: £12.0 billion), giving rise to cover ratio3,5 of 206% (2018: 204%).
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 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see
note 2(b)). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been restated resulting in a reduction in the
prior period Group adjusted operating profit of £112 million. There is no impact on profit before tax attributable to shareholders’ profit. Following the change in the definition of Group adjusted operating profit, COR and operating
earnings per share have also been restated to include the amortisation and impairment of internally generated intangible assets. Comparative amounts have been restated resulting in an increase in prior period COR of 0.6%
and a reduction in the prior period operating earnings per share of 2.2 pence.
3 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.
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 58 and the ‘Other information’ section of the Annual report and accounts for more information.
6 Constant currency.
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Chief Financial Officer’s review
Continued
All of our principal operating entities are well capitalised and
operating within their respective normal working ranges. In France,
we added approximately 70 percentage points of solvency cover in
the second half of 2019, including a 20 percentage point benefit from
PPE1, following changes to regulations. This, combined with our
active management of capital, including the purchase of interest rate
and other hedges, gives us headroom to manage volatility from
falling bond yields.
Solvency II net asset value (NAV)2 per share rose 31 pence to
423 pence (2018: 392 pence). During 2019, we redeemed £0.2 billion
of hybrid capital as part of our overall £1.5 billion debt reduction
target. Together with the increase in Solvency II own funds2,3, this has
led to a reduction in our leverage ratio3 to 31% (2018: 33%).
Cash remittances3 were once more very strong in 2019 at £2.6 billion
(2018: £3.1 billion). This represents approximately 30% of our
four-year target for cash inflows3 to centre (of £8.5-£9.0 billion),
underpinning our confidence in meeting this objective. At the end of
£2.4 billion
February
(February 2019: £1.6 billion).
liquidity3
centre
2020,
was
Dividend
Aviva has a progressive dividend policy, which means we aim to
maintain or grow the dividend. In light of our 2019 performance and
continued strength of our capital and liquidity, the Board has
declared a
share
(2018: 20.75 pence), bringing the full year dividend for 2019 to
30.9 pence (2018: 30.0 pence).
final dividend of 21.40 pence per
Looking ahead
As CFO of Aviva, my focus is on growing the value of the company
safely, by increasing sustainable return on equity2,3, improving
growth and avoiding volatility through prudent and proactive
financial management. Our 2019 results show we are on the right
path and I envisage significant upside in performance and value from
delivering further progress.
So far 2020 has brought significant uncertainty, compounded by
COVID-19, in relation to macro trends including the level of interest
rates, investment market volatility and foreign exchange. However,
we have a strong and resilient balance sheet that is designed to
withstand volatility.
In the last three years, Group adjusted operating profit4 and OCG3
have benefited from large assumption changes and other actions,
most notably a reduction of longevity reserves. We expect our results
to benefit from some similar actions over the medium term, but from
2020, we expect this to be in a range of zero to £200 million per
annum for IFRS and c.£200 million per annum for OCG3, as we
highlighted at our capital markets day in November.
We have set out our targets to improve returns, reduce debt leverage3
and enhance sustainable capital generation while continuing to
invest wisely to grow the company. We are committed to achieving
these targets, and furthermore, we expect to make progress in 2020,
with an increase in underlying OCG.
Jason Windsor
Chief Financial Officer
4 March 2020
1 Regulation was introduced in France that allows French insurers to place the Provision pour Participation aux Excedents (PPE) into Solvency II own funds. The PPE has been included in the France local regulatory own funds in
2019 but it is not included in the Group regulatory own funds.
2 The estimated Solvency II position represents the shareholder view. Please refer to note 58 and the ‘Other information’ section of the Annual report and accounts for more information.
3 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.
4 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.
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Market review
Market review
This section summarises the performance of our markets (UK Life, Aviva Investors, General Insurance – UK General Insurance and Canada,
Europe and Asia) during 2019 on the basis on which they were managed during the year.
On 20 November 2019, we presented our refreshed strategy which simplifies our operating model into five new business divisions effective
from 2020 (UK Life; Investments, Savings & Retirement; General Insurance; Europe Life and Asia Life). The main changes are that:
• Investments, Savings & Retirement will bring together Aviva Investors and the UK Savings & Retirement business, which is currently reported
within UK Life
• General Insurance will include our Europe and Asia general insurance operations as well as UK General Insurance and our Canadian general
insurance business
• Europe Life and Asia Life will only include our Europe and Asia life and health businesses
An overview of each of our five new business divisions, including their updated strategy, key priorities and financial targets is included in the
‘Our strategy’ section.
UK Life
Overview
Aviva is one of the UK’s largest insurers with a 17%1 share of the UK
life and savings markets. We are here to earn our customers’ trust as
the best place to save for their future, navigate retirement and
protect what matters most to them. We are uniquely positioned to
help our customers and are a trusted provider of a broad range of
products to both individual and corporate customers covering their
savings, retirement, insurance and health needs.
With over 11 million customers we have one of the largest customer
bases in the UK life and savings markets. We have a strong core
capability in managing legacy books of business. We have strong
relationships with independent financial advisers, brokers, employee
benefit consultants and banks, single-tie agreements with three of
the largest estate agencies and a digital direct offering. One of our
key priorities is to become the retirement solutions partner of choice
and we aim to empower our customers to take control of their
financial futures to help them enjoy a secure and happy retirement.
We are a leading provider of individual annuities and provide a
secure income to 1.2 million customers in the form of an annuity,
paying out over £3 billion each year. We are also a leading supplier1
of equity release (lifetime mortgages), lending £770 million in 2019,
helping people to raise money to fund whatever matters most to
them in life. During 2019 we won ‘Best Equity Release Lender’, ‘Best
Equity Release Lender Customer Service’ and
‘Best Financial
Protection Provider’ at the What Mortgage Awards.
We continue to build on our defined benefit de-risking and bulk
purchase annuity capabilities, supporting our business customers
looking to reduce risk. We have a strong brand and leading
distribution, with market leading illiquid asset origination supported
by a 20-year track record in commercial mortgages and equity
release.
We are the largest UK corporate pensions provider2, servicing over
26,000 schemes and 3.5 million customers, including 23%1 of the
workplace pensions market. We offer pensions, protection, and bulk
purchase annuity propositions to both large and small companies,
as well as health, wellness and employee benefits, creating a
differentiated proposition. During 2019 we won
‘Defined
Contribution Provider of the Year’ and ‘Pensions Communication
Initiative of the Year’ at the Professional Pensions UK Pension
Awards.
We are an emerging leader in the adviser platform market, currently
servicing over 12,000 IFAs and over 260,000 customers. Our platform
continues to grow with assets under administration3 up 28% in 2019
to £29 billion and net fund flows3 continue to be positive at
£3.5 billion. In 2019 we have outgrown the market, ranked second4
for net fund flows3 and are a top 10 player4 by assets under
administration3.
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. In 2018 we paid out 98.9% of life insurance claims5
equating to £563 million5. We are one of the largest in the market for
individual and group protection6. We protect over 5 million people
during some of the most difficult times in their lives, such as
bereavement and serious illness. We have won several awards
recognising our achievements, including, for the second year
running, ‘Best Individual Critical Illness Provider’ at both the Health
Insurance & Protection Awards and the Cover Excellence awards, and
also ‘Best Group Critical Illness Provider’ at the latter.
Health is a key concern for people in the UK. Our aim is to help our
customers live more healthily, help them get better if they fall ill and
to support them and their families when they can’t. We have been
recognised as Health Insurer of the year for the 10th year running7.
1 Association of British Insurers (ABI) 12 months to end Q319.
2 Broadridge, UK DC and Retirement Income 2018.
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 Fundscape advised platforms, 9 months to Q319.
5 Aviva individual protection claims report spring 2019.
6 Swiss Re Group Watch 2018.
7 Health & Insurance Protection Awards 2019.
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Market review
Continued
Financial performance
Profit
Solvency II return on capital1
2019
£m
Restated6
2018
£m
9.3%
10.9%
Solvency II operating capital generation (OCG)1
1,170
1,821
Cash remitted to Group1
1,387
2,152
Adjusted operating profit2
Life
Health
Profit before tax
Controllable Costs1
New business
Present value of new business premiums (PVNBP)1
Value of new business on an adjusted
Solvency II basis (VNB)1
1,820
35
1,855
1,848
38
1,886
2,253
1,436
1,045
1,013
27,570 23,946
592
481
Solvency II return on capital1 and Solvency II operating capital
generation1 (OCG)
UK Life (including UK Savings & Retirement) Solvency II return on
capital1 reduced by 1.6pp to 9.3% (2018: 10.9%) and Solvency II own
funds generation decreased to £1,244 million (2018: £1,552 million).
This is largely due to no benefit from transitional relief on new
business together with adverse experience on protection business. In
2018, new business written contributed to the calculation of
transitional measures (in line with clarification issued by the PRA
since 2017) but it is no longer applicable to the Group in 2019. 2018
own funds generation included £218 million of transitional benefits.
UK Life Solvency II operating capital generation (OCG)1 has reduced
to £1,170 million (2018: £1,821 million). This is mainly due to the
absence of transitional benefits on new business together with
adverse experience variances and a reduction in assumption
changes and management actions. These have been partially offset
by lower new business strain which has significantly reduced due to
reinsurance actions. The impacts of longevity assumption changes
are broadly comparable in 2018 and 2019, but 2019 includes adverse
impacts from persistency and other non-economic assumption
changes. 2018 also included positive impacts from modelling
changes and additional equity volatility hedging that did not re-
occur in 2019.
remitted
Cash
to Group1 by UK Life was £1,387 million
Cash
(2018: £2,152 million), including a £500 million special remittance
following
included
longevity developments.
£1,250 million of special remittances, £750 million due to positive
longevity developments and management actions and the final
Friends Life integration remittance of £500 million.
recent
2018
Adjusted operating profit2
Long-term savings3
Annuities & equity release
Protection
Legacy4
Health
Other5
Total adjusted operating profit2
Restated6
2018
£m
187
777
221
316
38
347
2019
£m
211
866
166
274
35
303
1,855
1,886
UK Life & Health adjusted operating profit2 decreased by 2% to
£1,855 million (2018 restated6: £1,886 million). Within this, lower profit
in protection and our legacy book were offset by higher profit in
annuities & equity release. There was a lower contribution from other
items mainly due to the alignment of UK digital business costs within
UK Life (which is neutral at Group level).
The decrease in adjusted operating profit2 is more than offset by a
favourable movement in economic variances leading to an increase
in profit before tax attributable to shareholders’ profit of
£2,253 million (2018: £1,436 million).
Long-term savings
Long-term savings managed assets1 increased 19% to £138 billion
(2018: £116 billion), with net fund inflows1 improving to £5.4 billion
(2018: £5.0 billion). Within this, heritage pensions net outflows were
£2.1 billion (2018: £1.9 billion). These were more than offset by
workplace pension net fund flows which grew to £4.8 billion (2018:
£3.7 billion), driven by new scheme wins with large corporates, the
benefits of higher auto enrolment contributions and improved
retention.
Positive net fund flows1 of £3.5 billion (2018: £3.9 billion) along with
market movements have resulted in platform managed assets1
growing 28% to £29.1 billion (2018: £22.6 billion).
Adjusted operating profit2 has increased by 13% to £211 million
(2018 restated6: £187 million).
to
profit2
operating
increased
Annuities & equity release
Annuities & equity release adjusted operating profit2 increased to
£866 million (2018 restated6: £777 million). Within this, new business
£506 million
adjusted
(2018: £363 million) as BPA volumes increased 55% to £4.0 billion
(2018: £2.6 billion), including the partial buy-in of the Aviva staff
pension scheme (£1.7 billion). Volumes in Individual annuities were
5% lower as we took a selective approach to trading to focus on
margins. Existing business adjusted operating profit2 fell by
£54 million to £360 million (2018 restated6: £414 million) as there has
been no repeat of either the in-year favourable longevity experience
in 2018 or the £24 million benefit seen in 2018 from asset mix
optimisation.
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.
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.
Includes workplace, platform, individual personal pensions and heritage pensions.
3
4 Legacy represents products no longer actively marketed, including with-profits and bonds.
5 Other life represents changes in assumptions and modelling, non-recurring items and non-product specific overheads.
6 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see
note 1(b) in the Annual report and accounts). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been
restated. There is no impact on profit before tax attributable to shareholders’ profit.
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Market review
Continued
Protection
Protection adjusted operating profit1 decreased by 25% to £166 million
(2018 restated4: £221 million) reflecting continued competitive trading
conditions in the market, including the impact of hardening reinsurance
rates and adverse claims experience in group protection.
Annuities & equity release VNB3 increased 45% to £284 million
(2018: £196 million) despite the absence of new business transitional
benefits in 2019. Growth has mainly been driven by higher BPA
volumes written on a higher average margin due to pricing discipline,
improved reinsurance rates and securing higher quality assets.
Legacy
Legacy contributed adjusted operating profit1 of £274 million
(2018 restated4: £316 million). 2019 fee income was impacted by
lower asset values at the start of the year following weak investment
markets towards the end of 2018. The fall in profits was broadly in
line with the impact of expected net outflows.
Health
UK Health adjusted operating profit1 decreased by 8% to £35 million
(2018: £38 million).
Other
Other adjusted operating profit1 is £303 million (2018 restated4:
£347 million). During 2019, there was a net benefit from assumption
changes of £574 million2. Within this, continued net positive
longevity and mortality developments, including adopting CMI 2018,
gave a benefit of £751 million which was partly offset by updates to
persistency (£126 million charge) and other assumptions. A benefit
to reflect changes to our unitised with profit reserving approach
(£167 million) was largely offset by a number of other modelling
changes. We have recognised a £175 million provision to allow for
certain pension policyholders who may not have been adequately
informed of switching options available to them. More detail is
included in the ‘market context and challenges’ section.
costs3
increased
Controllable costs3
Controllable
£1,045 million
(2018: £1,013 million), including the effect of realigning £52 million of
UK digital business costs to UK Life. Excluding these costs, controllable
costs3 reduced by 2%. We have benefited from a continued focus on
efficiency while continuing to invest in growth and simplification
initiatives, including improvements to customer experience.
3%
to
Life new Business
Long-term savings
Annuities & equity
release
Protection
Health and Other
Total
PVNBP3
Solvency II VNB3 New Business Margin
2019
£m
2018
£m
18,884 16,829
6,182
1,875
629
4,784
1,799
534
27,570 23,946
2019
£m
141
284
126
41
592
2018
£m
111
196
140
34
481
2019
%
2018
%
0.7%
0.7%
4.6%
6.7%
6.5%
2.1%
4.1%
7.8%
6.4%
2.0%
PVNBP3 increased 15% to £27,570 million (2018: £23,946 million) as
strong growth in BPA, workplace pensions, group protection and
equity release was partly offset by lower platform and individual
annuity volumes. VNB3
to £592 million
(2018: £481 million), mainly reflecting growth in volumes and higher
margins in annuities & equity release.
increased by 23%
savings VNB3
to £141 million
Long-term
(2018: £111 million) as a result of growth in workplace pensions VNB1.
Platform VNB1 has been impacted by lower volumes driven by
uncertain investment markets.
increased 27%
VNB3
by
10%
decreased
£126 million
Protection
(2018: £140 million) mainly due to hardening reinsurance rates with
PVNBP3 up 4% to £1,875 million (2018: £1,799 million). Group
protection volumes grew strongly driven by large corporates growth.
Individual protection volumes were stable despite competitive
trading pressures.
to
Health and Other VNB3 improved to £41 million (2018: £34 million),
due to growth in health volumes.
Operational and customer highlights
During 2019 our operational highlights and examples of great
customer outcomes we have delivered include:
Customer
• We continue to focus on the customer. Our transactional net
promotor scores, a measure of the number of customers that
would recommend us following a purchase, service or claim, has
increased by 10 points to +43 (2018: +33).
• We have received encouraging scores from a newly introduced Net
Trust Index, showing we are above benchmark for consumer trust
in our sector. We will continue working to improve consumer
perception and trust levels.
• We constantly work to improve our customer service, taking
learnings from dissatisfaction and analysing the root cause of
complaints
improve our performance. In 2019
complaint volumes have fallen 21% compared to 2018.
in order to
Digital & Technology
• We have over 5.5 million customers in the UK registered on
MyAviva, allowing them to manage their policies online. We are
accessible to new and existing personal and corporate customers
however they want to engage with us. In February 2019 we were
awarded the Pension Age Innovation Award for Technology.
Technology is at the heart of all our product offerings and this
award recognises our work in helping to make members’ pensions
more accessible and manageable through MyAviva.
• We continue to improve connectivity with our intermediary
partners, making it easier, simpler and more efficient to deal with
us. For example, we have introduced a protection online advisor
portal, enabling self-serve and reducing inbound call volumes. We
have also launched MyPension into workplace to further capitalise
on our market leading workplace position.
Products and solutions
• We have launched a new corporate mental health cover option,
Mental Health Pathways Plus, enabling large companies and
organisations in the UK to support employees with all addictions,
including online gambling, gaming and social media.
• In 2019 we wrote over £4.0 billion of bulk purchase annuities, which
included a £1.7 billion partial buy-in transaction with the Aviva
Staff Pension Scheme, insuring the defined benefit pension
liabilities and removing the investment and longevity risk of these
members from the schemes.
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 Please refer to note 48 ‘Effect of changes in assumptions and estimates during the year’ within the Annual report and accounts
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 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see
note 1(b) in the Annual report and accounts). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been
restated. There is no impact on profit before tax attributable to shareholders’ profit.
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• The Group Protection market continued to be highly price
competitive in 2019. Despite the price competition, Aviva delivered
strong trading results, especially in the first half of the year, whilst
maintaining capital allocation and pricing discipline. Aviva’s claims
experience was weaker than expected, particularly across Group
Life and Group Critical Illness products.
• In April 2019 auto-enrolment minimum contributions increased
from 3% to 5%, supporting better retirement prospects for all UK
workers. The ‘secondary market’, where businesses look to
potentially change their workplace pension provider, continues to
thrive as employers and employees increasingly recognise the
value of a well-run pension scheme. In a recent survey pensions
came second3 in a poll of workplace benefits employees were most
interested in, just behind annual leave.
• We are working with the PRA on the consultation process in respect
of the capital required by firms offering equity release mortgages.
We believe equity release is a valuable product for certain
customers aged over 55, helping homeowners access money in
their later life. We await clarification from the Financial Conduct
Authority (FCA) into whether or not it intends to extend the scope
of its review of the defined benefit transfer market. 2019 saw
activity in this market fall significantly following the FCA’s initial
intervention.
• We promote strong regulation that
is effectively targeted,
efficiently delivered, and supports sustainable growth and
innovation. We will continue to work closely with our regulator to
bring further improvements to the market over the next two to
three years.
• Many investors are cautious about short-term market movements
and we have seen a growth in the popularity of funds which aim to
address this need. The Aviva Smooth Managed Fund is designed to
deliver growth over the medium to long term using a ‘smoothing’
process to shelter individuals from some of the impact of adverse
market movements.
• In July we launched the
‘Stewardship lifestyle strategy’, a
workplace pension default investment strategy that incorporates
ethical and environmental, social and governance
(ESG)
considerations. The launch comes a year ahead of a significant
ESG-related milestone in the UK in 2021 that means financial
advisers will need to be more proactive with customers in relation
to ESG considerations by asking them about their preferences. The
funds have also been launched on the Adviser platform.
Market review
Continued
• We have made significant changes to our lifetime mortgage
proposition, introducing new flexible repayment options. With
these new features, customers can take advantage of increased
flexibility to make managing their finances in retirement even
simpler.
• We continue to promote both financial and health wellbeing in the
workplace through Aviva Wellbeing, our desktop and mobile app
dedicated to helping people live their best lives. The programme
offers a set of services aimed at helping employers strengthen the
mental, physical and emotional wellbeing of their employees by
inspiring positive behavioural change.
• We continue to receive external recognition for excellent service in
the pensions marketplace, receiving a five-star rating in the
Thomson’s 2019 Pensions Provider Report. Our commitment to
digital development, a solid Group Personal Pension product,
improved retirement journey and our ambition to change benefits
for the good were all cited as contributing factors.
• Aviva Financial Advice continues to expand its offering. We are also
seeing positive engagement with large corporate schemes and
SME businesses, connecting group scheme members with advice.
• We recognise the practical, financial and emotional costs many
people in mid-life are facing in caring for relatives both young and
old. To help support these employees we have introduced a carers’
policy which provides up to 70 hours of additional annual leave for
our people with caring responsibilities and are piloting a
partnership with ‘SuperCarers1’ to help our people navigate the
care landscape.
• The over-45s are the fastest growing working age-group in the UK.
Aviva’s mid-life MOT leads the market by providing its people with
targeted guidance
the
opportunities of a longer working life. We have also run sessions for
a small number of corporate clients.
this population embrace
to help
Market context and challenges
• In 2019, we recognised a £175 million provision after determining
that past communications to a specific sub-set of pension
policyholders may not have adequately
informed them of
switching options into with-profits funds that were available to
them. The issue is restricted to a product acquired by Aviva through
the purchase of Friends Life. It does not affect any other part of our
business.
• The individual annuity market was particularly competitive during
2019. With bond yields tightening over the first half of the year, and
the open market only growing by 2%2, trading was difficult for Aviva
and all of our competitors. With our disciplined approach to capital
allocation, Aviva took a selective approach to trading to focus on
margins.
• The highly competitive environment in the individual protection
market continued into 2019 making for difficult trading conditions
and the need to balance volume and margin. A focus on quality of
business through Distributor Value Management and underwriting
risk cost alongside enhancing pricing sophistication still allowed
volume growth quarter on quarter throughout the year as we
competed for quality share, but saw margin reductions against
previous years.
1 SuperCarers is an independent organisation that helps individuals and their families navigate the UK care system. www.supercarers.com
2 Association of British Insurers (ABI) 12 months to end Q319
3 Survey of 2,011 employed people carried out by Censuswide on behalf of Aviva in March 2019
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Continued
Aviva Investors
Overview
We are Aviva’s global asset management business with expertise in
real assets, solutions, multi assets and macro1, equity and credit. We
currently invest £346 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
outcomes our investors are looking for.
Being an integral part of the Group, we provide asset management
services and solutions to both internal and external customers. We
combine our insurance heritage and DNA with our skills and
experience in asset allocation, portfolio construction and risk
to
management
institutional, wholesale and retail clients.
to provide asset management solutions
In a world of low interest rates and Solvency II, we aim to provide the
solutions for investors to achieve the returns they need.
In November 2019 Aviva announced the creation of the Investments,
Savings & Retirement (IS&R) division effective from 2020. IS&R brings
together Aviva Investors and the UK Savings & Retirement business,
which in 2019 and prior years was presented within UK Life.
Financial performance
Assets under management2
Revenue
Adjusted operating profit3,4
Profit before tax
Cash remitted to Group2
Controllable Costs2
2019
£m
Restated5
2018
£m
£346bn £331bn
542
597
96
91
86
147
170
92
446
450
Net flows and assets under management2
Assets under management2 (AUM) 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 third parties on platforms administered by Aviva
Investors.
Assets under management2 increased during the year by £15.4 billion
to £346.1 billion (2018: £330.7 billion). This is due to £21.4 billion of
favourable market and foreign exchange movements, external net
inflows of £2.3 billion and £1.3 billion net flows into liquidity funds
and cash, partly offset by outflows on our Aviva client of £6.4 billion
and £3.2 billion of assets transferred to an external manager, which
were previously managed by Aviva Investors under a legacy
distribution
and
administration2 at 31 December 2019 were £382.4 billion
(2018: £359.8 billion).
agreement. Assets under management
Revenue2
Revenue2 decreased by 9% to £542 million (2018: £597 million) driven
by the effect of the 2018 disposals of an indirect real estate multi-
manager business and our interest in the management of a pan-
European commercial property fund, reduced
internal client
demand for originating assets, higher margin external outflows and
run-off of the legacy Aviva client book of business.
Profit
Adjusted operating profit3,4 decreased by £51 million to £96 million
(2018 restated5: £147 million) mainly due to the reduction in revenue
described above. Cost control by the business helped mitigate the
impact on profitability.
Profit before tax attributable to shareholders’ profit has reduced to
£91 million (2018: £170 million) mainly due to the lower adjusted
operating profit3,4. In 2018 there was also a £27 million one off gain
on disposal relating to the Real Estate Multi-Manager business and
the disposal of our interest in the pan-European commercial
property fund.
Solvency II return on capital2
13.7%
22.7%
Cash
Cash remitted2 to Group was £86 million (2018: £92 million).
Solvency II operating capital generation (OCG)2
90
126
During 2019, our investment capabilities have delivered consistently
improving investment performance across all asset classes. The
expansion in our distribution capability in the US led to significant
new business wins, creating a more diversified client base across a
broader range of products.
Following global growth in demand among institutional investors,
we have also strengthened our focus on our real assets business.
Controllable costs2
Controllable costs2
Investors were £446 million
(2018: £450 million). The decrease includes £11 million cost savings
partly offset by £7 million of non-recurring restructuring costs.
in Aviva
1 A global macro strategy bases its holdings primarily on the overall economic and political views of various countries or their macroeconomic principles. Holdings may include long and short positions in various equity, fixed
income, currency, commodities, and futures markets.
2 This 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 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.
4 Fund management adjusted operating profit excludes £nil (2018: £1 million) of profit relating to the Aviva Investors Pensions Limited business.
5 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see
note 1(b) in the Annual report and accounts). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been
restated. There is no impact on profit before tax attributable to shareholders’ profit.
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Operational and customer highlights
• Positive net sales across our credit and real assets businesses in the
second half of 2019 were very encouraging, with net positive
external client flows of circa £2.3 billion at year end. However,
redemptions from certain high margin funds in the first part of 2019
resulted in lower revenue for the year.
• Our key focus is on enhancing investment returns for our clients.
With 84% of total AUM1 ahead of benchmark as at 31 December, we
have beaten our target objective of 70%, demonstrating the
incremental value that we have achieved for our investors. We have
also seen a significant improvement on the internal book of
business, with 85% of AUM1 ahead of benchmark as at the end of
2019, compared to 31% at the end of 2018.
• Our AIMS funds have materially improved in 2019, with AIMS Target
Return fund up 9.9%, and the Target Income fund up 11.7% over
the same period.
• We have also continued to see a strong long-term investment
performance, with over 66% of our funds beating the benchmark
over a five year period.
• We consistently integrated the environmental, social thinking and
governance (ESG) investment processes across all our asset
classes, with launches of several new ESG funds, such as
Sustainable Income and Growth and Climate Transition European
Equity Fund.
• We completed our Equity team build out in 2019, ensuring that we
have the right expertise to deliver our global multi-asset and equity
propositions.
• We launched the Credit Business Strategy, with continued focus on
growth in the US and Canada, with $3.6 billion raised in US
Investment Grade Credit in 2019.
• In Real Assets, we reshaped the team bringing investment, fund
management and asset management together, and continued to
focus on strengthening our capability.
• In November 2019 we merged Aviva Investors Real Estate SGP (Real
Estate regulated business in France) into Aviva Investors France (all
other regulated activities in France). This enabled us to simplify our
Real Asset activities in France, and realise cost efficiencies.
Market context and challenges
• During the year our business has delivered improved investment
performance despite the uncertainties arising from Brexit, the UK
domestic political situation and trade pressure between the US
and China.
• 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 central expectation is for a stabilisation and improvement of
global growth (barring any excess negative implications relating to
in an environment of
is happening
the Coronavirus). This
supportive monetary conditions. This should be supportive of risk
assets.
1 This 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.
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Continued
General Insurance
Overview
Aviva’s General Insurance business operates at scale in the UK and
Canada and we have a European business that operates in France,
Ireland, Poland and Italy.
From 2020, all of our general insurance businesses will be reported
together as a General Insurance division. For further details of our
strategy and key priorities for this division, refer to the ‘Our strategy’
section.
The overall results of our General Insurance business are as follows:
Net written premiums (NWP)
UK
Canada
Europe
Asia
Adjusted operating profit2
UK
Canada
Europe
Asia
Combined operating ratio (COR)3
UK
Canada
Europe
Asia
Solvency II return on capital3
Solvency II operating capital generation (OCG)3
2019
£m
Restated1
2018
£m
4,218
3,061
2,017
13
9,309
4,193
2,928
1,985
13
9,119
250
191
154
(1)
594
383
27
201
(2)
609
94.6%
97.9%
97.8% 103.1%
93.5%
95.7%
112.8% 123.0%
97.2%
97.5%
14.0%
574
11.7%
647
The following sections provide additional details and performance
analysis of our UK and Canada general insurance businesses. For
detail on the Europe and Asia general insurance businesses, refer to
the Europe and Asia ‘Market review’ sections.
UK GI
Overview
Aviva is a leading insurer in the UK general insurance market with
£4.2 billion of net written premiums in 2019, equating to a c.11%
market share.
We offer Personal lines (Home, Motor and Travel insurance products)
and Commercial lines insurance to a wide range of businesses from
micro through small and mid-market to large, multinational
corporates.
Our capabilities in distribution, underwriting and digital are clear
differentiators. During the year we integrated the majority of our UK
digital business into UK GI.
We focus on our customers, with customer service at the heart of our
business. The quality of our service has enabled us to win long-term
relationships with four of the UK’s five largest banks to provide their
insurance solutions.
We have increased our Regional and Global Corporate Specialty
(GCS) underwriting capability and enhanced our multinational
proposition. The commercial lines speciality portfolio continues to
grow with new products launched based on customer demand and
maximisation of a hardening rate environment, while the completion
of Guidewire implementation across SME is delivering digitisation
and automation benefits.
We continued to win many awards in 2019, including ‘General Insurer
of the Year’ from Insurance Times for the sixth year running.
Financial performance
Adjusted operating profit2
Profit before tax
Combined operating ratio (COR)3
Net written premiums (NWP)
Cash remitted to Group3,4
Controllable Costs3
2019
£m
250
Restated1
2018
£m
383
288
413
97.9%
94.6%
4,218
4,193
248
361
726
600
During 2019, as part of our strategy to simplify our business, we
aligned our UK digital business with UK General Insurance and UK
Life. It has had a significant effect on a number of UK GI’s headline
metrics this year which is explained in the analysis below.
Profit
Adjusted operating profit2
Underwriting result
Long-term investment return
Other
Total adjusted operating profit2
2019
£m
86
166
(2)
250
Restated1
2018
£m
221
161
1
383
Overall, adjusted operating profit2,3 was down 35% at £250 million
(2018 restated1: £383 million). Excluding an adverse
impact of
£113 million from alignment of UK digital, adjusted operating profit2
was down 5% at £363 million (2018 restated1: £383 million). Within
this, there was a 10% fall in the underwriting result to £199 million
(2018 restated1: £221 million) which
included higher expenses
reflecting continued investment in our IT infrastructure and less
favourable prior year reserve releases but lower weather costs
compared to 2018. Long-term investment return3 was up 3% at
£166 million (2018: £161 million).
1 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see
note 1(b) in the Annual report and accounts). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been
restated. There is no impact on profit before tax attributable to shareholders’ profit. Following the change in the definition of Group adjusted operating profit, COR has also been restated to include the amortisation and
impairment of internally generated intangible assets. Comparative amounts have been restated.
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 2019 General Insurance cash remittances include £83 million (2018: £331 million) received from UK General Insurance in February 2020 in respect of 2019 activity.
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Profit before tax was 30% lower at £288 million (2018: £413 million). In
addition to the reduction in adjusted operating profit2 described
above, there was a £235 million adverse movement due to the
change in the Ogden discount rate (2019: £45 million strengthening;
2018: £190 million release) which is described in more detail below.
This was mostly offset by a £251 million favourable movement in
short term fluctuations in investment performance and the impact of
changes
liabilities
(2019: £74 million gain; 2018: £177 million loss) driven by lower
interest rates, tightening credit spreads and gains in equity markets.
in economic assumptions on
insurance
Following the announcement by the Lord Chancellor on 15 July 2019
to increase the Ogden discount rate4 from the -0.75% set in 2017 to
-0.25%, balance sheet reserves in the UK were calculated using a
discount rate of -0.25% at 31 December 2019. This compares to the
Ogden discount rate applied at 31 December 2018 of 0.00%. This has
resulted in a strengthening of claims reserves of £45 million. The
negative impact of this reserve change has been excluded from
adjusted operating profit2,3 in line with previous periods. The Ogden
discount rate is expected to be reviewed again by the Lord
Chancellor within five years.
Net written premium (NWP) and combined operating ratio (COR)
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 ratio3
2019
£m
2018
£m
2019
%
1,067
1,332
2,399
555
1,264
1,819
1,125
1,369
2,494 99.3%
532
1,167
1,699 96.0%
Restated1
2018
%
92.9%
97.3%
4,218
4,193 97.9%
94.6%
NWP
NWP increased by 1% to £4,218 million (2018: £4,193 million).
lines NWP
reduced 4%
to £2,399 million
UK Personal
(2018: £2,494 million) as we maintained our pricing discipline in Motor
and targeted reductions in poor performing segments, combined
with the continued run-off of the Creditor book. Home premiums
were broadly stable. UK Commercial lines NWP increased 7% to
£1,819 million (2018: £1,699 million) driven by a combination of
volume and above inflation rate increases. There was an 8%
increase
to £1,264 million
(2018: £1,167 million) with solid growth in SME and Global Corporate
Specialty (GCS), while Commercial motor NWP increased 4% to
£555 million (2018: £532 million).
in Commercial non-motor NWP
COR3
Overall, UK GI COR3 was 97.9% (2018 restated1: 94.6%). Excluding the
2.7pp effect of the alignment of UK digital, COR3 was 0.6pp higher at
95.2% (2018: 94.6%) for the reasons described in relation to adjusted
operating profit above.
Personal lines COR3 of 99.3% (2018: 92.9%) was 6.4pp higher year-on-
year, of which 4.6pp reflects the UK digital alignment. Excluding this,
Personal lines COR3 was 1.8pp higher reflecting higher expenses and
lower prior year reserve releases, partly offset by lower weather costs.
Commercial lines COR3 of 96.0% (2018: 97.3%) was 1.3pp better year-
on-year, reflecting higher prior year reserve releases and lower
weather costs.
remitted
Cash
to Group3 was down 31%
Cash
to £248 million
(2018: £361 million), reflecting lower Solvency II operating capital
generation3.
Controllable costs3
Controllable costs3 increased to £726 million (2018: £600 million).
Excluding the impact from the alignment of UK digital, controllable
costs3 were up 3% to £619 million (2018: £600 million) reflecting
continued investment in our IT infrastructure, partly offset by savings
in the underlying costs of running the business.
Operational and customer highlights
Our operational and customer highlights in 2019 included:
• Our transactional Net Promoter Scores (TNPS) in Property Claims
are strong and consistently lead the market.
• In underwriting, we introduced our ‘Ask it Never’ approach,
reducing the number of questions we ask our customers from over
100 to just five.
• We launched our simple digital online underwriting tool at Barclays
in November 2019 which we believe offers a blueprint for the future
of integrating insurance into banking digital ecosystems.
• Our investment in digital and claims management has enabled
customers to start and complete their claim online. 40% of people
now notify their claims online.
• Global Corporate Specialty lines continues to grow and retention
has increased to 89%. We are a leading property investors
underwriter in the London market.
• In UK Personal lines our aggregator business, QuoteMeHappy, has
acquired in excess of 1.4 million customers.
• Our UK Commercial business has been a key growth segment for
us over the last few years, growing in the high single digits every
year and in 2019 wrote over £1.8 billion in NWP. We are a leading
player in the UK SME market.
1 Following the change in the definition of Group adjusted operating profit (see note 1(b) of the Annual report and accounts), COR now includes the amortisation and impairment of internally generated intangible assets to better
reflect the operational nature of these assets. Comparative amounts have been restated.
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 Ogden discount rate in Scotland is still at -0.75%.
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Continued
Market context and challenges
• The Commercial business is actively pursuing attractive growth
opportunities in the market, with a focus on growing our heartland
commercial book, supporting UK business with overseas risks and
leveraging our strong regional distribution network to provide a full
suite of products,
including specialty lines to our existing
customers. Growth and profitability are expected to continue at
existing levels, supported by a hardening rating environment
across the majority of our product lines.
• In GCS, the market has seen an increasing frequency of large
property losses, natural catastrophes and adverse prior year
development from non-UK casualty and financial lines. These
conditions will be supportive of a sustained rate hardening, and we
are well placed to take advantage.
• In SME, the sector continues to suffer from significant levels of
under-insurance and we are actively supporting customers and
brokers with our commercial intelligence tool in identifying gaps; a
good customer outcome that will also deliver growth. We also
continue to automate and digitise policy administration, reducing
manual intervention and cost, while enabling our customers and
brokers to access our service by their preferred means.
• We have created a single Personal lines business and taken a
number of actions to improve the underlying performance of the
book. Our plan is to reduce controllable costs3. We see a positive
rating environment in motor and home and will drive growth in
channels and products where we believe there
is profit
opportunity.
• During 2019, the FCA published their GI Pricing Market Study
Interim Report. We have provided a comprehensive response to
this outlining our recommended solution and the action we have
already taken. We are broadly supportive of tackling the issues
raised, including protecting vulnerable customers and highlighted
our progress on safeguarding and AvivaPlus.
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 2.4 million customers with a 10% market share1. Our business
is primarily intermediated, sold through a network of just over 900
independent broker partners and, following our acquisition of RBC
General Insurance (RBC GI) in 2016, RBC insurance agents.
We have returned to profitability following the deterioration that
began in early 2017 and continued into 2018, which was principally
due to increased claims costs in our motor insurance line of business
and less favourable prior year reserve releases. Working with our
regulator, we successfully achieved rate increases in late 2018 which
are now earning through the book. 2019 also saw natural
catastrophe losses more in line with the historical 10-year average.
As a result, adjusted operating profit2,4 in 2019 has recovered from
the 2018 level and profitability actions are taking hold.
Financial performance
Adjusted operating profit2,4
Profit/(loss) before tax
Combined operating ratio (COR)3,4
Net written premiums (NWP)
Cash remitted to Group3
Controllable costs3
2019
£m
191
Restated4
2018
£m
27
211
(75)
97.8% 103.1%
3,061
2,928
156
28
402
391
During 2019, adjusted operating profit2,4 of £191 million
(2018 restated4: £27 million) improved due to the extensive profit
remediation plan put in place towards the end of 2017 with actions
around pricing, indemnity management and risk selection.
All percentage movements below are quoted in constant currency
unless otherwise stated.
Profit
Adjusted operating profit2
Underwriting result
Long-term investment return
Other5
Total adjusted operating profit2
2019
£m
65
133
(7)
191
Restated4
2018
£m
(90)
120
(3)
27
In 2019, the underwriting result was a profit of £65 million
(2018 restated4: loss of £90 million), mainly driven by premium rate
increases, lower claims frequency and severity in our personal lines
business, better weather conditions compared to the long-term
average and favourable prior year reserve development, partly offset
by higher commission. Long-term investment return improved 11%
due to higher yields on short-duration securities and actions to
optimise returns within our fixed income portfolio.
The improvement in underwriting profit, along with favourable
market movements were the key drivers of the current year profit
before tax attributable to shareholders’ profits4 of £211 million
(2018: loss of £75 million).
Net written premiums (NWP) and combined operating ratio (COR)3
Personal lines
Commercial lines
Total
Net written premiums
Combined
operating ratio3
2019
£m
2018
£m
2019
%
Restated4
2018
%
2,100
961
2,107 97.8% 105.0%
821 97.8% 98.3%
3,061
2,928 97.8% 103.1%
NWP
Net written premiums were £3,061 million (2018: £2,928 million), up
3% on a constant currency basis. In personal lines, NWP was broadly
stable at £2,100 million (2018: £2,107 million). Commercial lines NWP
increased to £961 million (2018: £821 million) due to growth in Global
Corporate and Specialty new business and rate increases put
through during renewals.
1 Market Security & Analysis inc. 2018 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 Following the change in the definition of Group adjusted operating profit (see note 1(b) of the Annual report and accounts), COR now includes the amortisation and impairment of internally generated intangible assets to better
reflect the operational nature of these assets. Comparative amounts have been restated.
Includes unwind of discount and pension scheme net finance costs.
5
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Market review
Continued
COR1
The COR1 improved to 97.8% (2018 restated2: 103.1%) due to the
improvement in the underwriting result described above.
Cash
Cash remittances1 during the year
(2018: £28 million),
our
performance.
reflecting
increased to £156 million
underwriting
improved
Controllable costs1
Controllable costs1 were 1% higher
in constant currency at
£402 million (2018: £391 million), reflecting increased investment in
claims personnel and processes,
in our pricing
capabilities and the Global Corporate and Specialty business and
continued investment in our IT infrastructure, mostly offset by lower
real estate and other operating expenses.
investment
Operational and customer highlights
• In addition to improved profitability in our Personal lines business,
we invested in our claims capability, which delivered significant
synergies. Greater capacity and improved processes led to more
claims handled by Aviva staff and better customer and financial
outcomes. In Commercial lines, our focus continued to be more
efficient processing for small policies, improved risk selection in
our core and middle market business and growth in our Global
Corporate and Specialty division, which has been able to provide
capacity in a significantly hardening market. These actions, along
with a focus on efficiency, has resulted in significant progress
towards our sub-96% target combined operating ratio1 by the end
of 2020.
Other key operational and customer highlights during the year
included:
• Launched Connex, our new Personal lines service model for
brokers, including dedicated underwriting teams and web chat for
faster service.
• Brand refresh of our Global, Corporate and Specialty line and
rebranded Ovation, our high net worth home insurance offering,
helping customers better identify with the products they need.
• Launched BuyOnline for RBC property business to help customers,
improve sales capacity and reduce commission expenses.
• Extended the RBC distribution partnership by a further 5 years to
2036.
• In the second half of 2019, we undertook a national launch of a
commercial digital solution which provides c.50% of SME quotes
making the process more efficient for our customers and partners.
Market context and challenges
• During 2019, there were significant changes to the provincial
regulatory landscape in Canada impacting the auto insurance
industry.
• In Ontario, the Financial Services Regulatory Authority was
launched in June 2019 with a streamlining of the auto rate
regulation process announced as a priority for 2019-20.
• In Alberta the provincial government decided not to renew a 5%
cap on auto rate increases, from Q4 2019.
• In Commercial lines, adverse experience, particularly in residential
property, along with shrinking capacity has resulted in a hardening
market.
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.
2 Following the change in the definition of Group adjusted operating profit (see note 1(b) of the Annual report and accounts), COR now includes the amortisation and impairment of internally generated intangible assets to better
reflect the operational nature of these assets. Comparative amounts have been restated.
Aviva plc Annual report and accounts 2019
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Market review
Continued
Europe
Overview
Aviva operates in a number of markets in Europe with insurance operations
in France, Italy, Poland, Ireland and Turkey. During 2019 we have focused
on the development and implementation of our market strategies for
organic growth and the integration of 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 life and general
insurance 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.
Low interest rates and regulatory pressures in some markets have
presented challenges during the year, but through the actions we
have taken we believe we are well positioned to succeed.
From 2020, our European general insurance businesses will be
presented as part of our General Insurance division. The Europe
general insurance businesses will be managed day to day by the
CEOs in each country. Our life and health businesses will form the
Europe Life division. Further details of our strategic priorities for
these divisions are set out in the ‘Our Strategy’ section.
Financial performance
Adjusted operating profit2,3
Life & Health
General insurance
France
Poland
Italy, Ireland and Other
Profit before tax
France
Poland
Italy, Ireland and Other
2019
£m
Restated1
2018
£m
827
154
981
473
194
314
981
410
198
352
960
807
201
1,008
510
198
300
1,008
426
178
304
908
All percentage movements below are quoted in constant currency
unless otherwise stated.
Overall adjusted operating profit2,3
in Europe was down by 1%
to £981 million (2018 restated1: £1,008 million). Europe Life adjusted
operating profit2,3 increased to £827 million (2018 restated1: £807 million)
driven by increased revenue, improved product mix and focus on expense
efficiencies. Adjusted operating profit2,3 from Europe General Insurance
business was down 23% to £154 million (2018 restated1: £201 million) due
to weather costs and higher large losses and lower favourable prior year
reserve releases compared to 2018.
Profit before tax attributable to shareholders’ profits3 has increased
to £960 million (2018: £908 million) as the benefit from positive
investment variances (2018: negative variances) was partly offset by
the reduction in operating profit. The 2018 profit before tax included
gains from disposals in Italy and Spain and the write-off of negative
goodwill arising on the acquisition of Friends First in Ireland.
Europe Life
Overview, market context and challenges
• In France we are number 114 in a life market dominated by mutuals
and banks and are number four amongst the traditional insurers.
We offer a full range of savings, investment, protection and health
insurance products with strength in distribution through AFER, the
number 1 savers association5, and UFF the number 2 financial
adviser network5. 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. The main challenge we face continues to be
balancing the demand amongst French savers for low volatility
guaranteed products with the pressure this places on our return on
capital in the current low interest rate market environment. A key
pillar of our strategy is to continue to adapt our business mix to
position us for longer-term low interest rates whilst continuing to
serve our customers’ needs through the provision of attractive
unit-linked and capital-light products.
• In Italy we are number five in the life market6 and the second largest
non-domestic insurer6. We offer savings, investments, pension and
through a major
protection products with distribution
bancassurance partnership with UBI and also
through
independent financial advisor networks. Our hybrid proposition
maintained its strong performance in the market in 2019, helping
to improve our business mix that, together with other management
actions and better market conditions, materially strengthened our
capital position. In 2020, our current distribution agreements with
our two principal bancassurance partners are reaching the end of
their terms and we are in ongoing discussions about the future
status of our relationships.
• In Poland we are the number two7 life insurer in the market with
one of the largest life tied agent salesforces and two key
bancassurance partnerships with Santander and ING. The market
in Poland has stagnated in recent years as insurers have moved
away from single premium investment products and there has
been an increased level of regulatory intervention in the market.
Our Polish business is efficient, has very strong brand recognition,
and through innovation in product development and digitisation
we are in a strong position to outperform the market.
• In Ireland we are now number four8 in the life market as a result of
the acquisition of Friends First and continue to benefit from
positive demographics and a strong macroeconomic environment
with high GDP and low unemployment. The positive economic
backdrop was muted for much of 2019 by concerns over a hard
Brexit outcome but, once this risk dissipated, sales volumes have
been encouraging. Aviva’s Life business in Ireland is entirely
distributed through intermediaries. The main challenge we face is
improving the operational efficiency of the business and
rationalising our product offering to improve margins.
1 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see
note 1(b) of the Annual report and accounts). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been
restated. There is no impact on profit before tax attributable to shareholders’ profit.
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 The amounts shown above in respect of adjusted operating profit and profit before tax attributable to shareholders’ profits reconcile to the corresponding amounts for Europe of France, Poland and Italy, Ireland and Other in
note 5 – ‘Segmental information’ within the Annual report and accounts.
4 La Fédération Française de l’Assurance
5 AFER website, and UFF website and French Insurance Federation.
6 ANIA (Italian National Association of Insurance Companies)
7 Polska Izba Ubezpieczeń
8
Insurance Ireland
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Market review
Continued
• In Turkey we have a life insurance business through our joint
venture with Sabanci. We are number one in the market for
pensions and the number three private auto-enrolment provider
and we offer protection products through both bancassurance and
retail channels including a direct sales force. Our business has
responded well to the political instability and financial volatility in
recent periods and we have seen strong growth in protection
premiums during 2019.
Financial performance
Solvency II return on capital3
2019
£m
Restated1
2018
£m
10.3%
6.9%
Solvency II operating capital generation (OCG)3
754
724
Cash remitted to Group3
Adjusted operating profit2
Controllable costs3
414
336
827
807
548
568
Life new business
Present value of new business premiums (PVNBP)3
Value of new business on an adjusted Solvency II basis
(VNB)3
13,772 12,641
414
517
Solvency II return on capital3 and Solvency II operating capital
generation (OCG)3
Europe Life Solvency II return on capital3 has increased by 3.4pp to
10.3% (2018: 6.9%) and Solvency II operating own funds generation
increased to £574 million (2018: £384 million). This was primarily
driven by modelling and assumption changes in Italy which are partly
offset by a reduction in own funds generation from new business in
France and Italy due to the impact of lower interest rates. 2018
included the adverse impact on own funds arising from the transfer
of pensions business into a supplementary occupational pension
fund (FRPS) in France (note the overall impact on capital generation
was beneficial due to a significant reduction in solvency capital
requirement).
Europe Life Solvency II operating capital generation3 has increased
by £30 million to £754 million (2018: £724 million). Increases in
management actions and higher returns on existing business have
been partially offset by the increase in new business strain as a result
of the low interest rate environment. In 2019, management actions
included the beneficial impact of modelling and assumption
changes in Italy as well as increased market risk hedging in France,
while 2018 included the beneficial assumption changes and a benefit
arising from the transfer of pensions business into a supplementary
occupational pension fund (FRPS) in France.
Profit
Adjusted operating profit2
France
Poland
Italy (excl. Avipop)
Ireland
Other Europe4 (excl. Spain)
Total (excl. Avipop, Spain)
Disposals (Avipop, Spain)
Total
Life & Health
2019
£m
408
174
173
59
13
827
—
827
Restated1
2018
£m
418
177
147
40
10
792
15
807
to
by
6%
health
businesses
Excluding the impact of disposals, the adjusted operating profit2 of our life
and
£827 million
grew
(2018 restated1: £792 million). Dealing with each of the markets in turn:
• In France, adjusted operating profit2 reduced by 2% to £408 million
(2018: £418 million). Within this, the life result was down 5% to
£387 million (2018: £408 million), mainly due to lower protection profit
(including adverse claims experience in 2019), partly offset by an increase
in savings business profit. The health result was £21 million
(2018: £10 million) following actions to improve profitability.
• In Poland, adjusted operating profit2 was flat in constant currency terms
at £174 million (2018 restated1: £177 million), with lower fee income on
assets under management as a result of weak equity markets towards
the end of 2018 offset by a more favourable mix of new business, and an
improved result on protection business.
adjusted
£173 million
(2018 restated1: £147 million), an increase of 18% with significant net
inflows to our hybrid product in 2017 and 2018 driving higher
revenues on assets under management and an increase in profit
from existing business.
profit2 was
operating
Italy,
• In
• In
Ireland, adjusted operating profit2
increased to £59 million
(2018: £40 million), an increase of 49% mainly driven by a one-off benefit
from methodology and assumption changes and the inclusion of a full
year of Friends First in 2019.
• In Turkey, adjusted operating profit2 was £13 million (2018: £10 million),
mainly driven by strong growth in our protection business.
Controllable costs3
Controllable costs3 for Europe Life reduced by 2% to £548 million
(2018: £568 million). Excluding disposals, controllable costs3 were
down 3% to £548 million (2018: £562 million) mainly due to a
reduction in project spend in France partly offset by increased
marketing and IT spend in Italy.
Life new business
Cash
Cash remitted to Group3 was £414 million (2018: £336 million). This
includes a special remittance of £107 million following the disposal
of Avipop in 2018. 2019 remittances from France are £141 million
(2018: £176 million), which are shown after adjusting for a capital
injection of £139 million (2018: £nil), as the net amount more
appropriately reflects the overall remittances received from France
during the year.
France
Poland
Italy (excl. Avipop)
Ireland
Other Europe4 (excl. Spain)
Total (excl. Avipop, Spain)
Disposals (Avipop, Spain)
Total
PVNBP3
Solvency II VNB3
2019
£m
5,702
624
5,537
1,589
320
2018
£m
4,335
486
6,263
1,208
333
13,772 12,625
—
16
13,772 12,641
2019
£m
168
64
147
8
27
414
—
414
2018
£m
210
58
222
11
13
514
3
517
Excluding disposals, PVNBP3 was up 10% to £13,772 million
(2018: £12,625 million). VNB3 decreased by 18% to £414 million
(2018: £514 million).
1 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see
note 1(b) of the Annual report and accounts). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been
restated. There is no impact on profit before tax attributable to shareholders’ profit.
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.
Includes Turkey.
4
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Market review
Continued
France, PVNBP1 was up 33% reflecting growth in sales of with-profits
savings products and the acquisition of a significant collective
pension scheme with EDF. VNB1 was down 19% primarily due to an
adverse margin impact from lower interest rates. In Poland PVNBP3
increased by 30% driven by the performance of our new protection
product and pensions transfers. In Italy, PVNBP1 was down by 11%
due to a reduction in standalone with-profits and unit-linked
volumes, partially offset by further growth in our hybrid product
whilst VNB margins were adversely impacted by lower interest rates.
Operational and customer highlights
• In France we experienced strong inflows into with-profit funds as
customers sought more stable returns in response to market
volatility and record low interest rates. In response we undertook
various commercial initiatives during the second half of the year to
re-balance our new business inflows towards unit-linked products.
These included targeted marketing campaigns and mix capping
with some distributors.
In parallel we undertook capital
management actions to reduce the immediate pressure on our
balance sheet resulting from low (and negative in early September)
interest rates. These included interest rate hedging activities,
further optimisation of our asset mix, and changes to our internal
model. During the final quarter of 2019 we initiated the Savings
Business Model Change programme to provide even greater focus
on addressing the changes necessary to adapt and transform our
business in the medium term.
• Other customer highlights in France included the launch of a new
pension product (PERIN) which is compliant with the new French
pension regime. In April, in conjunction with Aviva Investors France,
we
launched Aviva Solutions Durables a sustainable and
responsible investment unit-linked life insurance offering. We are
widely recognised as a leader in sustainable investing with the
broadest range of propositions in the market. We continued our
journey to improve the customer experience and during 2019 our
funerals business made the switch from paper to nearly fully digital
communication. Other digital innovations include the introduction
of a chatbot to improve the customer journey and increase the
sales conversion rate in our Eurofil distributor and we plan to
widen deployment of this tool to retail motor, property and funeral
products in 2020.
• We are also actively participating in several smaller acquisition
opportunities as part of our strategy to expand our owned
distribution network.
• In Italy, our Hybrid product offers customers a combination of
attractive yields, stable performance with a partial capital
guarantee together with protection and health riders. During the
year we have consolidated on the success of the product and
introduced further innovations in the structure of the product with
an auto-switch with-profit to unit-linked mechanism. Commercial
initiatives with our distributors allowed us to significantly reduce
the mix of more capital-intensive standalone with-profit new
business to 29% (2018: 48%). Whilst the pressure on our balance
sheet from higher Italian government bond spreads eased during
the year, we undertook further de-risking activities to reduce the
sensitivity of our balance sheet.
• Other highlights in Italy included investment in a multimedia
marketing campaign which has resulted in a 16pp increase in our
brand awareness. Overall customer numbers increased by 56%.
Improvements to our customer segmentation capabilities will
enhance our ability to design propositions in response to customer
and distributor demand.
• Our Polish business has experienced growth despite contraction of the
life insurance market. Growth has been supported by the launch of our
new Twoje Życie (Your Life) protection product into our direct
ING.
channels, the redesign of our CPI offering in the bancassurance
channel, and the strengthening of our distribution relationships with
Santander and
In the pension market, auto-enrolment
commenced during the year and we have written nearly 400 contracts
with companies employing 250+ employees since July (over 70,000
employees are covered). The MyAviva platform is very well embedded
in Poland and 2019 has seen us reach over 400,000 active customers (a
71% increase), introduce 21 new functionalities, and hit 29,000
monthly transactions (an 86% increase).
• In Ireland we completed the integration of the Friends First
business. We also successfully delivered the first phase of our new
governance and operating model – separating the management of
our Irish life and general insurance businesses – and shifted our
focus to the realisation of further efficiency benefits and
commercial initiatives to improve the margins on our unit-linked
products. One of the key drivers here will be the consolidation of
our IT administration systems and 50% of this work completed in
2019. We delivered the first phase of our Integrated Protection
Product offering best of both Aviva and Friends First to our
customers. Improvements were made to our annuity pricing
process with a major re-price in August that improved our new
business margins during the second half of the year, and the
implementation of an annuity reinsurance solution in line with our
longevity risk appetite. Our Irish business achieved first place in the
annual Broker Service Excellence Awards in 2019 and our
policyholder TNPS scores continue to be top quartile in our sector.
• In Turkey, we continued our market leadership in pensions and
increased our market share
in protection. While customer
persistency actions played a key role in maintaining our pension
leadership, we have increased our market share in protection
driven by strong growth in our market leading “return of premium”
endowment product and our new credit linked product, further
assisted by a general market recovery in the second half of 2019.
The new credit linked protection product is a very customer
focused proposition and has positioned us favourably against our
competition. We have increased our customer engagement
through a new mobile app which has had nearly 500,000
downloads and enabled our customers to better manage their
funds and offers a fully digitised sales process; providing an
improved customer experience and driving process efficiency.
Europe GI
Overview, market context and challenges
• In France we are number 121 in the market and offer a full range of
general insurance products with strength in distribution through
our sizeable agent and broker networks and particular expertise in
the construction sector. We have recognised an opportunity for
profitable growth in SME commercial lines of business where the
market is under-penetrated by our larger competitors and we have
invested in our capabilities in this area during 2019.
• In Italy we dropped to number 182 in the market after the Avipop
disposal in 2018. We offer general insurance across motor and non-
motor lines of business. In the Italian market motor is the primary line
of business representing nearly half of gross written premium in 2018
but has seen declining or flat premiums over the last five years with
rising competition, customer churn, and loss ratios. Our response has
been twofold: firstly in 2018 we took profitability actions on our motor
book that reduced volumes but resulted in improvements in
underlying loss ratios and a strong base from which to rebuild our
book; secondly we have shifted our strategic focus to invest for growth
in the under-penetrated but profitable SME commercial market, and in
the growing non-motor personal lines segments, with expanded
distribution through multi-agents and brokers.
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.
2 La Fédération Française de l’Assurance
3 Associazione Nazionale fra le Imprese Assicuratrici
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Other information
Market review
Continued
• In Poland we are number ten4 in the market and provide general
insurance distributed through a direct sales network, brokers and
two key bancassurance partnerships with Santander and ING. The
market is showing another year of strong growth. We have chosen
to focus our growth strategy more on the commercial market due
to price competition in personal lines.
• In Ireland we are a market leading general insurance provider and
continue to benefit from a strong macroeconomic environment
with high GDP and low unemployment. Despite a continuing soft
personal lines market, we achieved a 92.6% combined operating
ratio (COR)3 demonstrating the strength of our underwriting
capability. The Irish market has capacity challenges across a
number of sectors such as Child Care, Elderly Care, Sports and
Hospitality. Business repatriating from the UK continues to form
part of the new business pipeline. We continue to prudently
underwrite this business, only writing better quality risks with
strong rate strength.
• In Poland, adjusted operating profit2 was £20 million
(2018: £21 million) with net earned premiums in line with 2018.
• In Italy, excluding disposals, adjusted operating profit2 was down
23% to £22 million (2018: £30 million). Within this net earned
premiums were down 3% as underwriting actions taken on the
personal motor book during 2018 earned through and there were
higher large losses in commercial lines and higher expenses.
• In Ireland, adjusted operating profit2 reduced to £47 million
(2018: £56 million) driven by a soft market in personal lines with
earned premiums 2% lower than 2018, and higher expenses (driven
largely by the impact of the new motor levy of 2% applied to all
motor policies since December 2018), partly offset by lower large
losses and more benign weather than 2018.
Net written premiums (NWP) and combined operating ratio (COR)4
Financial performance
Adjusted operating profit2
2019
£m
154
Restated1
2018
£m
201
France
Poland
Italy (excl. Avipop)
Ireland
Net written premiums (NWP)
2,017
1,985
Total (excl. Avipop)
Disposals (Avipop)
Combined operating ratio (COR)3
95.7%
93.5%
Total
Combined operating
Net written premiums
2019
£m
1,166
112
319
420
2,017
2018
£m
2019
%
1,118 97.2%
106 85.9%
317 97.7%
430 92.6%
1,971 95.7%
ratio3
Restated1
2018
%
94.6%
87.0%
95.2%
91.5%
93.5%
—
14
—
87.8%
2,017
1,985 95.7%
93.5%
Cash remitted to Group3
Controllable costs3
Profit
Adjusted operating profit1,2
France
Poland
Italy (excl. Avipop)
Ireland
Total (excl. Avipop)
Disposals (Avipop)
Total
180
147
288
273
General
insurance
Restated1
2018
£m
92
21
30
56
199
2
201
2019
£m
65
20
22
47
154
—
154
Excluding disposals, Europe general insurance adjusted operating
profit2 reduced by 22% to £154 million (2018 restated1: £199 million).
Dealing with each of the markets in turn:
• In France, adjusted operating profit2 was £65 million
(2018 restated1: £92 million), with growth in net earned premiums of
6%, particularly in commercial lines, more than offset by higher
large losses and less favourable prior year reserve development
than 2018.
NWP
Excluding the disposal of Avipop, NWP increased by 3% to
£2,017 million (2018: £1,971 million) with growth in France, Italy and
Poland (particularly in commercial lines) partly offset by lower
premiums in Ireland as we maintained strong underwriting discipline
in a soft personal motor market.
COR3
COR3 has increased by 2.2pp to 95.7% (2018 restated1: 93.5%) for the
reasons described in the profit section above.
Cash
Cash remitted to the Group3 was £180 million (2018: £147 million)
which includes a £65 million special remittance from the disposal of
Avipop in Italy in 2018.
Controllable costs3
Controllable costs3 were up 8% to £288 million (2018: £271 million)
excluding the disposal of Avipop, which includes investment in
underwriting platforms in Italy.
1 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see
note 1(b) of the Annual report and accounts). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been
restated. There is no impact on profit before tax attributable to shareholders’ profit. Following the change in the definition of Group adjusted operating profit, COR has also been restated to include the amortisation and
impairment of internally generated intangible assets. Comparative amounts have been restated.
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 Polska Izba Ubezpieczeń
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Continued
Operational and customer highlights
• In France we continued to organically build out our SME broker
team which resulted in strong growth in commercial lines volumes.
We continued to improve our pricing sophistication, notably
through use of the RADAR tool which has enhanced our view of
margins and competitor pricing. Our innovative Client Unique
proposition aims to simplify the sales journey for our retail
customers with consistent products and pricing across all
distribution channels, together with centralised and efficient
claims processing. We launched a pilot phase with 50 agents
during the year with results expected during the first quarter in
2020.
• In Italy, we have launched a new Guidewire based underwriting
platform offering a simple and flexible range of products initially to
smaller businesses and have been commended by the industry for
our innovative implementation. In parallel, we commenced a
review and renewal of our entire product catalogue and intend to
launch across more of our distribution channels so that all our
customers and distribution partners can benefit from the simplicity
of the new platform. We have achieved strong customer feedback
during the year and were ahead of the market on both our
customer satisfaction score and retail net promoter score.
• Our Polish business has experienced growth, particularly SME
focused commercial lines business where net written premiums
grew by 60% assisted by the launch of new propositions including
general third-party liability. We also continue to build on the
strength of our distribution relationship with our bancassurance
partners and further digitised the sales and claims processes
including self-claims in personal accident and the reporting of
motor third party liability claims online.
• In Ireland the general insurance business has been able to navigate
the soft personal lines market with underwriting discipline. We
improved the underlying performance of our commercial lines’
portfolio (1pp COR1 improvement). We continued to improve our
personal lines pricing sophistication as well as retaining key
distribution partners, including a two-year extension with our
largest partner An Post Insurance. Our customer recognition
remained strong and our RNPS is in the upper quartile and market
leading.
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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Market review
Continued
Asia
Overview
Following a strategic review in 2019, we have a selective approach in
Asia, focused on high potential markets in Singapore and China. We
are continuing to explore strategic options for our businesses in
Vietnam and Indonesia.
All of our markets provide access to a combined population of over
3 billion people1, with relatively low insurance penetration compared
to more developed Western markets. We currently provide life and
health insurance solutions to over 5 million customers across our
markets in Asia.
In particular, as a composite
insurer with around 1 million
customers, Aviva is one the biggest providers of employee benefits
and healthcare insurance in Singapore2.
Across Asia, we operate a multi-distribution channel strategy which
includes tied-agency, financial advisers, bancassurance, affinity
partnerships, telemarketing and direct sales force. Our core strategy
is to leverage strong partnerships and our distribution capability to
grow long term value. We continue to place emphasis on earning
customers’
trust and delivering great customer outcomes.
Investment in enhancing Asia’s distribution and analytics capabilities
continued throughout 2019.
Our FPI business and our business in Hong Kong are classified as held
for sale at 31 December 2019.
Financial performance
Adjusted operating profit3,4
Life & Health
General Insurance
Profit before tax
Controllable costs5
Life:
Solvency II return on capital5
Solvency II operating capital generation (OCG)5
Cash remitted to Group5
Life new business
Present value of new business premiums (PVNBP)5
Value of new business on an adjusted Solvency II basis
(VNB)5
General Insurance:
Net written premiums (NWP)
Combined operating ratio (COR)3,5
2019
£m
Restated3
2018
£m
276
(1)
275
87
263
(2)
261
90
202
187
12.7%
9.7%
60
51
55
6
3,057
206
2,656
189
13
13
112.8% 122.1%
All percentage movements below are quoted in constant currency
unless otherwise stated.
Profit
Adjusted operating profit4
Singapore
China
Other Asia (excl. FPI & Hong Kong)
Total (excl. FPI & Hong Kong)
FPI
Hong Kong
Total adjusted operating profit4
Life & Health
Restated3
2018
£m
2019
£m
General insurance
Restated3
2018
£m
2019
£m
145
25
(13)
157
128
(9)
276
123
22
(26)
119
151
(7)
263
(1)
—
—
(1)
—
—
(1)
(2)
—
—
(2)
—
—
(2)
Adjusted operating profit4 from our life and health businesses was
£276 million (2018 restated3: £263 million). Excluding FPI and Hong
Kong, adjusted operating profit4 increased by 29% to £157 million
(2018 restated3: £119 million). Within
result
improved 14% to £145 million (2018 restated3: £123 million), with
continued investments in our financial advisory channel driving
higher new business, and improving profitability in health insurance.
China’s adjusted operating profit improved by 18% to £25 million
(2018: £22 million).
this, Singapore’s
Life adjusted operating profit for FPI was £128 million (2018:
£151 million), while Hong Kong reported an adjusted operating loss
of £9 million (2018: £7 million loss).
Singapore general insurance reported an adjusted operating loss of
£1 million (2018: £2 million loss).
Profit before tax attributable to shareholders’ profit decreased by 3%
to £87 million (2018: £90 million), with the increase in operating profit
more than offset by the effect of an impairment charge related to our
associate in India and a £28 million remeasurement loss in relation
to FPI.
Controllable costs5
Total controllable costs5 for Asia subsidiaries was £202 million
(2018: £187 million). Excluding Hong Kong and FPI, controllable costs5
were £155 million (2018: £140 million). The increase was mainly to
support Singapore’s financial adviser development initiative and
organic channel growth across Asia.
Solvency II return on capital5 and Solvency II operating capital
generation (OCG)5
Asia Life Solvency II return on capital5 has increased by 3.0pp to
12.7% (2018: 9.7%), Solvency II own funds generation increased by
£43 million to £187 million (2018: £144 million) and Solvency II
operating capital generation5 has
increased by £5 million to
£60 million (2018: £55 million). The increase is primarily due to growth
and beneficial non-economic assumption changes in Singapore.
Cash
Cash remitted to Group5 in 2019 has increased to £51 million
(2018: £6 million), mainly attributable to improved performance in
Singapore. China paid its first dividend to Group of £5 million
(2018: £nil) in 2019.
1 Swiss Re Institute sigma No 3/2019 publication
2 2018 Insurance statistics published by Monetary Authority of Singapore
3 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see
note 2(b)). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been restated. There is no impact on profit
before tax attributable to shareholders’ profit. Following the change in the definition of Group adjusted operating profit, COR has also been restated to include the amortisation and impairment of internally generated intangible
assets. Comparative amounts have been restated.
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.
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Continued
Life new business
Singapore
China
Other Asia (excl. FPI & Hong Kong)
Total (excl. FPI & Hong Kong)
FPI
Hong Kong
PVNBP1
Solvency II VNB1
2019
£m
1,580
718
406
2,704
351
2
2018
£m
1,279
650
279
2,208
448
—
2019
£m
159
43
8
210
(1)
(3)
2018
£m
152
42
—
194
(2)
(3)
Total
3,057
2,656
206
189
Excluding FPI and Hong Kong, PVNBP1 has increased by 20% to
£2,704 million (2018: £2,208 million), which was led by double digit
growth in Singapore and China, and strong agency channel
expansion in Vietnam. Solvency II VNB1 increased by 6% to
£210 million (2018: £194 million).
Net written premiums (NWP) and combined operating ratio (COR)1
Singapore general insurance net written premiums were flat at
£13 million (2018: £13 million). Our general insurance combined
operating ratio1 improved by 10.2pp to 112.8% (2018: 122.1%) as a
result of a change in mix away from motor to travel and commercial
lines.
Operational and customer highlights
During 2019 Singapore continued to grow its distribution network.
Our financial adviser subsidiaries, Aviva Financial Advisers and
Professional Investments Advisory Services now have a combined
total of 1,819 advisers (2018: 1,540 advisers).
In China, we continued to have an excellent relationship with our
partner COFCO and in 2019 our joint venture continued to focus on
its core agency channel, growing operating profit by 18% as the
market recovered following a period of regulatory tightening in 2018.
Other key operational and customer highlights during 2019 included:
• Our business in Singapore received several major awards including
the Sustainability & Corporate Social Responsibility Award from
Asia Insurance Review and Singapore’s Best Workplaces (Medium
and Large Workplaces) 2019 Award from the Great Place to Work
Institute.
• In July 2019, we were awarded the contract to provide insurance
cover to the Singapore government’s Public Officers Group
Insurance Scheme (POGIS).
• In China, our joint venture won an award from the Project
Management Institute recognising our efforts to promote an
innovative culture and to reduce complexity for our customers,
agents and employees.
• By
leveraging Quantum capabilities, Aviva Singapore has
integrated artificial intelligence driven solutions across both
pricing and distribution. These have contributed to both top line
growth and bottom-line profit generation.
Market context and challenges
Driven by robust macro fundamentals in Asia, regional insurance
markets are expected to continue their growth despite global
economic volatility. We continue to believe that the long-term
favourable trends of the rising 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 in the coming decade.
Asia’s rapid growth in internet, social media and mobile activities
continued in 2019, and China is a leader in the technology revolution
and digital applications. Today, digital has become an essential part
of our daily lives and we are strongly encouraged by various Asian
governments’ support in Fintech, and consumers continued rapid
adoption.
Following the outbreak of Coronavirus, our Asia business has
implemented safeguards to ensure business continuity and
supporting the wellbeing of our customers, colleagues and
communities. We continue to monitor developments closely.
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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Types of risk inherent to our business model
Risks customers transfer to us
• Life and health 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).
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 when
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, health and general
insurance 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 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 Committee1,
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).
1 From 1 January 2020 the Committee has become Customer, Conduct and Reputation Committee. Further details are available in the Governance Report in the Annual Report and Accounts
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Risk and risk management
Continued
Principal risk types
The types of risk to which the Group is exposed have not changed significantly over the year and are described in the table below. 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 and health
insurance risk
• Longevity1
• Persistency
• Mortality and
morbidity
• Expenses
General insurance
risk
• Catastrophe
• Reserving (latent
and non-latent)
• Underwriting
• Expenses
Liquidity risk2
Asset management
risk
• Fund liquidity
• Performance and
margin
• Product
• Retention risks
We take a balanced approach to
credit and believe we have the
expertise to manage it and the
structural investment advantages
conferred to insurers with long-
dated, relatively illiquid liabilities
that enables 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
and property risks as we do not
believe that these are adequately
rewarded.
• 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
We take measured amounts of life
insurance risk provided we have
the appropriate core skills
in
underwriting and pricing.
• Risk selection and underwriting on acceptance of new business
• Longevity swaps covering pensioner-in-payment scheme liabilities
• Product design that ensures products and propositions meet customer needs
• Use of reinsurance on longevity risk for our annuity business, including the
bulk annuity buy-in transaction with Aviva staff pension scheme.
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. General
insurance 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
commercial
mortgages.
such as
to
specific
Risks
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.
• 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 at 31 December
2019) 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 Group Centre 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
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
Risk type
Operational risk
• Conduct
• Legal & regulatory
• People
• Process
• Data security
• Technology
• Brand and
Reputation
Risk preference
Operational risk should generally
be reduced to as low a level as is
commercially sensible.
Operational risk will rarely
provide us with an upside.
Mitigation
• 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
• During 2019 we transitioned IT services to new data centres bringing disaster
recovery risk back into tolerance
Principal emerging trends and causal factors
This table describes the emerging 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
Economic & credit cycle – uncertainty over
prospects for future macroeconomic growth,
credit and current low 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
going forwards and our ability to profitably
meet our promises of the past.
Trend: Increasing
impacted: Credit risk, Market risk,
Risks
Liquidity risk
UK-EU relations (Free Trade Agreement
uncertainty) – there remains considerable
uncertainty over the outcome of negotiations
over the UK’s future relationship with the EU,
and the implications for our operations,
economic growth and productivity and in the
longer term for financial services regulation,
including Solvency II.
Trend: Stable
impacted: Credit risk, Market risk,
Risks
Operational risk
Risk management
Over the last few years we have taken
significant steps to reduce the sensitivity of
our balance sheet to investment risks. While
interest rate exposures are complex, 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.
In preparing for the end of the transition
period on 31 December 2020 under the UK-
EU withdrawal agreement, we have already
taken the operational measures necessary to
ensure continuous service to our customers.
This includes addressing 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, and
amending contractual terms for data sharing
to allow continued uninterrupted flow of
personal data between our EU businesses
and the UK. We have contingency plans to
restructure our businesses in case the UK is
not considered Solvency II equivalent and
restrictions to asset management delegation
rights as a non-EU manager.
Outlook
During 2019, interest rates reached record
lows in many eurozone economies, requiring
further management action in our businesses
in France and Italy. We expect rates to remain
at low levels for some time to come and we
continue to manage our key exposures,
specifically in Italy, France and Asia. While
asset returns had a strong run, a number of
economists have warned we are approaching
the end of this credit cycle. In addition, there
continues to be significant geopolitical risks
that will have knock on
to
economies and financial markets, including
Brexit and the threat of both trade wars and
actual wars.
impacts
As 2020 progresses we expect greater clarity
to emerge over the terms of any future UK-EU
free trade agreement and other aspects of
the future relationship and the extent, if at all,
to which financial and other services are
included. There is a risk that financial services
are included in a way that leaves the UK as a
“rule taker” of EU regulation, which would
negatively impact on the ability for the UK to
calibrate financial services rules for UK
market needs. There is also a risk that
negotiations fail to conclude by 31 December
2020, the end of the transition period under
the withdrawal agreement, and without an
extension to negotiations the UK may need to
revert to trading on World Trade Organisation
terms. Any agreement may require an
implementation period after 2020. While the
ultimate outcome remains uncertain, we
expect UK financial markets to be volatile and
macroeconomic growth subdued.
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Risk and risk management
Continued
Key trends and movement
Changes in public policy – any change in
public policy (government or regulatory)
for, and
could
the demand
In some
profitability of, our products.
markets there are (or could be in the future)
restrictions and controls on premium rates,
rating factors and charges.
influence
Trend: Volatile
Risks impacted: Operational risk
this
Risk management
We actively engage with governments and
regulators in the development of public
to
policy and regulation. We do
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 the UK, we have
compensated for falling sales of individual
annuities by increasing sales of other pension
products – particularly bulk purchase
annuities.
Outlook
Following the decisive general election
victory, the new UK government has a clear
mandate on Brexit, and a relatively pro-
business stance more generally. We believe
that a relatively hard Brexit with minimal
alignment to the EU is likely by the end of
2020. Within the domestic agenda there are
tax, pensions
potential
regulatory
legislation
intervention (particularly on GI pricing).
risks around
increasing
and
In the EU there is a review of Solvency II, the
key regulatory regime for EU insurers. A new
EU Commission has an ambitious agenda for
climate
Artificial
Intelligence/data regulation which may bring
regulatory changes directly impacting on our
businesses in the EU and in a post Brexit UK
indirectly.
change
and
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
in our business
could potentially result
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
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
impacted: General
Risks
Credit risk, Market risk
insurance risk,
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
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
low cost
technology companies and
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.
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, in the absence of
radical action by governments, 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.
In 2019 there continued to be high profile
cyber security incidents for corporates in the
is
UK and elsewhere and Cyber threat
expected to persist in 2020 from multiple
sources, including cyber criminals and rogue
increasing
states,
of
with
levels
sophistication
industrialisation
and
anticipated. Aviva continuously monitors the
external threat environment to ensure that
our Cyber investment remains appropriate to
mitigate the continued and changing nature
of the cyber threat.
to
journey,
improve
Our data science capabilities
facilitate
market leading innovation in the use of data
the
analytics
significantly
our
customer
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.
improve
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
responsible
selection. Our
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’.
risk
Aviva has invested significantly in Cyber
security introducing additional automated
controls to protect our data and critical IT
services. This investment has enhanced our
ability to identify, detect and prevent Cyber-
attacks and we regularly test ourselves
through our own ‘white hat’ hackers to test
our Cyber defences and crisis management
protocols. Aviva encourages a Cyber aware
culture by regularly undertaking activities
such as employee phishing exercises,
computer-based training and more regular
communications about
specific Cyber
threats.
Aviva plc Annual report and accounts 2019
47
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Risk and risk management
Continued
Key trends and movement
Medical advances and healthier lifestyles
– 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: Stable
Risks impacted: Life insurance risk (longevity)
Risk management
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 for some of our individual
annuity business.
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
We listen to our customers to ensure we meet
insurance
their savings, retirement and
needs. We also seek to improve the way we
serve our customers by simplifying our
interactions with them, resolving queries at
their first point of contact where appropriate
and enhancing our digital capabilities.
providers
Outsourcing – we rely on a number of
business
outsourcing
processes, customer servicing, investment
operations and IT support. The failure of a
critical outsourcing provider could disrupt
our operations.
for
Trend: Stable
Risks impacted: Operational risk
Pandemic – in an increasingly globalised
world, new or mutations of existing bacteria
or viruses may be difficult for stretched
healthcare systems to contain, disrupting
national economies and affecting our
operations and the health and mortality of
our customers.
Trend: Increasing
Risk impacted: Market, Credit, Life Insurance
risk (mortality, longevity, morbidity), General
Insurance (business interruption, travel) and
Operational risk.
sheet
identify
Our businesses are required to
functions
critical outsourced
business
(internal and external) and for each to have
exit and termination plans, and business
continuity and disaster recovery plans in
place in the event of supplier failure, which
are reviewed annually. We also carry out
supplier financial stability reviews at least
annually.
We have taken significant steps to reduce the
to
sensitivity of our balance
market/credit risks and have contingency
plans which are designed to reduce as far as
possible the impact on operational service
arising from mass staff absenteeism, travel
restrictions and supply chain disruption
caused by a pandemic. We reinsure much of
the mortality risk arising from our Life
Protection business and hold capital to cover
the risk of a 1-in-200 year pandemic event.
We model extreme pandemic scenarios such
as a repeat of the 1918 Spanish Influenza
pandemic. In the Group and commercial
insurance business we limit our potential
exposure through our policy wordings. As an
investor, we
investment manager and
engage with companies to ensure the
responsible use of antibiotics to reduce the
risk that antimicrobial resistance negate the
efficacy of medical treatment.
Aviva plc Annual report and accounts 2019
48
Outlook
There
is considerable uncertainty as to
whether the improvements in life expectancy
that have 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 recent years. In the longer term
this may even result in a reversal in the trend
of increasing life expectancy. Although the
latest analysis of population data indicates
much lighter mortality in 2019 compared to
2018, which is a marked change to the
experience seen during the past decade.
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 our existing
customers fairly particularly those who are
vulnerable and less digitally aware.
We expect regulatory scrutiny of outsourcing
arrangements to remain following financial
difficulties faced by some providers, as well
as customer service issues following the
migration of our third party provided IT
platform in the UK.
2020 has begun with the outbreak of a new
strain of the Coronavirus in China. With
confirmed cases in more than 50 countries
including all of those in which Aviva has
material businesses. There is a risk of a
significant global pandemic and economic
travel
disruption. We have
restrictions on staff and a work-from-home
self-quarantine regime for staff who have
recently visited infected regions. In addition
we have reviewed the exposure of our
balance sheet, and are taking actions to
further reduce our sensitivity to economic
shocks.
imposed
Notwithstanding our robust capital and
liquidity position and the operational and
financial actions that we are taking, a
deterioration
in the situation, and the
consequent impacts on financial markets,
our insurance exposures and our operations,
would have adverse implications for our
businesses.
Going forward, increasing migration and
international travel is expected to make the
containment of future pandemics more
challenging.
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Capital management
Capital management
Overview
Group capital is represented by Solvency II own funds. The Group manages capital in conjunction with its solvency capital requirements
(SCR), and seeks to, on a consistent basis:
• 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
• Retain financial flexibility by maintaining strong liquidity, access to a range of capital markets and significant unutilised committed credit
lines
• Manage an appropriate level of leverage to ensure an efficient capital structure
• Allocate capital rigorously to support value adding growth and repatriate excess capital where appropriate
• Operate a sustainable dividend policy with reference to factors including growth in cash flow and capital generation
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 SCR with eligible own funds and aligns with
management’s approach to dynamically manage its capital position. In arriving at the shareholder position, a number of adjustments are
typically made to the regulatory Solvency II position. The Group Solvency II capital position, including these adjustments, is summarised in
the table below:
Estimated Solvency II regulatory surplus as at 31 December
Adjustments for:
Fully ring-fenced with-profit funds
Staff pension schemes in surplus
Notional reset of the transitional measure on technical provisions (TMTP)
Pro forma adjustments1
Estimated Solvency II shareholder surplus at 31 December
Own funds
2019
£m
SCR
2019
£m
Surplus
2019
£m
Own funds
2018
£m
SCR
2018
£m
Surplus
2018
£m
28,347 (15,517) 12,830
27,567
(15,339) 12,228
(2,501) 2,501
(1,181) 1,181
—
(75)
—
(117)
—
—
—
(192)
24,548 (11,910) 12,638
(2,634)
(1,142)
(127)
(113)
23,551
2,634
1,142
—
(6)
—
—
(127)
(119)
(11,569) 11,982
1 The 31 December 2019 Solvency II position includes three pro forma adjustments that relate to the disposal of FPI (£nil impact on surplus), the disposal of Hong Kong (£nil impact on surplus) and the potential impact of an
expected change to Solvency II regulations on the treatment of equity release mortgages (£0.2 billion decrease in surplus as a result of an increase in SCR). The 31 December 2018 Solvency II position includes the pro forma
impact of the disposal of FPI (£0.1 billion increase in surplus) and the potential impact of an expected change to Solvency II regulations on the treatment of equity release mortgages (£0.2 billion reduction in surplus as a result
of an increase in SCR).
The estimated Solvency II cover ratio1 is 206% at 31 December 2019 (2018: 204%).
The movement in the Solvency II shareholder surplus over the period is shown in the table below:
Shareholder view
Group Solvency II surplus at 1 January
Operating capital generation
Non-operating capital generation
Dividends
Share buy-back
Hybrid debt repayments
Acquired/divested business
Estimated Solvency II surplus at 31 December
Own funds
2019
£m
23,551
2,257
178
(1,222)
—
(210)
(6)
SCR
2019
£m
(11,569)
2
(362)
—
—
—
19
Surplus
2019
£m
11,982
2,259
(184)
(1,222)
—
(210)
13
24,548
(11,910)
12,638
Solvency II operating capital generation1 (OCG) measures the amount of Solvency II capital the Group generates from operating activities.
Capital generated enhances Solvency II surplus which can be used to support sustainable cash remittances1 from our business, which in turn
supports the Group’s progressive dividend as well as funding investments that provide sustainable growth. The OCG1 by market is
summarised in the table below:
Operating capital generation1
UK Life (including UK Savings & Retirement)
Aviva Investors
General Insurance
Europe Life
Asia Life
Group centre, debt costs and Other
Total Group Solvency II operating capital generation1
2019
£m
1,170
90
574
754
60
(389)
2,259
2018
£m
1,821
126
647
724
55
(175)
3,198
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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Capital management
Continued
Solvency II own funds
One of the objectives of capital management is to maintain an efficient capital structure using a combination of equity shareholders’ funds,
preference share capital, subordinated debt and borrowings, in a manner consistent with our risk profile and the regulatory and market
requirements of our business. The table below provides a summary of the Group’s regulatory Solvency II own funds by Tier:
Regulatory view
Unrestricted Tier 1
Restricted Tier 1
Tier 2
Tier 31
Total regulatory own funds2
2019
£m
20,377
1,839
5,794
337
28,347
2018
£m
19,312
2,096
5,811
348
27,567
1 Tier 3 regulatory own funds at 31 December 2019 consists of £259 million subordinated debt (2018: £253 million) plus £78 million net deferred tax assets (2018: £95 million).
2 Regulation was introduced in France that allows French insurers to place the Provision pour Participation aux Excedents (PPE) into Solvency II own funds. The PPE has been included in the France local regulatory own funds in
2019 but it is not included in the Group regulatory own funds.
• Unrestricted Tier 1 capital includes Aviva’s ordinary share capital and share premium which are high quality instruments with principal loss
absorbing features such as permanence, subordination, undated, absence of redemption incentives, mandatory costs and encumbrances
• Restricted Tier 1 includes Aviva’s direct capital instrument (DCI), preference shares and subordinated debt. None of these instruments
include principal loss absorbency features and all qualify as restricted Tier 1 capital under transitional provisions
• Tier 2 capital consists of dated subordinated debt. The features of Tier 2 capital include subordination, a minimum duration of 10 years
with no contractual opportunity to redeem within 5 years, absence of redemption incentives and mandatory costs and encumbrances
• Tier 3 capital consists of subordinated debt and net deferred tax assets after taking into account the ability to offset assets against deferred
tax liabilities. The features of Tier 3 capital include subordination and a minimum duration of 5 years
Capital and liquidity risk appetite
The Group’s economic capital risk appetite is set in terms of our Solvency II shareholder cover ratio1. Our Solvency II cover ratio1 working
range is 160%-180%.
More recently, our Solvency II cover ratio1 has typically been in a range of 190-210%, above our working range. If the ratio was to remain above
200% for an extended period we have scope for additional actions such as further debt reduction or additional investment in business growth
and change. Similarly, if the ratio reduced to below the bottom of the working range, we would consider improvement actions which include
derisking and reprioritisation of growth initiatives.
Our businesses are capitalised based on their regulatory minimum levels with further prudent volatility buffers specific to each entity. Market
local capital appetites and working ranges are reviewed regularly by local boards. Our Group cash remittance policy is that business units
should pay down to the bottom of their respective working ranges based on up-to-date assessments of their capital positions. This is
consistent with our preference to hold excess capital at centre to improve fungibility and underpins the upstreaming of excess business unit
capital via additional remittances seen in recent years.
We actively manage our centre liquidity and we have defined a liquidity risk appetite that sets a minimum level of centre liquid assets to be
held at all times. In addition, we stress our forecast levels of centre liquid assets in order to ensure that we would still able to meet our
commitments to pay a progressive dividend and meet our deleveraging ambitions if a liquidity event were to occur.
Capital deployment and allocation framework
The Group’s economic value-added (EVA) framework ensures that we deploy our capital based on a robust assessment of value creation. EVA
is calculated as the own funds generated less the Group’s cost of capital and this EVA approach is closely related to our Solvency II return on
equity1 metric.
We use EVA to support strategic decision making, such as transformation projects or M&A, business capital allocation, pricing, hedging,
reinsurance and asset allocation. We also use EVA to support a detailed review of each segment of the group to inform strategic planning and
performance management.
When making capital allocation decisions in addition to EVA we consider other key metrics including cash remittances1, OCG1 and Group
adjusted operating profit1.
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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Our climate-related financial disclosure
Our climate-related
financial disclosure
As an international insurance group, our sustainability and financial
strength is underpinned by an effective risk management framework.
Our business is directly impacted by the effects of the climate crisis.
We believe that unmitigated climate-related risks present a systemic
threat to societal and financial stability and therefore to our
business, over the coming decades.
response
reflects Aviva’s 2019
This disclosure
the
recommendations of the Taskforce on Climate-related Financial
Disclosures (TCFD). It sets out how Aviva incorporates climate-
related risks and opportunities into governance, strategy, risk
management, metrics and targets and how we are responding to
new regulatory requirements. These pages, along with the expanded
report, are available at www.aviva.com/TCFD.
to
Governance
Aviva has built a strong system of governance, with effective and
robust controls. In 2019 we updated the Senior Management
Function’s Statements of Responsibilities in line with the PRA’s
Supervisory Statement 3/191. The regulated entities’ Chief Risk
Officers (CROs) are responsible for ensuring that climate-related risks
and opportunities are identified, monitored and managed through
Aviva’s risk management framework and in line with our risk
appetite. The Group CRO is responsible for overseeing, at Group
level, the embedding of the risk management framework. To support
the CROs in meeting regulatory expectations, we have initiated a
group-wide climate-related risks and opportunities project. The
Group CRO is the executive sponsor of the project.
The Board Risk Committee and Board Governance Committee2
oversee our management of climate-related risks and opportunities.
The Board Risk Committee2 met six times in 2019 to review, manage
and monitor all aspects of risk management, including climate-
related risks and opportunities. The Board Governance Committee2
met four times in 2019 to oversee how Aviva meets its corporate and
societal obligations.
integrated
In 2019, we updated our risk policies and business planning process
to ensure the assessment of climate-related risks and opportunities
into our overall strategy, decision-making, risk
is
management and reporting frameworks. Local markets have also
responded to local regulations (e.g. Article 173 in France and the
PRA’s climate change Insurance Stress Test). In 2019 papers
considering the impact of climate change on our business have been
presented to Board committees across the group (e.g. the outcomes
of the PRA’s climate change Insurance Stress Test were presented to
the UK Life and UK GI Risk Committees).
As part of our regular Board training programme, Aviva’s climate-
related risks and opportunities are presented to the Board. This
training equips the Board to give appropriate direction to the
company and ensure actions are taken to identify, measure, manage,
monitor and report these risks and opportunities.
Strategy
Having achieved the targets set as part of our 2015 strategic response
to climate change, this year our climate strategy took another
important step forward. We are widening the scope from primarily
focusing on investments, to create a broader, joined-up four-pillar
approach covering investments, insurance, our operations and
influence.
Aviva is a trusted climate leader. We commit to aligning our business
to the 1.5°C Paris target3 and to be a net zero asset owner by4 2050.
Our businesses will seek to develop and offer further climate-friendly
products. We also commit to further cutting our operational carbon
impact, as well as using our influence to help tackle climate change.
This strategy is aligned to our Company Purpose ‘With you today, for
a better tomorrow’ and will be implemented as part of the Group
Business Strategy.
Investments – There are three ways in which Aviva is involved in
investments i.e. as an asset owner, a long-term savings and pensions
provider and as an asset manager.
• As an asset owner, we seek to align our investments with a
pathway towards net zero carbon emissions and ensure
consistency with the Paris target. We have signed-up to key global
commitments such as the UN Net Zero Asset Owners Alliance. We
are working with the industry to define methodologies and
milestones with respect to these commitments and plan to
increase our level of investment in low carbon infrastructure
through to 2030; in addition to our £3.8 billion investments since
2015. We use our shareholder influence to encourage companies
to transition to a low carbon economy and divest from highly
carbon-intensive fossil fuel companies where we consider they are
not making sufficient progress towards the engagement goals set.
We engaged with an initial set of 40 companies where Aviva has
beneficial holdings, and which have >30% of their business (by
revenue) associated with thermal coal mining or coal power
generation. By the start of 2020 we had divested Aviva’s own assets
from 18 thermal coal mining and power generation companies; we
are prepared to add further companies to our Investment Stoplist
to limit our exposure to this and other carbon intensive sectors.
• For long-term savings and pensions, we integrate consideration
of long-term issues into the products and services we offer. We
continue to develop our customer Environmental, Social and
Governance (ESG) strategy, and offer climate friendly and ethical
funds such as the stewardship fund range.
• As an asset manager, Aviva Investors (AI) integrates consideration
of ESG factors into the investment process to deliver long-term
sustainable and superior investment outcomes for customers
whilst adhering to their mandate. AI is developing a range of funds
that support the climate change transition. In 2019, AI launched the
European Equity Climate Transition Fund, which whilst excluding
investments in companies with exposure to high carbon fossil
fuels, invests in companies that provide solutions for climate
mitigation/adaptation; or are orientating their business models to
be successful in adapting to a warmer world, and supporting the
transition to a low-carbon economy. In 2019 we integrated the T-
Risk methodology5 into our real assets’ assessment process and
continued to integrate climate issues into our voting strategy by
withholding support for high carbon emitting companies that do
not publish TCFD disclosures.
1 Prudential Regulation Authority’s (PRA) Supervisory Statement – ‘Enhancing bank’s and insurers’ approaches to managing the financial risks from climate change’
2 From 1 January 2020 the Committee has become Customer, Conduct and Reputation Committee. Further details are available in the Governance Report in the Annual Report and Accounts
3 The 1.5C target was set as an aspiration by the global Paris climate change deal in 2015 to limit the damage wreaked by acute events such as extreme weather and chronic events such as sea level rise.
4 Reduce the carbon emissions of our investment portfolio to net-zero
5 T-risk is a model using research inputs from in-house as well as academia, consultants, civil society, peers to rate the 159 GICS (Global Industry Classification System) sub-industries on their risk exposure to both physical and
decarbonisation risks through their value chain
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Continued
Insurance – We seek to grasp opportunities to support the transition
to a low carbon economy and promote activities that will secure a
better future for our customers and wider society. We develop
‘climate conscious’ products across Aviva, which reward customers
for environmentally responsible actions, provide an element of
adaptation/resilience or additional cover for those customers at risk
of the extreme weather impacts of climate change. For example, we
offer products and services that support customers’ choices such as
bespoke electric vehicle policies (France), reduce premiums for
customers who opt to use public transport (France), support the
sharing economy (Canada), cover solar panels on residential
insurance policies without charging an additional premium (UK GI).
Last year, Aviva confirmed we would stop underwriting fossil fuel
power generation worldwide and has recently launched its whole
lifecycle insurance for renewable energy companies. We continue
to reduce the environmental impact of our claims process and
implement changes which benefit the customer and minimise the
amount of waste to landfill or recycling.
Operations – Our operations have been carbon neutral since 2006,
through reducing our emissions year-on-year and offsetting any
remaining emissions. Our ambition over time is that our business
operations should have positive climate impact. We have already
reduced our emissions by 66%1 since 2010 and have a long-term
reduction target of 70% by 2030. We are committed to using 100%
renewable electricity by 2025 (via our RE100 commitment2). In 2019,
we commissioned a ‘first of its kind in the UK’ solar carport
installation for our Norwich office, which with the right weather
conditions removes our reliance on the National Grid and feeds
surplus electricity back into the grid. In 2019 our carport produced 40
GWh of electricity, of which 3.8 GWh was exported to the grid. We
have identified two further locations for the installation of solar
carports which will come on-stream in 2020. We have planning
permission for a wind turbine at our Perth office, which through the
combination of the existing solar array, new solar carport and battery
storage will take the location off-grid.
Influence – 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 correct existing market
failures with respect to climate change.
We encourage policymakers and regulators to change the financial
system so markets reward sustainable investments and sustainable
businesses. Aviva’s CEO spoke about climate at the UN High-level
Dialogue Financing for Development Forum, which was convened by
the UN General Assembly in September 2019. He highlighted the
need for strategic asset allocation for governments and the private
sector, the need for free public league tables e.g. the World
Benchmarking Alliance, the need for subsidies to be in the right
places and the responsibility of financial advisors to have to ask
customers for their views on how their money is invested. We
launched our report “A Marshall Plan for the Planet”, which develops
these ideas, during the UN General Assembly.
Risk management
Rigorous and consistent risk management is embedded across Aviva
through our risk management framework, comprising our systems of
governance, and risk management processes. 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). Aviva considers climate change to be one of the most
material long-term risks to our business model, and its impacts are
already being felt.
Given its materiality and proximity, we are acting 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. Aviva has developed
models and tools to assess the potential impact on our business of
the four
Intergovernmental Panel on Climate Change (IPCC)
scenarios. Each IPCC scenario describes a potential trajectory for
future levels of greenhouse gases and other air pollutants. These can
be mapped to likely temperature rises: 1.5°C (aggressive mitigation),
2°C (strong mitigation), 3°C (some mitigation) and 4°C (business as
usual).
Aviva calculates a Climate Value-at-Risk (Climate VaR) 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 to determine the
overall impact across all scenarios by assigning relative likelihoods
or probabilities to each scenario. 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 profits 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 chronic effects (e.g.
the impact of rising sea levels and temperature), although we
recognise that the most extreme physical effects will only be felt in
the second half of the century. Our UK Life and UK GI businesses have
also participated in the PRA’s 2019 Insurance Stress Test. This
included a climate stress test covering both physical and transition
risk. Aviva also recognises that there is a growing trend in climate-
related
its potential exposure
accordingly.
litigation and has assessed
1 Scope 1 -natural gas, fugitive emissions, oil and company owned cars; Scope 2 – electricity, and Scope 3- business travel, grey fleets, waste and water. More details of this analysis can be found on www.aviva.com/social-purpose.
2 RE100’s purpose is to accelerate change towards zero carbon grids, at global scale. Aviva has signed up to the commitment pledging to purchase or generate 100% of our global electricity from renewable sources by 2025
Aviva plc Annual report and accounts 2019
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Strategic report
Strategic report
Governance
Governance
Governance
Governance
IFRS financial statements
IFRS financial statements
IFRS financial statements
IFRS financial statements
Other information
Other information
Other information
Other information
Our climate-related financial disclosure
Continued
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. Whilst recognising the limitations
of the metrics and tools used (e.g. the scope of emissions or sectors
covered) and that some are backward looking, we believe they are
still valuable in supporting our climate-related governance, strategy
and risk management.
• We track our investment in green assets and low carbon
infrastructure. We have already invested £6 billion in green assets
(i.e. £3.8 billion in low carbon infrastructure and £2.2 billion in
green and sustainable bonds).
• We use carbon foot-printing and weighted average carbon
intensity data (tCO2e/£m sales) to assess our assets exposure to a
potential increase in carbon prices in shareholder funds and we
continue to report on our operational carbon footprints.
• We use Carbon Delta’s portfolio warming potential metric to assess
our shareholder funds’ alignment with the Paris target. This
warming potential methodology captures Scope 11 emissions as
well as revenues from low-carbon technology to provide a forward-
looking perspective. We would like to extend this analysis to our
whole portfolio over time.
• We use Notre-Dame University’s Notre Dame-Global Adaptation
Index (ND-GAIN) to measure and monitor our sovereign holdings
exposure to climate change. ND-GAIN measures a country’s
vulnerability to climate change and its readiness by considering:
economic, governance and social readiness.
• We build the possibility of extreme weather events into our pricing
to ensure it is adequate and monitor actual weather-related losses
versus planned weather losses by business (net of reinsurance).
Catastrophic event model results are supplemented by in-house
disaster scenarios. Our general insurance business exposure is
limited by being predominantly in Northern Europe and Canada.
We require our general insurance businesses to protect against all
large, single catastrophe events in line with local regulatory
requirements, or where none exist, to at least a 1-in-250-year event.
We are working closely with peers, academics, professional bodies,
regulators, governments and international agencies to further
develop our tools and approaches. For example, we are a member of
the United Nations Environment Programme Finance Initiative
insurance pilot and the PRA-FCA Climate Financial Risk Forum as well
as the UN Net Zero Asset Owners Alliance.
1 Scope 1- All direct emissions from the activities of an organisation or under their control, including fuel combustion onsite such as gas boilers, fleet vehicles and air-conditioning leaks
Aviva plc Annual report and accounts 2019
53
Strategic report
Governance
IFRS financial statements
Other information
Governance
In this section
Chairman’s Governance Letter
Our Board of Directors
Directors’ and Corporate Governance report
Directors’ Remuneration report
Page
55
57
59
83
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Other information
Chairman’s Governance Letter
Chairman’s
Governance Letter
for a better
Our Governance
Good governance is of fundamental importance to Aviva. At Aviva we
have a clear and shared purpose, which is to be with our customers
today,
tomorrow. Without good governance,
underpinned by our values and our culture, we would simply be
unable to deliver on that promise for all our stakeholders. I also
believe that our strong and consistent approach to governance will
enable us to deliver on our strategy to simplify Aviva into a leading
international savings, retirement and insurance business.
2018 Corporate Governance Code
We welcomed the introduction by the Financial Reporting Council of
the revised and simplified 2018 UK Corporate Governance Code (the
Code). This is our first year of reporting on our application of and
compliance with the Code. Amongst other changes, the Code
created a heightened requirement for boards to set and maintain a
corporate culture rooted in a strong ethical base, and for directors,
and the companies they lead, to build and maintain positive
range of
relationships with a diverse and comprehensive
stakeholders. Considering our stakeholders when performing our
duties as directors is not a new concept, and indeed was first codified
into the Companies Act 2006, and this is a well-established feature of
our Board processes. The Code reinforces the importance of the
Board’s consideration of the Company’s stakeholders in its decision-
making processes, which we describe in our ‘Section 172 (1)
statement and our stakeholders’ section in the Strategic report.
Board Changes
On 21 January 2020, I announced my intention to retire as Chairman
of the Company during 2020 once a successor has been appointed.
Having led the Board for five years and through the appointment of
our new Chief Executive Officer (Group CEO) it feels that now is the
right time for a new Group Chairman. This is an exciting time for
Aviva, we have a refreshed purpose and strategy, a new senior
management team and an experienced Board. The succession
planning process to find the new Chairman is advancing and, in the
meantime, I remain committed to this great organisation which I am
confident will deliver for all its stakeholders.
The Board has led Aviva through a period of substantial change during
2019 to make sure our Company is fully fit for the future. From October
2018 when our former CEO stepped down until the appointment of
Maurice Tulloch as Group Chief Executive Officer (Group CEO) on 4
March 2019, I operated in the capacity as Executive Chairman. This
was a hugely challenging but rewarding experience that brought me
even greater insight into the businesses of Aviva and which I continue
to draw on after reverting to being Non-Executive Chairman.
As we reported last year, the process to select our Group CEO was a
thorough and competitive process and the Board unanimously
agreed that Maurice Tulloch was the right choice for the role. As we
progressed through 2019, we continued to refresh the Board. Andy
Briggs and Tom Stoddard stepped down from the Board as Chief
Executive Officer, UK Insurance and Group Chief Financial Officer
respectively, and we wish them every future success. After a period
as Interim Group Chief Financial Officer, Jason Windsor, formerly
Chief Financial Officer (CFO) of Aviva UK Insurance, was appointed
permanently to the role and joined the Board of Directors on 26
September 2019.
There were also several changes amongst our Non-Executive
Directors this year. After nine years of distinguished service, including
as Chair of the Risk Committee, Mike Hawker retired from the Board
on 31 March 2019 and, following his appointment as Chairman of
Royal Mail, Keith Williams stepped down from the Board on 23 May
2019. On 31 December 2019, Glyn Barker and Claudia Arney both
retired from the Board. Glyn retired after eight years and having
assisted with the Board refreshment process, and Claudia to focus
on her expanded non-executive roles elsewhere. I am extremely
grateful to them all for the valuable contributions they have made to
the Board and Committees of Aviva plc.
We were delighted to welcome three new Non-Executive Directors to
our Board this year, all with deep knowledge and experience of the
financial services industry. Patrick Flynn, previously Chief Financial
Officer of ING and of HSBC Insurance joined our Board on 16 July
2019 and became Audit Committee Chair on 4 November 2019.
George Culmer was appointed as a Non-Executive Director of the
Company on 25 September 2019, having previously been Chief
Financial Officer of Lloyds Banking Group and of RSA Insurance
Group plc. George assumed the role of Senior Independent Director
on 1 January 2020 following the retirement of Glyn Barker. We also
announced the appointment of Amanda Blanc to the Board with
effect from 2 January 2020. Amanda was previously CEO at AXA UK &
Ireland, and CEO, EMEA & Global Banking Partnerships at Zurich
Insurance Group. I look forward to introducing our new Non-
Executive Directors to our shareholders at our upcoming Annual
General Meeting (AGM) on 26 May 2020.
Aviva Governance Framework
We recognise that good governance requires Board ownership and
accountability for driving the necessary behaviours and culture that
we are striving to achieve at Aviva. Good governance supports the
sustainable growth and superior customer outcomes we are
targeting.
During the year the Board introduced a new governance framework,
which reflects how the Aviva plc Board, through the CEO and Aviva’s
leadership team, delivers key customer, shareholder and broader
stakeholder outcomes and how this is oversighted through the
organisation. The governance framework incorporates the legal and
regulatory flow of accountability, prescribed delegations of authority
and the supporting ancillary frameworks, policies and standards
involved in the management of our business, including the three
lines of defence model which assesses the effectiveness of controls
and enables risks to be managed.
The governance framework will be applied to each subsidiary across
the Group and attested to on an annual basis. This will underpin our
focus on board effectiveness at every level of the organisation.
While much has gone well, the Board continues to focus on the
Company’s overall control environment. There remains considerable
political and economic uncertainty which has led us to review and
improve the Company’s risk indicators and our financial and
operational risk appetite monitoring, for example around interest
rate risk exposures.
The improvements made in 2019 have been recognised by the Board,
however, the downward risk and control adjustment to the Annual
Bonus Plan scorecard is a clear statement of the need to keep a
strong focus on improving in these areas and this is something the
Board will be closely monitoring in 2020.
Aviva plc Annual report and accounts 2019
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Other information
The Code rightly continues to stress the importance of diversity in the
composition of an effective Board. I continue to be committed to
bringing diversity in its widest sense to the Board including gender,
ethnicity, diversity of thought, tenure, age, experience, skills, and
geographic, educational, social and professional background. I am
very pleased that the Board has met its target for women to represent
a minimum of 33% of our Board by 2020.
The Group Executive Committee was reconstituted as the Aviva
Leadership Team (ALT) during 2019 and expanded to 14 members by
the first quarter of 2020. As at the date of this report, females
represented 35% of the ALT and our ambition remains to drive
female representation on the ALT higher. The Board continues to
monitor the pipeline of talent for both the Board and ALT with
diversity in mind, aligned of course with our skills matrix, to ensure
that we continue to develop a high performing and diverse top team.
I am proud to continue to support the FTSE 100 30% Club and will
continue to keep the diversity agenda at the forefront of the Board’s
mind.
Sir Adrian Montague CBE
Chairman
4 March 2020
Chairman’s Governance Letter
Continued
Our Strategy
The Board, together with the new Group CEO, reviewed the Group
strategy in 2019. On 20 November 2019 we announced our refreshed
purpose, vision and strategy. The strategy is designed to optimise our
offering to our customers and to improve efficiencies by simplifying
Aviva
into five operating divisions: Investments, Savings and
Retirement; UK Life; General Insurance; Europe Life; and Asia Life. We
reaffirmed our commitment to our progressive dividend policy and
we also set out a series of new financial metrics to allow investors to
better measure our performance in relation to capital, cash and
operating profit. The Board is committed to supporting the Group
CEO and his team in executing on the strategy and in running a more
commercially focused business.
Culture
The Board continues to focus on enhancing its understanding of the
culture within the organisation. This includes broadening the
measures which the Board uses to assess and drive the requisite
culture. We are placing emphasis on four measures: accountability;
psychological safety; diversity of thought; and customer focus. These
measures are intended to provide both historic data as well as
leading indicators. Evidence shows us that these specific cultural
traits have a positive
impact on workforce productivity and
performance.
Diversity
The charts below illustrate the diversity of the Board and senior
management as at the date of this report.
Board of Directors
Non-Executive
Executive
Aviva
Leadership
Team
Composition
Total
Gender
Male
Female
Experience and Skills1
Insurance
Banking
Actuarial/Capital Management
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+
1
Individual directors may fall into one or more categories
7
4
3
6
6
3
6
2
4
4
3
6
7
2
1
1
—
3
1
—
—
—
3
—
—
4
3
2
2
—
2
1
1
2
—
1
2
2
2
2
1
1
1
—
—
—
—
1
—
1
—
1
1
—
14
9
5
9
5
6
3
2
1
5
3
6
13
3
2
1
—
5
1
—
—
4
4
2
4
7
1
Aviva plc Annual report and accounts 2019
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Other information
Our Board of Directors: Biographies
Our Board of
Directors
Sir Adrian Montague, CBE ▲
Position: Chairman
Nationality: British
Committee Membership: Nomination Committee2 (Chair)
Tenure: 7 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 before reverting to Non-
Executive Chairman.
Skills and Experience: 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 a 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. Chair of the Advisory Council of TheCityUK and
a trustee of the Commonwealth War Graves Foundation.
Maurice Tulloch ■
Position: Group Chief Executive Officer (CEO)
Nationality: British/Canadian
Committee Membership: N/A
Tenure: 2 years 9 months. Appointed to the Board as an Executive
Director in June 2017 and as CEO in March 2019.
Skills and Experience: Maurice has more than 25 years’ experience
within Aviva and knows the business inside out having led businesses
in the UK and internationally. Maurice has a deep understanding of
insurance and customer needs and his focus on the fundamentals
and customer experience make him well qualified to re-energise
Aviva and deliver long-term growth for shareholders. He most
recently held the role of CEO of International Insurance and had
responsibility for Aviva’s life insurance and general insurance
operations internationally, together with the Global Corporate and
Speciality business.
External Appointments: Non-Executive Director of Pool Reinsurance
Company Ltd, a member of the Insurance Development Forum and
the Board of the Geneva Association.
Jason Windsor ■
Position: Chief Financial Officer
Nationality: British
Committee Membership: N/A
Tenure: 6 months. Appointed to the Board and as Chief Financial
Officer in September 2019.
Skills and Experience: Jason became Interim Chief Financial Officer
on 1 July 2019 and was previously Chief Financial Officer of Aviva UK
Insurance. Jason joined Aviva in 2010 and has extensive experience
of the group, including as Chief Capital and Investments Officer, and
as a member of the Aviva Leadership Team. Jason has a proven track
Insurance business and a deep
record as CFO of the UK
understanding of Aviva and its markets and brings a strong analytical
and commercial perspective to his role as Group CFO.
External Appointments: N/A.
(Chair),
Amanda Blanc ▲
Position: Independent Non-Executive Director
Nationality: British
Committee Membership: Governance Committee1
Nomination Committee2, Risk Committee
Tenure: 2 months. Appointed to the Board in January 2020.
Skills and Experience: Amanda brings extensive knowledge and
experience of the insurance industry to her role at Aviva, having held
several senior executive roles across the insurance industry. Amanda
was most recently CEO, EMEA & Global Banking Partnerships at
Zurich Insurance Group and before that CEO at AXA UK & Ireland. In
2018, Amanda was the first woman to be appointed as Chair of the
Association of British Insurers and was also Chair of the Insurance
Fraud Bureau and President of the Chartered Insurance Institute.
Amanda’s breadth and depth of experience of the UK and European
insurance industry and her detailed understanding of insurance
business and customers make her well placed to Chair the
Governance Committee.
External Appointments: Non-Executive Director of the Welsh Rugby
Union and Chair of the Professional Game Board.
Patricia Cross ▲
Position: Independent Non-Executive Director
Nationality: Australian
Committee Membership: Remuneration Committee (Chair), Audit
Committee, Nomination Committee2
Tenure: 6 years 3 months. Appointed to the Board in December 2013.
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 several Australian government positions, including with the
Financial Sector Advisory Council, Companies and Securities
Advisory Committee, Panel of Experts to the Australian 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 large international banking
and investment management organisations.
Commonwealth
Chair
External
Superannuation Corporation, and Ambassador for the Australian
Indigenous Education Foundation.
Appointments:
the
of
George Culmer ▲
Position: Senior Independent Non-Executive Director
Nationality: British
Committee Membership: Audit Committee, Nomination Committee2,
Remuneration Committee, Risk Committee
Tenure: 6 months. Appointed to the Board in September 2019 and as
Senior Independent Director on 1 January 2020.
Skills and Experience: George brings significant board-level
experience with 15 years experience as a FTSE 100 Chief Financial
Officer, and a deep understanding of insurance and wider financial
services. George was previously Chief Financial Officer of Lloyds
Banking Group plc and joined its board on 16 May 2012. He has
extensive insurance experience and was previously a director and
Chief Financial Officer of RSA Insurance Group plc; Head of Capital
Management of Zurich Financial Services and Chief Financial Officer
of its UK operations. George has a deep understanding of the
challenges that affect the industry, Aviva’s businesses, and the
implications for shareholders, which enables him to support the
Chairman and Board in driving the strategy, culture and values of the
Company.
External Appointments: Non-Executive Director of Rolls Royce plc.
Aviva plc Annual report and accounts 2019
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Other information
Kirstine Cooper ◆
Position: Group General Counsel and Company Secretary
Nationality: British
Committee Membership: N/A
Tenure: 9 years 3 months. Appointed as Company Secretary in
December 2010 and a member of the Aviva Leadership Team in May
2012.
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 an expanded Dormant Assets scheme.
The full biographies for all our Board and Aviva Leadership Team are
available online at www.aviva.com/about-us
Key
■ Executive
▲ Non-Executive
◆ Group General Counsel and Company Secretary
Our Board of Directors: Biographies
Continued
Patrick Flynn ▲
Position: Independent Non-Executive Director
Nationality: Irish
Committee Membership: Audit Committee (Chair), Nomination
Committee1, Risk Committee
Tenure: 8 months. Appointed to the Board in July 2019.
Skills and Experience: Patrick is an experienced finance executive
and has significant experience of retail financial and insurance
services. Patrick was previously Chief Financial Officer of ING, the
Netherlands’ largest financial services group, and was recognised for
playing a key role in the transformation of the group to a well-
capitalised and focused financial services provider with a significant
retail offering. Prior to that Patrick was Chief Financial Officer of HSBC
Insurance and served as a Non-Executive Director of the boards of
two listed former ING insurance companies, and this experience
thoroughly equips Patrick to chair the Audit Committee.
External Appointments: Non-Executive Director of the Royal Bank of
Scotland.
Belén Romana García ▲
Position: Independent Non-Executive Director
Nationality: Spanish
Committee Membership: Risk Committee (Chair), Audit Committee,
Governance Committee2, Nomination Committee1
Tenure: 4 years 8 months. Appointed to the Board in June 2015.
Skills and Experience: Belén has extensive governmental and
regulatory experience and brings a detailed knowledge of the
financial services industry and regulations to the Board. Belén has
held senior positions at the Spanish Treasury and represented the
Spanish government at the Organisation for Economic Co-operation
and Development. Belén’s experience as both an executive and a
non-executive in the financial services sector, and in international
policy making and regulation provide a valuable perspective to the
Board and in her role as Chair of the Risk Committee.
External Appointments: Independent Non-Executive Director of
Banco Santander and a member of the advisory board of the
Foundation Rafael del Pino (non-profit organisation) and Co-Chair of
the Global Board of Trustees of the Digital Future Society.
Michael Mire ▲
Position: Independent Non-Executive Director
Nationality: British
Committee Membership: Governance Committee1, Nomination
Committee2, Remuneration Committee, Risk Committee
Tenure: 6 years 6 months. Appointed to the Board in September
2013.
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. Michael was a senior partner at McKinsey &
Company where he worked for more than 30 years, and alongside his
governmental experience, he brings 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.
1 The Nomination Committee changed its name to the Nomination and Governance Committee with effect 1 January 2020
2 The Governance Committee changed its name to the Customer, Conduct and Reputation Committee with effect 1 January 2020
Aviva plc Annual report and accounts 2019
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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 framework is
based on the 2018 UK Corporate Governance Code (the Code). The
Code is publicly available at www.frc.org.uk. Details of how we have
applied and complied with the Code during 2019 are set out in this
report and the Directors’ Remuneration report. The Strategic report
also discloses information on how we have complied with the
reporting requirements set out in the Companies (Miscellaneous
Reporting) Regulations 2018 (the Regulations) on our engagement
with our employees, suppliers, customers and other stakeholders.
Also, in line with the Regulations, further information on how the
directors have performed their Companies Act 2006 Section 172
duties is contained in the Strategic report.
The Board can confirm that the Company was compliant with the
Code throughout the financial year under review, except for a period
of non-compliance with Provision 9 of the Code from 9 October 2018
to 4 March 2019 when Sir Adrian Montague assumed the role of
Executive Chairman. Following the appointment of Maurice Tulloch
as Group Chief Executive Officer (Group CEO) on 4 March 2019, Sir
Adrian reverted to his former position as Non-Executive Chairman.
Changes to the Board
There were several Board changes during 2019. Following an
extensive and rigorous process which included a number of highly
talented external and internal candidates, the Board unanimously
agreed to appoint Maurice Tulloch as Group CEO on 4 March 2019.
The Board believes that Maurice Tulloch’s deep knowledge of Aviva’s
domestic and international businesses, combined with his vision for
delivering enhanced shareholder returns through a relentless focus
on the customer experience, make him uniquely well qualified to
guide Aviva through the next phases in our development.
Two of our Executive Directors stepped down from their roles during
the year to pursue opportunities outside the Group. Andy Briggs left
Aviva on 24 April 2019 and was replaced as CEO UK Insurance by
Angela Darlington on an interim basis. Following the separation of
UKI into three separate divisions, General Insurance, Life and
Investment, Savings and Retirement, Angela was confirmed as CEO
UK Life with effect from 7 August 2019. Following the departure of
Tom Stoddard as Group Chief Financial Officer (Group CFO) on 30
June 2019, and after a period as interim Group CFO, Jason Windsor,
formerly CFO of UK Insurance, was appointed permanently to the
role and also joined the Board of Directors on 26 September 2019.
Jason Windsor joined Aviva in 2010 and has a broad range of
experience, including as Chief Capital and Investments Officer, and
as a member of the Aviva Leadership Team.
Four of our Non-Executive Directors retired from the Board during the
year. In line with Provision 10 of the Code, Michael Hawker stepped
down as a Non-Executive Director and as Chair of the Risk Committee
after nine years’ service on 31 March 2019. Belén Romana García was
appointed Chair of the Risk Committee
following Michael’s
retirement. Keith Williams retired from the Board at the conclusion
of the Annual General Meeting on 23 May 2019 after being appointed
Chair of Royal Mail Group plc. On 31 December 2019, and after eight
years’ service including two years as Senior Independent Director,
Glyn Barker retired from the Board. Claudia Arney also retired on the
same date in order to focus on her other non-executive directorships.
We would like to thank them all for their significant contributions to
Aviva.
We were delighted to appoint three highly experienced Non-
Executive Directors to the Board during the year. Patrick Flynn joined
the Board as a Non-Executive Director and a member of the Board
Audit, Risk and Nomination Committees on 16 July 2019. He became
Chair of the Audit Committee on 4 November 2019. Patrick was
previously Chief Financial Officer at ING and has also served as Chief
Financial Officer of HSBC Insurance and as a Non-Executive Director
on the boards of two listed former ING insurance companies.
George Culmer was appointed as a Non-Executive Director of the
Company on 25 September 2019, and he also joined the Board Audit,
Remuneration, Risk and Nomination Committees. Following the
retirement of Glyn Barker, George was appointed as Senior
Independent Director. George was previously Chief Financial Officer
of Lloyds Banking Group and has held positions as Chief Financial
Officer of RSA Insurance Group plc; Head of Capital Management of
Zurich Financial Services and Chief Financial Officer of its UK
operations.
Amanda Blanc joined the Board as a Non-Executive Director on 2
January 2020. She was formerly CEO at AXA UK & Ireland, and CEO,
EMEA & Global Banking Partnerships at Zurich Insurance Group.
Amanda
is Chair of the Customer, Conduct and Reputation
Committee (previously the Governance Committee) and is a member
of the Risk and the Nomination and Governance Committees
(previously the Nomination Committee).
On 21 January 2020 we announced that Sir Adrian Montague will
retire as Chairman during 2020. He was appointed to the Board of
Aviva in January 2013 and became Senior Independent Director in
May 2013, and Chairman in April 2015.
The succession planning process to find the new Chairman is
ongoing.
The Board
As at the date of this report the Board is comprised of the Non-
Executive Chairman, two Executive Directors and six independent
Non-Executive Directors (NEDs). 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.
its
The Board delegates clearly defined responsibilities to
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
At Aviva, diversity encompasses a very wide range of factors,
including but not limited to: gender; ethnicity; disability; sexual
orientation; social background; and diversity of thought. Supporting
and embracing diversity and inclusion, and valuing difference, are
integral parts of our culture. The ways in which we seek to put into
practice these values are set out in our Board Diversity and Inclusion
Statement, which supports our Nomination Committee’s approach
to succession planning. This is closely linked to our Group-wide
Global Inclusion and Diversity Strategy (Diversity Strategy), which
sets out how we implement our policies to increase diversity and
inclusion throughout the Group. Board diversity is monitored by the
Nomination Committee which reviews the balance of skills,
knowledge, experience and diversity of the Board and leads on
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Continued
succession planning for appointments to the Board and the senior
executive team. Our Board skills matrix supports this approach
enabling us to map the range of diversity of skills, knowledge and
experience of the Board and link these to our strategy.
We have been committed to our target of having 33% of women on
the Board by 2020, and we are pleased to have achieved this. We
recognise that as a Board we have further to travel to reach our
shared ambition that our Board composition should be fully
reflective of the diversity of the customers we seek to serve, and we
remain firmly committed to reaching that goal. Inclusion at Aviva is
imperative not only because it’s the right thing to do, but also
because it will help us deliver the outcomes that our shareholders
and other stakeholders expect us to achieve. Further detail can be
found in the Nomination Committee report.
Board activities during 2019
Strategy and business plans
• Approved the revised strategic plans and purpose for the Aviva
Group, which were announced during our Capital Markets Day on
20 November 2019
• Approved the proposed cost reduction plans to support the
business to move towards better cost efficiency and a lean group
centre
• Held an annual dedicated two-day offsite strategy session in June
2019, supplemented by further specific strategy sessions, to
oversee the development and implementation of the Group’s
strategy
Oversight of risk and risk management
• Received and discussed reports from the Chief Risk Officer (CRO),
and assessed the Group’s significant risks and regulatory issues
• Approved the Group’s risk appetite and risk policies which provide
the risk framework for managing risk across the Group
• Reviewed the effectiveness, challenges and management action
plans in relation to the Group’s Operational Risk and Control
Management Framework
• Reviewed the Group’s strategy on climate related financial risk in
line with regulatory requirements
Governance
• Discussed reports from Board committees and management on
legislation and proposed consultations that affect or will affect the
Group’s legal and regulatory obligations, including the 2018 UK
Corporate Governance Code (the Code)
• Reviewed and approved the revised Group Governance Framework
• Discussed and approved changes to the Board committee
structure, and the repurposing of the Nomination Committee and
the Governance Committee to the Nomination and Governance
Committee and
the Customer, Conduct and Reputation
Committee respectively
Significant transactions and expenditure
• Approved financial matters in line with the Group Funding Plan,
including capital
into regulated
subsidiaries, the redemption of the £210 million Step-Up Tier 1
Insurance Capital Securities (STICS) perpetual subordinated loan
notes, and an asset reinsurance transaction
injections where required
Financial reporting and controls, capital structure and dividend
policy
• Discussed reports provided by the Group Chief Financial Officer
(Group CFO) and by the Group’s committees on key matters of
financial reporting, providing the opportunity for the Board to
input and challenge where necessary
• Monitored the Group’s financial performance, financial results,
approved dividend payments and the adoption of a progressive
dividend policy
• Assessed the Group’s capital and liquidity requirements, arising
from the Group’s strategy and Group Plan
• Approved the full year results and Annual report and accounts, and
the half year results
People, culture, succession planning and Board effectiveness
• Oversaw the search process, reviewed candidates and approved
the appointment of Maurice Tulloch as Group CEO and Jason
Windsor as Group CFO following recommendations from the
Nomination Committee
• Following recommendations from the Nomination Committee,
approved the appointment of the three Non-Executive Directors to
the Board during 2019
• Discussed the current Group culture, its alignment with strategy,
and how it has been further strengthened during the year
• Reviewed the succession plan of the Board and approved the new
Board succession planning process
• Undertook an evaluation of the Board’s effectiveness, the
effectiveness of each committee and individual directors
Stakeholder engagement
In line with the requirements of the Companies (Miscellaneous
Reporting) Regulations 2018, we report on our stakeholder
engagement and other relevant matters in the ‘Section 172 (1) and
Our stakeholders’ section of the Strategic report. This outlines how
the Board has engaged with our principal stakeholder groups. The
Board considers stakeholder engagement, including engagement
with our workforce to be a matter of strategic importance.
Board appointments
Our Non-Executive Directors played a principal role in the process to
appoint Maurice Tulloch as Group CEO, and Jason Windsor as Group
CFO, and in the appointment of three Non-Executive Directors during
the year through their membership of the Nomination Committee. In
line with our succession planning processes, and led by the
Nomination Committee, we undertake a formal, rigorous and
transparent search process for each appointment, considering the
current balance of skills, experience and diversity amongst our
directors. Each appointment is made subject to receipt of the
requisite regulatory approvals. Furthermore, the continuation of
each Board appointment is also subject to the annual board
effectiveness review to confirm that each director’s performance
continues to be satisfactory. In accordance with the Code and our
articles of association, all serving directors must retire and those who
wish to continue in office must stand for election or re-election by
our shareholders at each Annual General Meeting (AGM). All directors
were re-elected in 2019 except Keith Williams who retired from the
Board at the conclusion of the AGM.
Board and committee structure
The Board is collectively responsible for promoting the long-term,
sustainable success of the Company through delivering excellent
outcomes for our customers, seeking to generate value for
shareholders whilst fulfilling our responsibilities to our stakeholders
and contributing positively to the societies in which we operate. One
of the Board’s key roles is to determine our shared purpose and to
set and uphold the Group’s values, standards and ethics which
combine together to create our corporate culture. We recognise that
there is a clear link between our culture and our conduct, both with
regards to our customers and to the way in which governance
operates in the Group, and our policies, processes and behaviours in
relation to these issues are closely monitored by the Board. The
Board is also responsible for setting the Group’s risk appetite and
monitoring the operation of our controls framework. It also seeks to
maintain an appropriate dialogue with shareholders on strategy and
remuneration.
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Continued
In order to ensure there is a clear division of responsibilities between
the running of the Board and the running of the business, the Board
has identified certain ‘reserved matters’ for its approval. In relation to
all other matters, unless they are specifically reserved for shareholder
approval in a general meeting, the Board delegates responsibility for
these to our Group CEO, who then delegates responsibility for
specific operations to members of the Aviva Leadership Team (ALT),
comprised of our most senior managers from across the business.
The Board has established certain principal committees to assist in
fulfilling its oversight responsibilities, providing dedicated focus on
the areas set out below. Each committee chairman reports to the
Board on the committee’s activities after each meeting. Full details
of the responsibilities of the Board committees are set out later in
this report and in the Directors’ Remuneration report.
With effect from 1 January 2020, certain amendments were made to
the structure and defined responsibilities of our suite of Board
committees. To better align with our strategy to deliver great
customer outcomes we redefined the remit of the Governance
Committee around customer and customer conduct issues and
Committee’s purpose
Name of Committee
Committee Purpose
renamed this committee the ‘Customer, Conduct and Reputation
Committee’ (CCRC). This is also aligned to our refreshed purpose, to
ensure our actions in every part of the business are fully focused on
consistently earning customers’ trust as the best place to save, retire
and insure. To provide more time for the CCRC to consider the
customer, we expanded the remit of the Nomination Committee to
cover a broader range of governance issues, including subsidiary
governance and oversight of the Aviva governance framework, which
had previously been considered by the Governance Committee and
renamed this the ‘Nomination and Governance Committee’ (NGC).
The NGC will continue to play a key role in succession planning for
both our Executive and Non-Executive Directors as well as having
oversight of our governance framework and regulatory environment.
Upon their establishment, the chairs and members of the new
committees were unchanged except for the CCRC which is now
chaired by Amanda Blanc following Claudia Arney’s retirement from
the Board on 31 December 2019.
The new remits of the Committees are outlined below.
Audit Committee
Nomination and Governance
Committee
Customer, Conduct and
Reputation Committee
Remuneration Committee
Risk Committee
Assists the Board in its oversight of financial reporting by assessing the integrity of the Company’s
financial statements and related announcements; monitoring the adequacy of controls over financial
reporting; monitoring the Group’s whistleblowing provisions; and monitoring the independence and
performance of the Internal Audit function and the External Auditors.
Assists the Board in its oversight of Board composition; Board and senior executive succession; talent
development; diversity and inclusion initiatives; operation of the Group governance framework; Aviva’s
subsidiary governance principles; and the regulatory control environment.
Assists the Board in its oversight of customer, conduct and reputation issues including operational risks
related to customer and business conduct; the Group’s customer strategy and customer conduct
obligations; oversight of the Group’s brand; reputational risk profile; data governance and data privacy;
and corporate responsibility.
Assists the Board in its oversight of remuneration by reviewing the Group Remuneration Policy, the
Directors’ Remuneration Policy, and recommending remuneration packages for the ALT. Works with the
Board Risk Committee to ensure that risk management is considered in setting the Remuneration Policy
and promoting a risk awareness culture through the alignment of incentive and rewards with risk
management.
Assists the Board in its oversight of risk by assessing the effectiveness of the Group’s risk management
framework, risk strategy, risk appetite and risk profile; the methodology used in determining the Group’s
capital requirements and stress testing these requirements; assessing the adequacy of the Group’s
system of non-financial reporting controls; its cyber strategy and compliance with prudential regulatory
requirements.
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Continued
the year
the Nomination Committee assessed
Board independence
During
the
independence of the Non-Executive Directors to ensure that they are
able to properly fulfil their roles on the Board and provide
constructive challenge to the Executive Directors. The independence
criteria set out in the Code were taken into account as part of the
selection process for the three Non-Executive Directors who joined
Aviva during the year.
During 2019, the Committee determined that all Non-Executive
Directors were free from any relationship or circumstances that could
affect, or appear to affect, their independent judgement. In line with
the Code, over half of our Board members, excluding the Chairman,
are independent Non-Executive Directors.
Time commitment
It is vital to the proper functioning of our Board and committees that
each Non-Executive Director is able to commit sufficient time to their
roles in order to discharge their responsibilities effectively. In January
2020 the Nomination and Governance Committee assessed the Non-
Executive Directors’ time commitment considering both the time
required for Aviva Board and committee appointments (including on
subsidiary boards) and the number and nature of the directors’
external
commitments. All Non-Executive Directors have
demonstrated they have sufficient time to devote to their present
role within Aviva, including during any potential periods of corporate
stress. George Culmer became a Non-Executive Director of Rolls
Royce plc on 2 January 2020. The time commitment and potential
conflicts involved were assessed by the Nomination and Governance
Committee which determined that George has sufficient time to
commit to the Aviva Board and committee appointments.
the
(SID)
reviewed
Independent Director
The Senior
time
commitment of the Chairman. During the period to 4 March 2019, the
Chairman increased his time commitment to allow him to perform
the role of Executive Chairman. He was supported in this by the
Chairman’s Committee, composed of the Executive Directors at the
time, Maurice Tulloch, Andy Briggs and Tom Stoddard, who advised
on the strategic, performance and risk and control aspects of the
management of the Group. The role of SID was also enhanced during
this time to allow for the monitoring and management of any
potential conflicts arising from Sir Adrian’s role as Executive
Chairman.
According to the Board’s policy, Executive Directors may hold one
external directorship, subject to obtaining the prior consent of the
Board. The Executive Directors do not hold any such external
directorships at present.
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 are
necessary. 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 continues to monitor and note any potential conflicts of
interest that each Director may have and recommends to the Board
whether these should be authorised and whether conditions should
be attached to any such authorisation. The directors are regularly
reminded of their continuing obligations in relation to conflicts and
are required annually to review and confirm their external interests,
which helps to determine whether they can continue to be
considered independent.
Independent advice
All directors have access to the advice and services of the Group
Company Secretary in relation to the discharge of their duties on the
Board and any committees they serve on. Furthermore, any directors
may take independent professional advice at the Company’s
expense. During the year, no directors sought to do so. The Company
arranges appropriate insurance cover in respect of legal actions
against its directors and has also entered into indemnities with its
directors as described in the ‘Other Statutory Information’ section in
this report.
Role profiles
Following an update to the Board’s Terms of Reference during 2019
to reflect the provisions of the Code, and consistent with the Senior
Managers and Certification Regime (SMCR), amended role profiles
have been created for the Non-Executive Chairman, SID, Group CEO,
Group CFO and Non-Executive Directors which are all available at
www.aviva.com/about-us/roles. A profile for the Executive Chairman
was in place during the period that Sir Adrian Montague occupied
that role.
The Non-Executive Chairman is tasked with leadership of the Board,
setting its agenda and ensuring its effectiveness, and enabling the
constructive challenge of the performance and strategic plans of the
Executive Directors by the Non-Executive Directors. The Chairman
also plays a key role in working with the Board to establish our
culture, purpose and values. The Group CEO is the senior executive
of the Company and has overall accountability for the development
and execution of the Group’s overall strategy in line with the policies
and objectives agreed by the Board.
The role of the SID is to provide a sounding board for the Chairman
and to serve as an intermediary for the other directors where
necessary. The SID should be available to shareholders should they
have concerns they have been unable to resolve through normal
channels, or when such channels would be inappropriate.
Throughout the year the Chairman held meetings with the Non-
Executive Directors without management present. Additionally, Glyn
Barker as SID met with other Non-Executive Directors without the
Chairman present to discuss any matters which they wished to raise.
Induction, training and development
A commitment to support the continuing development of all
employees is a central part of Aviva’s culture. Our directors are highly
supportive of this and are committed to their own ongoing
professional development. During 2019, the directors participated in
internal training sessions on subjects including blockchain, the
impact of IFRS 17, regulatory capital, financial crime, SMCR and
directors’ duties. Further training sessions have been incorporated
into the Board and Committee plans for 2020. The Board also
receives regular briefings on a range of strategically important
matters to ensure they are informed of developments in these areas.
A structured and tailored induction programme was prepared for
each of our three new Non-Executive Directors appointed this year.
This covered, amongst other matters, the current strategic and
operational plan; meeting packs and minutes from recent board
meetings; stakeholder engagement; organisation structure charts; a
history of the Group; role profiles; and all relevant policies,
procedures and other governance material. The induction also
included meeting key members of the management team and
visiting different Aviva office locations. Any knowledge or skill
enhancements identified during the directors’ regulatory application
induction
process would also be addressed through their
programme.
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Continued
Board calendar
During 2019, 16 Board meetings were held, of which twelve were
scheduled meetings and four were additional meetings called at
short notice. In addition, the Board delegated responsibility for
certain items to specially created Board committees, which met nine
times to discuss these particular items.
The unusually high number of meetings of the Nomination
Committee included eight ad hoc meetings which were called to
consider specific matters in relation to the appointment processes
for the Executive and Non-Executive Directors who joined the Board
during the year. If any Directors are unable to attend a meeting, they
can communicate their opinions and comments on the matters to be
considered via the Chairman of the Board or the relevant committee
chairman.
Board and Committee meetings attendance during 2019
The Board visits different markets each year and during 2019 held a
Board meeting at our Irish office. This gave the Board the opportunity
to meet the senior management team locally and to gain a deeper
understanding of the operations and performance of the business. In
June 2019, the Board held its annual two-day strategy meeting offsite
in the UK to review progress against our strategic plan and to
consider how it should be further developed to ensure we deliver on
our commitments to our shareholders and our stakeholders.
Following the meeting a refresh to the Group strategy was
announced on 20 November 2019.
Number of meetings held1
Chairman
Sir Adrian Montague2
Executive Directors
Maurice Tulloch
Tom Stoddard3
Andy Briggs4
Jason Windsor5
Non-Executive Directors
Glyn Barker6
Patricia Cross
Belén Romana García7
Michael Hawker8
Michael Mire9
Claudia Arney10
Keith Williams11
Patrick Flynn12
George Culmer13
Board1
16
Audit
Committee
7
Governance
Committee
4
Nomination
Committee
13
Remuneration
Committee
10
Risk
Committee
6
16/16
16/16
7/7
4/4
4/4
15/16
16/16
16/16
3/3
16/16
16/16
4/5
7/8
4/4
—
—
—
—
—
6/7
7/7
4/5
3/3
—
—
3/3
4/4
2/2
—
—
—
—
—
4/4
—
4/4
—
4/4
4/4
2/2
—
—
13/13
—
—
—
—
10/13
13/13
13/13
6/6
13/13
13/13
7/8
4/4
1/1
—
—
—
—
—
8/10
10/10
—
—
9/10
10/10
—
—
—
—
—
—
—
—
3/6
—
6/6
2/2
6/6
5/6
2/2
3/3
2/2
1 During the year there were 16 Board meetings, of which 12 were scheduled meetings and 4 were called at short notice. In addition, there were 9 further Board sub-committee meetings held at short notice and attended by the
Chairman and the NEDs.
2 Sir Adrian Montague acted as Executive Chairman in the period to 4 March 2019 when Maurice Tulloch was appointed as Group Chief Executive Officer. Following this, Sir Adrian reverted to his previous position as Non-Executive
Chairman.
3 Tom Stoddard resigned as an Executive Director on 30 June 2019.
4 Andy Briggs resigned as an Executive Director on 24 April 2019.
5 Jason Windsor was appointed to the Board as Group Chief Financial Officer on 26 September 2019.
6 Glyn Barker was unable to attend three meetings of the Risk Committee due to prior commitments; he was unable to attend 3 meetings of the Nomination Committee and Remuneration Committee both called at short notice
due to prior commitments. Glyn also missed a Board meeting and Audit Committee meeting due to prior engagements.
7 Belén Romana García was unable to attend a meeting of the Audit Committee due to a prior commitment accepted before she became a member of the Audit Committee.
8 Michael Hawker retired as a Non-Executive Director on 31 March 2019.
9 Michael Mire was unable to attend a meeting of the Remuneration Committee called at short notice due to prior commitments.
10 Claudia Arney was unable to attend a meeting of the Risk Committee due to prior commitments.
11 Keith Williams retired as a Non-Executive Director on 23 May 2019.
12 Patrick Flynn joined the Board as a Non-Executive Director on 16 July 2019 and was unable to attend a Board meeting due to prior commitments.
13 George Culmer joined the Board as a Non-Executive Director on 25 September 2019.
Board priorities
During 2019, the Board continued to make progress on delivering
sustainable and growing financial returns for our shareholders and
overseeing prudent capital management. We put in place a
progressive dividend policy which is aligned to the Solvency II Return
on Equity14 target of 12% by 2022 which we announced as part of our
Capital Markets Day
in November 2019, and continued our
programme of debt deleveraging including the redemption of the
£210 million Step-Up Tier 1 Insurance Capital Securities (STICS)
perpetual subordinated loan notes during the year.
This includes the simplification of Aviva into our five operating
divisions from 2020: Investments, Savings and Retirement; UK Life;
General Insurance; Europe Life; and Asia Life. In the 2019 Strategic
report and 2019 Annual report and accounts, we continue to report
the results of our business by market on the basis they were
managed in 2019. In making these changes, we are leveraging our
substantial digital and
to drive better
commercial outcomes across Aviva and rigorously controlling our
costs, including a £300 million per annum reduction in controllable
costs14 by 2022 (net of inflation).
insurance expertise
Following the appointment of our new Group CEO in March 2019, we
embarked on a comprehensive strategic review of our business,
identifying a number of changes which are now being implemented
to enhance our service to customers and improve the operating
efficiencies of our business.
14 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
We understand that our financial plans can only be achieved through
a relentless focus on the experience of our customers and by working
to ensure that we offer each one of our personal and corporate
customers great outcomes, earning their trust as the best place to
save for the future, navigate retirement and insure what matters
most to them. The Board has focused on understanding our
customers’ experience, closely monitoring customer metrics and
engaging with management to understand the issues involved when
our performance did not meet our customers’ expectations.
During 2020, the Board’s agenda will focus on driving delivery of the
Group’s strategic priorities, which are to deliver great customer
outcomes; excel at the fundamentals; and to continue to invest in
sustainable growth.
We will seek to ensure that we successfully implement our simplified
operating model and maintain our careful control of operating costs.
The Board will closely monitor and drive enhancements in our risk
and control environment and will continue to assess and respond to
changes in the external political and economic environment;
including those related to the UK’s decision to leave the European
Union (EU). The Board will seek to ensure that as a business, we
maintain our focus on managing operational resilience and potential
risks around our IT estate. We will closely review our progress
towards meeting the financial targets outlined in our strategic
update in November 2019 which will support our progressive
dividend strategy and our goal of driving higher returns for our
stakeholders.
Our two-day offsite Board strategy session in June 2020 will be used
to review our three-year strategic plan and to set out strategic
priorities for the year ahead.
Culture will remain a key area, and we will continue to engage with
our stakeholders and integrate their interests and concerns into our
decision-making processes. Succession planning and the continued
development of the talent pipeline will remain an area of focus for
both the Board and the Nomination and Governance Committee.
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 2018, an external evaluation was conducted, with a series of
outcomes reported in 2019. Following an externally facilitated
evaluation process over the last two years, the Board decided that
the 2019 evaluation be undertaken
internal
questionnaire prepared in conjunction with Lintstock. Lintstock also
provide evaluations to other operating subsidiaries in the Aviva
Group. Lintstock are an independent provider of Board evaluations
and have no other connection with Aviva or any individual director.
The questionnaires covered a variety of areas including board
composition, strategic and operational oversight, risk management
and internal controls, and culture. The Board considered the final
report and the recommendations which were shared with each
committee, and an action plan for areas of focus was agreed. The
2018 Board evaluations and 2019 actions are outlined in the table
below.
through an
Outcomes from the 2018 Board evaluation and steps taken in 2019
Focus area
Board composition
Theme
Utilising our skills
matrix as part of our
Board succession
planning
Feedback/actions
The Board skills matrix was utilised to focus NED recruitment on specific Board skills
requirements, including insurance, finance and accounting experience. We have successfully
recruited three NEDs with very deep experience in these areas.
Governance
Stakeholder
engagement
Culture
Reorganisation of our
Board committees
and their remits
We made certain changes to remits of our Board committees, including repurposing the
Governance Committee as the Customer, Conduct and Reputation Committee and the
Nomination Committee as the Nomination and Governance Committee. The aim of these
changes was to further enhance our focus on the customer and customer conduct issues.
Reviewing our
engagement
mechanisms in
relation to the Code
Continuing to set and
monitor our
corporate culture
The interests of our stakeholders are central to the way we operate as a company, and the
Board reviewed the ways in which we engage with them to ensure that they facilitate dialogue
and that the interests of our stakeholders are considered in our decision making.
The Board had several discussions on the Group’s culture and this remains a priority for 2020.
The Board remains committed to maintaining our focus on valuing diversity and policies
supporting inclusion across the Group. It ensured that these are fully considered in overseeing
succession planning for the senior leadership team. It also closely monitors the outputs from
our ‘Voice of Aviva’ engagement surveys and reviews actions proposed to improve employee
engagement.
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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 emerging
and principal risks facing the Company, including those that could
impact the Group’s business model, future performance, solvency
and liquidity. In 2019 the Risk Committee reviewed a number of
emerging risk scenarios and the management actions and mitigation
to address them. These included the decision for the UK to leave the
European Union (regular updates), UK political risk, US-China trade
war, the credit cycle, systemic cloud risk, harmonisation of European
conduct regulation, pension tax relief, risks posed by climate change
and other emerging risks and sources of market uncertainty. 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.
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 60.
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
testing),
identification,
remediation (as required), reporting and certification over key
financial
regularly
undertakes quality assurance procedures over the application of the
FRCF process and controls.
related controls. Management
(documentation
assessment
reporting
and
In 2019, the Group continued to focus on its operational resilience by
completing major control improvements in a number of areas,
including disaster recovery capability and the strengthening of its
cyber security controls, through continued investment in the Group’s
IT estate. More broadly the Group seeks to continue to monitor and
further enhance
its control frameworks across the business,
including change management, financial crime prevention and data
privacy. Further information can be found in the Audit and Risk
Committee reports.
First line – management monitoring
The Aviva Leadership Team 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 the appropriateness of the Solvency II
internal model, 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.
Aviva plc Annual report and accounts 2019
65
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IFRS financial statements
Other information
Directors’ and Corporate Governance report
Continued
The principal committees that oversee risk management are as follows
The Risk 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.
The Governance Committee
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.
From 1 January 2020 the Governance
Committee was renamed the Customer,
Conduct and Reputation Committee.
for assisting the Board
The Audit Committee
Works closely with the Risk Committee and
in
is responsible
discharging its responsibilities for the integrity
of the Company’s financial statements, the
effectiveness of the system of internal controls
and
the effectiveness,
performance and objectivity of the internal
and external auditors.
for monitoring
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 2019, this has been
supported by the application of the Group’s Operational Risk &
Control Management framework. The details of key failings or
weaknesses are reported to the Risk and Audit Committee and the
Board on a regular basis and are summarised annually to enable
them to carry out an effectiveness assessment.
the systems of
internal control and
The Risk Committee, on behalf of the Board, have reviewed the
effectiveness of
risk
management. This review occurs annually. In addition, Internal Audit
plays a significant role in contributing to the routine ongoing
assessment of the Group’s Risk & Control framework. There has been
regular reporting to the committees 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 Audit and Risk Committees refer to the
need to sustain the embedding of controls in a number of areas
where significant progress has been made in 2019, such as cyber
security, risk management through major change, UK Insurance
complaints management and IT disaster recovery; and the need to
continue to make further improvement in a number of other areas,
such as IT resilience, financial crime prevention, data management,
risk culture and ongoing improvements in Canada, France and
Ireland. The Risk Committee, on behalf of the Board will continue to
monitor progress throughout 2020.
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 several of the
Company’s major shareholders during 2019. At these meetings a
range of issues were discussed within the constraints of information
already made public, to understand shareholders’ perspectives. On
20 November 2019 we held a Capital Markets Day in London to
update investors and analysts on our strategy and financial
objectives. Shareholders’ views are regularly communicated to the
Board through the Group CEO’s, and Group 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 and a formal programme of introductory investor meetings
for the new SID commenced in January 2020.
2020 AGM
The 2020 AGM will be held on Tuesday 26 May 2020 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
2019 AGM, and plan to attend the 2020 AGM. A presentation on the
Group’s performance will be given at the 2020 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.
Aviva plc Annual report and accounts 2019
66
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IFRS financial statements
Other information
Board and executive succession planning
The 2018 UK Corporate Governance Code (the Code) places greater
emphasis on succession planning and the Committee has built on its
existing processes to enhance its focus in this area.
The Committee, on behalf of the Board, regularly assesses the
balance of Executive and Non-Executive Directors, and the
composition of the Board in terms of skills, experience, diversity and
capacity.
Executive Directors
The Committee led the process for the recruitment of a new Group
CEO following the departure of Mark Wilson in October 2018. The
Committee approved the search brief and engaged Spencer Stuart
to identify suitable candidates. The brief included finding candidates
with strong insurance experience, a track record of running large
global organisations, outstanding leadership qualities, a customer
focused approach, and alignment to the Company’s culture and
values. A diverse shortlist of internal and external candidates was
interviewed by the Chairman, the Senior Independent Director and
the chairs of the Board Audit, Risk, Governance and Remuneration
Committees. The preferred candidates met with all Non-Executive
Directors and the successful candidate met with the Financial
Conduct Authority (FCA) and the Prudential Regulatory Authority
(PRA). The Remuneration Committee led on the development of an
appropriate remuneration package for the role and approved the
final package to be offered to the successful candidate. Both the
Remuneration and Nomination Committees were mindful of
shareholder views when considering the remuneration package for
the role. Having considered all the skills, experience and personal
attributes of the preferred candidates, the Committee unanimously
agreed to recommend Maurice Tulloch as Group CEO. The Board
appointed Maurice as Group CEO on 4 March 2019. Maurice was
formerly Chief Executive Officer
Insurance. The
appointment of Maurice as Group CEO reflected a strong internal
succession planning process and demonstrated our focus on people
development and readiness for future roles.
International
On 30 June 2019, Tom Stoddard stepped down as Group CFO and as
an Executive Director of Aviva plc. The Committee was involved in the
appointment of the new Group CFO and engaged Spencer Stuart to
carry out an extensive external search and to benchmark internal
candidates for the role. A shortlist of highly capable and diverse
internal and external candidates was produced and considered
against the role profile previously agreed by the Committee.
Interviews were held with the shortlisted candidates and the Non-
Executive Directors, following which the Committee unanimously
agreed to recommend Jason Windsor’s appointment to the role. The
Board appointed Jason Windsor as Group CFO and Executive
Director of Aviva plc from 26 September 2019. Jason Windsor was
Aviva’s interim Chief Financial Officer from 1 July 2019 and was
previously Chief Financial Officer of Aviva UK Insurance. He has a
deep understanding of Aviva and the markets we operate in and was
considered the right candidate for the role in line with our executive
succession plans.
During the year, Spencer Stuart had no other connection with the
Company or any individual director.
Directors’ and Corporate Governance report
Continued
Nomination
Committee
report
Committee focus during 2019
I am pleased to present the Nomination Committee’s (the
Committee) report for the year ended 31 December 2019.
During the year, the Committee led the selection process for the
appointment of Maurice Tulloch as the Group Chief Executive Officer
(Group CEO) on 4 March 2019, and the appointment of Jason
Windsor as the Group Chief Financial Officer (Group CFO) on 26
September 2019.
The Committee also led the Independent Non-Executive Director
succession process in view of the retirement of Michael Hawker, Keith
Williams, Claudia Arney and Glyn Barker during the year, and with the
appointment of Patrick Flynn, George Culmer and Amanda Blanc to
the Board.
Committee membership
Michael Hawker and Keith Williams retired from the Board and the
Committee on 31 March 2019 and 23 May 2019 respectively, and Glyn
Barker and Claudia Arney retired from the Board and the Committee
on 31 December 2019. I would like to thank them all for their
contribution. The members of the Committee as at 31 December
2019 are shown in the table below. Amanda Blanc joined the
Committee on 2 January 2020. Details of members’ experience and
qualifications are shown in the ‘Our Board of Directors’ section, and
their attendance at Committee meetings during the year is shown
within the Directors’ and Corporate Governance report.
Name
Sir Adrian Montague1
Claudia Arney2
Glyn Barker3
Patricia Cross
Belén Romana García
Michael Mire
Patrick Flynn
George Culmer
1 Chair
2 Claudia Arney retired from the Committee on 31 December 2019
3 Glyn Barker retired from the Committee on 31 December 2019
Member since
06/03/2013
08/02/2016
01/07/2012
01/12/2013
26/06/2015
12/09/2013
16/07/2019
25/09/2019
Years on the
Committee
7
4
7
6
4
6
<1
<1
in
Committee Purpose
The main purpose of the Committee is oversight of the balance of
skills, knowledge, experience and diversity on the Board to enable it
to identify and respond appropriately to current and future
opportunities and challenges. To assist
identifying and
nominating candidates for the Board, the Committee monitors the
succession plans for senior management and Executive and Non-
Executive Directors. The Committee also oversees diversity and
inclusion initiatives and talent development for the wider Group.
remit and
During
responsibilities were reviewed. With effect from 1 January 2020 the
Committee changed its name to the Nomination and Governance
Committee and expanded its responsibilities to include oversight of
governance, regulatory compliance and organisational change. More
information on the Board and Committees’ structure can be found in
the Directors’ and Corporate Governance report.
the Board and Committees’
the year,
Aviva plc Annual report and accounts 2019
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Other information
Directors’ and Corporate Governance report
Continued
Non-Executive Directors
Following nine years on the Board, Michael Hawker retired from the
Board and as Chair of the Risk Committee on 31 March 2019. Keith
Williams retired from the Board and as chair of the Audit Committee,
following the conclusion of the Company’s AGM on 23 May 2019.
Claudia Arney and Glyn Barker retired from the Board and as chair of
the Governance Committee and Senior Independent Director
respectively, with effect from 31 December 2019.
During the year, the Committee reviewed the Board skills matrix and
capability gaps identified and agreed the areas of experience which
would be beneficial to the composition of the Board. Spencer Stuart
was engaged to undertake an extensive external search based on the
specification agreed by the Committee. The Committee considered
the role profiles of the shortlisted candidates, met the candidates
with the most alignment to the specification and recommended the
appointment of Patrick Flynn, George Culmer and Amanda Blanc to
the Board. Patrick Flynn was appointed to the Board on 16 July 2019
and became Chair of the Audit Committee on 4 November 2019.
Patrick brings significant experience of both retail financial and
joined the Board on 25
insurance services. George Culmer
September 2019, bringing extensive
insurance and banking
experience. He was appointed as the Senior Independent Director
with effect from 1 January 2020. Amanda Blanc joined the Board as a
Non-Executive Director and Chair of the Governance Committee on
2 January 2020. Amanda brings strong knowledge of the UK and
European insurance industry and a detailed understanding of
business and customers.
Following Michael Hawker’s retirement from the Board, Belén
Romana García became the Chair of the Risk Committee with effect
from 5 July 2019. Belén has been a member of the Risk Committee
since joining the Board in June 2015 and has extensive experience of
financial services including insurance, banking, regulation and risk
management.
Talent management
The Committee also monitors the development of the Aviva
Leadership Team (ALT) to ensure that there is a diverse supply of
senior executives and potential future Board members with the
appropriate skills and experience. Following the appointment of the
Group CEO, the ALT was refreshed in line with the Group’s strategic
direction. The investment made in growing our leadership capability
over the past three years meant that there was a strong pipeline of
internal candidates available with the majority of ALT appointments
originating internally in line with our succession plans. During 2019,
the Committee received regular updates from the Group CEO on the
composition and changes to the ALT and considered the
development plans and talent profiles of these individuals in line
with the Group’s succession plans.
The Committee also considers the development plans designed to
prepare successors for ALT roles. Internal talent development and
developing a pipeline of potential future leaders has continued to
receive Committee focus during the year.
The Committee also considers the initiatives to enhance, strengthen
and diversify the talent pipeline across the wider Group and
members of the Committee remain involved in various initiatives,
including an ongoing programme of talent breakfasts where high
potential employees meet with the Board.
Diversity
Diversity and inclusion continue to be an area of focus for the
Committee and the Board. The Board is committed to having a
diverse and inclusive leadership team which provides a range of
perspectives and insights and the challenge needed to support good
decision making. Diversity at Aviva includes, but is not limited to
gender, and is inclusive of all strands of diversity including skills and
experience, geographic background, 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
succession and 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.
As at the date of the report the representation of women on the
Board has increased from 27% in March 2019 to 33%. We actively
support women advancing into senior roles, with the Chairman being
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. As at the date of this report
females represent 35% of the ALT and further details on gender
diversity in the workforce can be found in the Strategic report.
In May 2017, the Board adopted a Diversity and Inclusion statement
which supports the Committee in its approach to succession
planning. The Board’s 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
Conflicts of interest and independence
During 2019, the Committee reviewed the balance of skills,
experience and
independence of the Board. The Committee
conducted a review of individual director conflict authorisations as
recorded in the Conflicts of Interest register. The register is
maintained by the Group Company Secretary and sets out any actual
or potential conflict of interest situations which a director has
disclosed to the Board in line with their statutory duties. In order to
form a view surrounding director independence when reviewing the
conflicts of interest authorisations, consideration was also given to
other external appointments held by each director.
For Non-Executive Directors,
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.
independence
The Committee determines
a Non-Executive Director’s
independence in line with Provision 10 of the Code. During 2019 the
Committee conducted a particularly rigorous review of Glyn Barker,
who had served on the Board for more than seven years. Glyn’s deep
understanding of accounting and regulatory issues and his extensive
experience as a business leader meant that he also continued to
provide independent insight and challenge to the boardroom. After
careful consideration the Committee agreed that Glyn remained
independent and continued to make a valuable contribution to the
Board. The Committee examined Glyn’s former position as a partner
at the Group’s current external auditors and was satisfied this did not
affect his judgement or independence as a director.
Aviva plc Annual report and accounts 2019
68
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IFRS financial statements
Other information
Directors’ and Corporate Governance report
Continued
The Committee also considered the cross-directorships of Keith
Williams and Claudia Arney who were both directors on the Board of
Halfords plc. The 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. Claudia Arney stepped down from the
board of Halfords plc on 1 March 2019.
Committee effectiveness review
The Committee undertakes a review of its effectiveness annually.
More information can be found in the Directors’ and Corporate
Governance report.
2020 priorities
In 2020, the Committee will continue to focus on succession planning
at the Board and senior management level (particularly following the
internal appointments to the ALT during the year) and developing a
strong and diverse talent pipeline. The Committee will also focus on
appointing the new Chair and building an induction and training
programme to support their appointment process. The Committee
will also begin to operate under its extended Terms of Reference as
the Nomination and Governance Committee.
Sir Adrian Montague
Chair of the Nomination Committee
4 March 2020
Committee activities during 2019
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 2019 AGM
• Reviewed and made recommendations to the Board in respect of
each directors actual, potential or perceived conflicts of interests
• Reviewed the external appointments and time commitments of
the Non-Executive Directors
Board composition and diversity
• 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
• Led the search process for the new Group CEO, Group CFO and the
three Non-Executive Directors appointed during 2019
• 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 Aviva Leadership Team
member, including talent development below the ALT level
Talent pipeline
• Reviewed the career and development plans for the ALT to ensure
that there is an adequate talent pool of potential Executive
Directors
• Reviewed talent development throughout the Group to ensure
there is a sufficient and diverse pipeline of talent available to
execute the Company’s current and future strategy
Aviva plc Annual report and accounts 2019
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Other information
Directors’ and Corporate Governance report
Continued
Risk Committee
report
Committee focus during 2019
I am pleased to present the Risk Committee’s (the Committee) report
for the year ended 31 December 2019.
The Company’s approach to risk and risk management together with
detail on the principal risks that face the Group are explained within
the Risk and risk management section of this report.
During the year, the Committee focused on strengthening the risk
culture and control environment, with particular attention given to
operational and IT risks. The Committee also focused on the
changing macroeconomic and political environment, including
preparations for the UK to leave the European Union (EU), the risks
posed by the low interest rate environment, cyber threats, climate
change and ongoing regulatory change.
The Company’s overall risk profile has remained stable throughout
2019 and the Committee continued to review and oversee the
strengthening of the Group’s operational risk profile and control
environment.
Committee membership
I assumed the role of Chair on 5 July 2019. Michael Hawker was the
Chair until 31 March 2019 when he stepped down from the Board and
the Committee after nine years’ service. Glyn Barker and Claudia
Arney also retired from the Board and the Committee on 31
December 2019 and I would like to thank them all for their
contribution. The members of the Committee as at 31 December
2019 are shown in the table below. Amanda Blanc became a member
of the Committee on 2 January 2020 following her appointment to
the Board. Details of members’ experience, qualifications and
attendance at Committee meetings during the year are shown within
the Directors’ and Corporate Governance report.
Name
Belén Romana García1
Michael Mire
Claudia Arney2
Glyn Barker3
Patrick Flynn
George Culmer
1 Chair.
2 Claudia Arney retired from the Committee on 31 December 2019
3 Glyn Barker retired from the Committee on 31 December 2019
Member since
26/06/2015
12/09/2013
01/01/2017
02/05/2012
16/07/2019
25/09/2019
Years on the
Committee
4
6
3
7
<1
<1
framework. The Committee
Committee purpose
The main purpose of the Committee is to assist the Board in its
oversight of risk within the Group, with a 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
the
methodology used in determining the Group’s capital requirements
and associated 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,
including
significant changes to the regulatory framework. The Committee
works with the Remuneration Committee to ensure that risk
management and risk culture is properly considered in setting the
Remuneration Policy. During 2019 the Committee supported the
reviews
development of the new primary risk and control metric included in
the Company’s Annual Bonus Plan and further details on this can be
found in the Directors’ Remuneration report.
During the year the remit of the Committee was reviewed, and it was
agreed that responsibility for controls over financial reporting will
remain with the Audit Committee while the Committee has
responsibility for all other internal controls. The Committee’s Terms
of Reference were updated accordingly.
The Committee works closely with the Remuneration and Audit
Committees. The cross membership between these Committees
promotes a good understanding of
issues and efficient
communication.
UK exit from the EU
During the year the Committee monitored the negotiations between
the UK and EU and reviewed the Group’s operational readiness
planning, including the appropriateness of the ‘No Deal’ operational
planning assumption against the backdrop of political uncertainty.
Management plans included implementing a monthly Steering
Committee to oversee preparations and the Committee reviewed the
progress made by the Steering Committee and the implementation
of the Part VII transfers of insurance portfolios to subsidiaries in
Ireland, which were completed by 29 March 2019. More generally the
Committee discussed the Group’s contingency planning to ensure
continuous service to customers in the event of a ‘No Deal’ exit and
also considered customer service capacity planning to ensure that
continuous service could be maintained in the event that a ‘No Deal’
exit occurred concurrently with other risk events (for example
extreme weather) and business-as-usual peak demand (for example
tax year-end). The resilience of the Group’s balance sheet and the
effectiveness of financial hedges to help mitigate possible financial
market shocks from a ‘No Deal’ exit were reviewed, together with the
progress made by the team working across the Group to ensure EEA
to UK data transfers would be legally compliant absent of an EU data
protection adequacy ruling. The Committee reviewed the scenario
planning for potential fund suspensions, particularly property funds,
to ensure that communication controls and cascades were in place.
Control environment
During the year the Committee received updates on disaster
recovery, cyber resilience and IT outsourcing, and monitored and
challenged the progress made by management.
The Committee reviewed the progress made by management in
testing Aviva’s ability to recover critical IT services in the event of a
disaster and the robustness of the controls to support this on an
ongoing basis. The progress made on the disaster recovery testing,
and the new facilities provided by the data centre migration, allowed
the Committee to support a return to tolerance for Aviva’s disaster
recovery risks.
In the case of cyber resilience, the Committee requested that
management develop supporting management information (MI) for
each business to demonstrate the effectiveness of key controls. The
cyber scorecard allows each market to track control effectiveness
and take proactive actions to address any issues arising. The
Committee recognised that progress had been made across the
including an
risk and control environment,
overall cyber
improvement in cyber resilience maturity. In addition, there had
been demonstrable improvements in Aviva’s Cyber and Disaster
Recovery controls, and focus will remain on ensuring the controls
operate at an optimum level.
Notwithstanding these improvements the Committee believes that
further work is required on the overall risk and control environment
and that the assessment and the subsequent impact on the
Company’s 2019 Annual Bonus pool provides a clear statement of
the focus on continual improvement across 2020.
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Other information
Directors’ and Corporate Governance report
Continued
Data centre migration
As part of the lessons learned from previous change programmes,
the Committee ensured that appropriate governance structures
were in place for future programmes. During 2019, a joint multi-entity
forum was used for the data centre migration project with assurance
provided by an independent expert. This forum operated in support
of each legal entity board to ensure appropriate oversight of the
programme and the most material IT migrations. As a result of this
oversight, and the risk management practices embedded within the
programme, the migration of Aviva’s data centres was completed
with minimal impact to customer service.
Risk culture
During the year the Committee reviewed the overall risk culture
within the Group and the balance of risk and control expertise. This
is in addition to the annual assessment of the performance of all
Group business units and functions against the Group Risk and
Control Goal which considered a range of quantitative and
qualitative measures and outcomes. As a result, there has been a
greater focus on risk culture with additional scrutiny on relevant
metrics which forms part of the new operational risk appetite
framework and focus will remain on further development.
Committee effectiveness review
The Committee undertakes a review of its effectiveness annually.
More information can be found in the Directors’ and Corporate
Governance report.
2020 priorities
The Committee will continue to monitor the political environment,
following the UK’s exit from the European Union, including progress
on trade negotiations and the future regulatory and political
relationship. There will continue to be a focus on strengthening the
risk and control environment particularly in relation to change
activity, cyber risk reduction and ensuring IT service continues to
meet customer demands and support the emerging requirements of
operational resilience. The new risk reward metric and operational
risk appetite should support this momentum while balancing the
need to incentivise the required culture and behaviours to ensure
controls are sustainably returned to tolerance. The Committee will
focus on the potential risks associated with the business growth
agenda and cost reduction activities to ensure these stay aligned to
our commitment to improve the risk and control environment and
deliver great customer outcomes.
In addition, I will continue to ensure a strong dialogue between the
Group Risk Committee and our equivalent subsidiary
level
committees. This will include further developing the strength of the
Company’s controls around non-financial and emerging risks and
how they support overall operational resilience, the horizontal and
geographic review of key risks, remuneration processes and the
linkage to culture.
Finally, on 11 February 2020 we welcomed Jan-Hendrick Erasmus as
the new Group Chief Risk Officer. The Committee will work closely
with Jan-Hendrick on his on-boarding and objectives which will be
closely aligned to the priorities for the Committee.
Belén Romana García
Chair of the Risk Committee
4 March 2020
Committee activities during 2019
Risk appetite, risk management and risk reporting
• Reviewed reports from the Group Chief Risk Officer (Group CRO), which
included updates on significant risks facing the Group, the Group’s
capital and liquidity position, the control environment, emerging risks
and the Company’s risk profile, and operational, regulatory and
conduct risks
• Reviewed and recommended for Board approval, the Group’s risk
policies
• Reviewed and recommended for Board approval the Group’s Solvency
II (SII) capital and liquidity risk appetites
• Approved the Group’s SII capital risk tolerances by risk type
Group capital and liquidity, financial plan and stress testing
• Approved the 2019 Group Capital and Liquidity Plan and subsequent
updates
• Reviewed capital and liquidity projections including the Group’s SII
shareholder cover ratio and liquidity cover ratio
• Reviewed updates on credit risk and the Company’s credit exposure
and reviewed mitigating actions
• Reviewed the development of the Company’s strategy from a risk
perspective
• Approved the Systemic Risk Plan, the Recovery Plan and the Liquidity
Risk Management Plan
• Approved the scenarios for group-wide stress testing to support the
Group Recovery Plan
• Reviewed the risks to the 2020-2022 Group Plan
Solvency II internal model
• Undertook a review of the internal model components, reviewed
internal model validation reports and governance updates, and
approved changes to the internal model
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 impact of the decision of the UK to leave the EU, 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
Regulatory, governance and internal audit
• Received risk and control updates from certain business units as part
of an updated programme of risk deep-dive reviews
• Reviewed the Group Own Risk and Solvency Assessment (ORSA)
Supervisory Report and approved its submission to the regulator
• Received updates on the disaster recovery, IT security, IT outsourcing
and cyber risk Major Control Improvement Topics, and monitored and
challenged progress by management
• Received quarterly reports from the Group Chief Audit Officer on
internal audit which included progress on improving the control
environment
• Approved the refresh of Solvency II related Group Business Standards
• Reviewed and approved the annual objectives and performance of the
Group CRO
• Reviewed the effectiveness of the systems of internal control and risk
management
• Reviewed the Company’s reporting on the Taskforce on Climate
Related Financial Disclosures requirements
• Recommended the 2020 Risk and Control Goal for approval by the
Remuneration Committee
• Reviewed the adequacy and quality of the risk function
• Assessed the performance of all Group business units against the 2019
Group Risk and Control Goal
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Other information
Committee member requirements
The Committee annually reviews how its members meet the
experience and expertise criteria set out in the 2018 UK Corporate
Governance Code (the Code) and the FCA Disclosure Guidance and
Transparency Rules (DTRs). Following the review undertaken for
2019, a recommendation was made to the Board that I as Committee
Chair, – Belén Romana García and George Culmer, fulfilled the Code
requirements for recent and relevant financial experience and the
DTR requirements for competence in accounting and auditing and
Patricia Cross confirmed that she also met 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 primary purpose of the Committee is to make sure we follow a
robust process to ensure our half and full year financial statements
are suitable for publication. The Committee supports the Board in
carrying out its responsibilities in relation to accounting policies, and
internal controls and the financial reporting framework. The
Committee monitors the adequacy and effectiveness of our system
of control over
the effectiveness,
performance, objectivity and independence of our internal and
external auditors. The Committee also monitors our whistleblowing
arrangements. The Audit Committee responsibilities are set out in its
Terms of Reference.
reporting and
financial
in certain areas. The Committee
During the year the remit of the Committee was reviewed and
clarified
is responsible for
overseeing internal controls over financial reporting while the Risk
Committee is responsible for the oversight of other areas of internal
controls. The Committee’s Terms of Reference were updated
accordingly. The Committee acts independently of management and
works closely with the Governance, Remuneration and Risk
Committees. The cross-membership between these Committees
supports good understanding of current
issues and efficient
communication.
Directors’ and Corporate Governance report
Continued
Audit Committee
report
Committee focus during 2019
I am pleased to present the Audit Committee’s (the Committee)
report for the year ended 31 December 2019.
During 2019, the Audit Committee dedicated substantial time to
reviewing the Aviva Group financial statements at both half and full
year. In both cases, the financial statements were supported by
detailed reports with judgements applied in preparation of the
financial statements, including Life and GI technical provisions and
reserves. The Committee also spent time considering the merits of
more frequent financial reporting.
The Committee also focused on the Company’s financial reporting,
our system of internal controls over financial reporting, and the
performance of the internal and external auditors. The potential
impact of new International Financial Reporting Standards (IFRSs),
particularly the new insurance accounting standard (IFRS 17) on the
Company’s financial operations and financial reporting remained
under close review by the Committee and the Committee also
commenced a project for the tender of the external audit.
Committee membership
I became Chair of the Audit Committee on 4 November 2019 and
succeeded Glyn Barker, who had chaired the Committee on an
interim basis following the retirement of Keith Williams on 23 May
2019, and pending receipt of my regulatory approval for the role. I
would like to thank Glyn for his support to the Committee during this
interim phase and prior to his retirement from the Board on 31
December 2019. Michael Hawker also retired from the Committee on
31 March 2019. The members of the Committee as at 31 December
2019 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 ‘Our Board of Directors’ section and the Directors’ and
Corporate Governance report.
Name
Patrick Flynn1
Glyn Barker2
Patricia Cross
Belén Romana García
George Culmer
1 Chair
2 Glyn Barker retired from the Committee on 31 December 2019.
Member since
16/07/2019
08/08/2012
01/12/2013
05/07/2019
25/09/2019
Years on the
Committee
<1
7
6
<1
<1
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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 Life
technical provisions and
reserves
IFRS and SII GI reserving
issues and judgements
IFRS and SII key issues and
judgements and disclosures
Internal controls
Challenged the assumptions used in the calculation of the Best Estimate Liability component of the technical provisions and the
reserves required under Solvency II (SII), and the expense impacts on SII reserves. Reviewed and challenged the longevity, expense
and credit default assumptions used for the 2019 half and full year financial statements. The challenge around the setting of
longevity assumptions was a particularly significant area for review as those judgements could continue to have a material impact
on Aviva’s SII and IFRS results. During 2019, a detailed analysis was conducted, and reviewed by the Committee, to validate
changes observed in recent mortality experience and the resulting impact on the 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 review of longevity assumptions, together with
the UK Life Chief Financial Officer. This provided an additional opportunity to examine the assumptions in greater detail. Following
assessment of the proposed assumption changes the Committee considered the associated release of margins and the timing of
the 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 the adoption of updated Continuous Mortality Investigations (CMI) models for mortality
improvement including the selection of parameters within the CMI model. The Committee reviewed the continued
implementation of a new modelling tool to measure actuarial liabilities in place of an externally hosted product. The
implementation of the new model was ongoing and would continue to be applied to further actuarial models on a phased basis.
The Committee also approved the maintenance expenses used in the measurement of life insurance contract liabilities in UK Life.
Reviewed and challenged the principal assumptions in the calculation of the GI reserves, in particular the ‘Ogden rate’ for bodily
injury claims including the impact of the July 2019 announcement by the Lord Chancellor of the -0.25% Ogden discount rate. This
resulted in a £45 million reduction in IFRS profit. The Committee continues to monitor how the Ogden rate might change and
subsequent reviews (at least every five years) including the potential for a dual rate, and the impact of future mortality and
economic scenarios. The Committee considered the key points of the PRA’s ‘Dear Chief Actuary’ letter and the actions taken across
the Group to ensure our reserving remains at best practice level. It also tracked actual weather claims against expectations
throughout the year.
Challenged estimates and judgements for IFRS and SII reporting bases. IFRS judgements included goodwill and intangible asset
impairment reviews, assets classified as held for sale, (including the continued held for sale of Friends Provident International
Limited) and the valuation assumptions for certain mark to model assets and liabilities. With the repeated change of date for the
UK exit from the European Union and reflecting the continuing uncertainty and risk of a ‘no deal’ exit from the EU, the Committee
continued to review the size and continuation of the allowance in relation to the UK exit from the EU and agreed the allowance
should continue to be retained and that further disclosure of the purpose of retaining the allowance be provided in the financial
statements. The Committee also reviewed two provisions created in respect of product governance issues for heritage book
customers in the UK Life business. The first related to advice given on the transfer from defined benefit pensions to personal
pension arrangements and resulted in a £229 million provision (2018: £250 million). The second related to past communications
to a specific sub-set of policyholders that may not have adequately informed them of switching options into with-profits funds
that were available to them and resulted in a provision of £175 million. In addition, the Committee reviewed an issue relating to
the incorrect consolidation of investment funds, the resulting restatement of financial statements at Half Year 2019 following the
reclassification of those Investment funds, and the further strengthening of the internal controls for the classification of
investment funds going forward. The Committee monitored the additional disclosures required at Full Year 2019 following the
restatement at Half Year 2019 and continues to assess the revisions to the control environment.
The Committee continued to challenge and drive the ongoing implementation of the Operational Risk and Control Management
framework (ORCM) to ensure ORCM is embedded across the Group and to support a risk aware culture. From 1 January 2020 the
Committee’s Terms of Reference were updated to clarify that the Committee will oversee internal controls over financial reporting.
The Risk Committee Terms of Reference were updated at the same time to clarify that the other internal controls are overseen by
the Risk Committee. The Committee reviewed the internal controls over financial management to gain assurance that these
remained in tolerance with no control weaknesses which could have a material impact on the full year 2019 financial results.
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Continued
IFRS 16 and IFRS 17
Prepared for the implementation of new IFRSs, but most significantly IFRS 16 (the new leasing standard adopted on 1 January
2019) and IFRS 17, the new insurance accounting standard issued by the International Accounting Standards Board (IASB) due to
take effect on 1 January 2022. In particular, the Committee reviewed the transition approach to be taken by the Group on the
adoption of IFRS 16. Implementation of the standard has resulted in an additional c.£0.5 billion of assets and liabilities relating to
the Group’s owner-occupied property portfolio being recognised on the statement of financial position for the first time. In respect
of IFRS17, the Committee considered the impact of the proposed requirement to calculate a ‘Contractual Service Margin’ (CSM),
whereby the profits earned from a policy will be spread over its full life, and a new CSM liability to be held on the balance sheet
representing ‘unearned profits’. While the impact of adopting IFRS 17 has yet to be fully assessed, particularly as the standard has
not yet been finalised, it is expected that IFRS 17 will have a significant impact on the measurement and disclosure of insurance
contracts. The Committee continues to regularly assess the impact on financial reporting, the operation of new internal financial
tools to be used for financial forecasting and planning purposes, and the cost of implementing the new IFRS 17 standard.
Longer term viability
statement (the Statement)
Reviewed and challenged the principles underpinning the Statement for 2019 and concluded that the Company and its
subsidiaries will be able to continue in operation and meet their liabilities as they become due. The Committee continues to
consider it appropriate that the Statement covers a three-year period.
Financial transformation
The Committee reviewed and challenged management’s plans for the simplification of the Group’s internal finance functions. The
primary objective of this activity is to simplify and consolidate finance systems and operations to a unified model and underlying
IT systems, driving simplicity and lower cost.
Tender of external audit
External quality
assessment (EQA) of the
Internal Audit Function
Performance measures
Under Competition and Markets Authority regulations, Aviva is required to tender for the provision of the external audit every 10
years. PricewaterhouseCoopers LLP (PwC) was appointed for the first time for the 31 December 2012 financial year end and
therefore a mandatory re-tender is required for the year ending 31 December 2022. The Committee initiated and is leading the
external audit tender process which is expected to be completed during 2020. The timing of the tender of the external audit will
align the appointment, or re-appointment of the external auditor, with the introduction of IFRS 17.
The Internal Audit function is required by professional standards to engage an independent EQA review at least every 5 years. The
EQA covers all aspects of the governance and operation of the function including compliance with relevant professional
standards. The Committee reviewed the report of the EQA and will continue to monitor the associated action plan for the Internal
Audit function following the EQA report.
At the Capital Markets Day on 20 November 2019 new financial metrics were announced which align with our strategic priorities.
The Committee has reviewed those economic value metrics based on SII which will be used to manage the business and measure
future performance.
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Directors’ and Corporate Governance report
Continued
External auditor
PwC was appointed as the Group’s External Auditor (Auditor) in 2012
following a formal tender process. The external audit contract must
be put out to tender at least every ten years in conformance with
Competition and Markets Authority (CMA) rules on mandatory audit
tendering. The Committee has agreed that a competitive tender
process will be completed during 2020, 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
proposed timing of the 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. 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 Committee is leading the tender and has defined audit quality as
the primary criteria for selecting the external auditor. The Committee
expressly requested that audit firms outside the ‘big four’ be invited
to participate in the tender process and we were pleased that several
firms outside the ‘big four’ discussed the audit tender with us.
The external audit is currently led by the audit partner, Andrew Kail,
who replaced Marcus Hine by rotation following the approval of the
2018 annual report in March 2019. Andrew completed a detailed
transition exercise with Marcus during the completion of the 2018-
year end audit process.
The Auditor attends every Committee meeting and submits a formal
report for discussion. This report updates the Committee on the
progress of audit activity, a review of the reasonableness of
managements’ approach to key issues, judgements and accounting
matters and the impact on the financial statements and assurance
around auditor independence. The Auditor also provides the
Committee with external benchmarking data around key areas of
interest such as annuitant mortality assumptions, pensions and
internal controls.
An annual review of the Auditor was undertaken through completion
of a questionnaire by the Committee, subsidiary company audit
committees, senior management, and members of the Group’s
finance team. The review focused on the effectiveness of the audit
team, expertise and
interaction with audit
resources and
committees. Feedback on interaction with the Auditor from audit
committees across the Group was positive. Where opportunities for
improvement were identified, the finance function engaged with the
Auditor to include that feedback into the planning for future audit
activity. The Committee concluded that the Auditor continued to
perform effectively and is recommended to shareholders for
reappointment at the 2020 AGM.
The Company has complied with the Statutory Audit Services
Investigation (Mandatory Use of
for Large Companies Market
Committee
Audit
Competitive
Responsibilities) Order 2014 for the year ended 31 December 2019.
Processes
Tender
and
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 2019 the Group paid PwC £21.2 million (2018: £20.4 million) for
audit and audit-related assurance services, with the overall increase
primarily due to additional fees relating to the prior year audit of
In addition, PwC were paid £0.8 million
Group subsidiaries.
(2018: £1.9 million)
£0.7 million
(2018: £0.9 million) for other assurance services, giving a total fee to
PwC of £22.0 million (2018: £22.3 million).
for other services,
including
In line with the Standard, the 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 and updates on the management of operational risks
and controls under the Operational Risk and Control Management
(ORCM) framework. More information about our system of internal
control and risk management can be found in the Directors’ and
Corporate Governance report. The Committee has clarified its role to
provide oversight on internal controls over financial reporting with
other areas of internal control overseen by the Risk Committee.
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
quarterly reports include an assessment of control environment
metrics including: any risks that are reported to be outside of
tolerance; the plans to return these to tolerance; the status of internal
audit opinions that are rated as unsatisfactory or where major
improvement is needed; key issues identified and emerging trends
and themes for the Committee to focus on in the future.
The Committee reviews and approves the Internal Audit Plan and
budget and satisfied itself that the Internal Audit function had the
appropriate resources to discharge its remit. The Committee 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 Auditor. In
2019, the Internal Audit function also undertook an EQA review, and
the Committee assessed the outcome of this review. The EQA results
highlighted the strength of the Internal Audit function, and action
plans were developed to address areas of improvement identified,
with progress against that plan reported to the Committee. The
Committee concluded that for 2019 the function performed well and
remained effective.
For the financial year under review, the Company met the relevant
provisions of the Code relating to internal controls, and the FRC’s
2014 ‘Guidance on Risk Management, Internal Control and Related
Financial and Business Reporting’.
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Directors’ and Corporate Governance report
Continued
The Committee is also supported in its work by the audit committees
that operate in the Group’s subsidiary entities. The subsidiary audit
committees review the operation of internal controls in these
subsidiaries, and actively challenge
judgement made by
management, strengthening the overall governance and control
framework for the Group. The Committee Chair will meet with
subsidiary entity audit chairs during the year to discuss their
oversight responsibilities.
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 in relation to whistleblowing.
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 Audit
Committee and Board receives updates from the Committee Chair as
the whistleblowers’ champion. Aviva’s whistleblowing programme
‘Speak Up’ is available to employees across the Group. The
Committee receives reports on the number of cases reported to the
Speak Up service, the proportion of reports that are designated as
instances of whistleblowing, the number of substantiated cases and
summaries of the action taken. The Committee continues to look for
opportunities to further enhance the Speak Up service.
Committee effectiveness review
The Committee undertakes a rigorous review of its effectiveness
annually. More information can be found in the ‘Our Board of
Directors’ and Corporate Governance report’.
2020 priorities
In 2020, in addition to carrying out its principal function, the
Committee will continue to monitor the implementation of the new
IFRS 17 standard, ahead of its scheduled introduction from 1 January
2022. The Committee also intends to complete the external audit
tender process while also considering changes in the external audit
environment following the Brydon, Kingman and Competition and
Market Authority reviews of the audit market. The Committee will
following the
consider the changes
announcements made at the Capital Markets Day on the revised
structure of the Aviva Group and will continue to support the
development of the ORCM framework in relation to internal controls
over financial reporting.
in segmental reporting
Patrick Flynn
Chair of the Audit Committee
4 March 2020
Committee activities during 2019
Financial statements and accounting policies
• Recommended to the Board for approval the 2019 half and full year
financial statements
• Approved the IFRS and SII technical provisions with the 2019 half
and full year financial statements
• Recommended to the Board for approval the SII Solvency and
Financial Condition Report
• Reviewed and challenged the reserve positions relating to the
Group Life and GI operations
• Reviewed and challenged the treatment and recoverability of
goodwill and other intangible assets
• Reviewed the Group Chief Financial Officer’s reports which
included: IFRS and SII key issues and judgements; accounting
developments including the new IFRSs; and overview of internal
control and risk management over financial reporting
• Reviewed and challenged the going concern assumptions for 2019
and the principles underpinning the Longer-Term Viability
Statement
• Reviewed the Group Risk Actuary’s report on significant issues
related to the technical provisions of SII and IFRS
• Reviewed an issue relating to the incorrect consolidation of
investment
financial
resulting
statements at half year 2019 following the reclassification of those
investment funds, and updates to relevant internal controls
restatement of
funds,
the
• Assessed that the Annual report was considered fair, balanced and
understandable
External audit, auditor engagement and policy
• Reviewed the effectiveness of the Auditor and was satisfied that the
services it provided remained effective, objective and fit for
purpose
• Reviewed the 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 the External Auditor Business Standard
• Held private meetings with the Auditor without management
present to provide an appropriate forum for issues to be raised
• Reviewed reports from the Auditor regarding: the 2019 Audit Plan
and progress against plan and reports on the audit of the 2019 half
and full year results including key assumptions used and outcomes
of the audit
• Commenced the process for a tender of the external audit
Internal audit
• Reviewed reports from the Chief Audit Officer (CAO)
• Recommended to the Board the appointment of a new CAO during
the year
• Reviewed and approved changes to our Internal Audit Charter and
Business Standard
• Reviewed and approved our Internal Audit Plan
• Assessed the independence of the CAO
• Assessed the effectiveness of the Internal Audit function
• 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 ORCM FRCF
framework and rectification of controls
• Reviewed management’s assessment of the effectiveness of the
risk management and control environment
• Reviewed the Internal Audit function report to ensure adequacy of
the systems of internal control and risk management
• Received updates from the Speak Up and whistleblowers’
champion
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Other information
Directors’ and Corporate Governance report
Continued
Governance
Committee report
Committee focus during 2019
I am pleased to present the Governance Committee’s (the
Committee) report for the year ended 31 December 2019.
During the year, the Committee considered and monitored a range
of matters which included the treatment of our customers including
vulnerable customers, our corporate responsibility agenda, data
governance and regulatory compliance.
The Committee reviewed the scope and outcomes from a
the UK businesses and monitored
governance
implementation of the recommendation from the review of the
governance framework across the Group.
review of
Committee membership
I joined the Board on 2 January 2020 and also assumed the Chair of
the Committee. Claudia Arney was the Committee Chair throughout
2019 and I would like to thank Claudia for her leadership of the
governance agenda and for enhancing the Committee’s focus on the
customer. Glyn Barker retired from the Board and the Committee, on
31 December 2019, and I would also like to thank Glyn for his
contribution as a Committee member. The members of the
Committee who served during 2019 and as at the date of this report
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.
Name
Amanda Blanc1
Claudia Arney2
Glyn Barker3
Michael Mire
Belén Romana García
Member
Since
Years on
the Committee
02/01/2020
01/06/2016
10/05/2017
12/09/2013
26/06/2015
<1
3
2
6
4
1 Chair
2 Claudia Arney retired from the Committee on 31 December 2019
3 Glyn Barker retired from the Committee on 31 December 2019
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.
With effect from 1 January 2020 the Committee’s remit was
refocused to provide greater clarity on the role of the Committee in
overseeing customer and conduct topics. As a result, the Committee
changed its name to the Customer, Conduct and Reputation
Committee (CCRC). This report sets out the Committee purpose and
activities during 2019 prior to becoming the CCRC.
Customers
During 2019, the Committee had oversight of the changes to Aviva’s
organisational design, particularly the restructuring of the UK
Insurance (UKI) business, into two separate businesses to enhance
the end
to end customer experience and drive clearer
accountabilities. This included providing input to the development
of the customer measures that form part of the Company’s Annual
Bonus Plan. Further details on these enhancements are provided in
the Directors’ Remuneration report.
The creation of UKI customer operations, working across both our
Life and Insurance businesses, was monitored by the Committee to
ensure positive outcomes for the customer. The Committee regularly
reviewed the balanced scorecard of customer metrics to better
understand our customers’ needs.
The Committee emphasised the importance of the customer agenda
in the Group strategy and provided constructive challenge on how
customer service and perception could be incorporated into the
strategy.
The identification and fair treatment of vulnerable customers was
also an area of focus for the Committee. The Committee conducted
‘deep dives’
into customer complaints and carried out an
assessment of the UKI Complaint Risk controls to understand the key
root causes of complaints. The Committee also increased the focus
on standardised monitoring of customer complaints across all
international markets.
Data
During 2019 the Committee reviewed the development and delivery
of the data governance and data privacy framework and records
management within the Group. A data protection officer has been
appointed in each European market and in Aviva Investors and
training and awareness of data privacy has been rolled out to all
employees to support a strong, robust data privacy culture.
incidents remained a
The Committee recognised that data
significant threat to the Company’s business and reputation and
therefore emphasised the importance of an effective Data Strategy,
and focus remains on further developing this Strategy and improving
the quality and robustness of the Company’s data privacy processes
and framework.
Conduct and compliance
The Committee continued to pay close attention to Aviva’s conduct
risk agenda, conduct risk profile, compliance obligations and the
wider regulatory landscape. The Committee reviewed the Group’s
regulatory risk profile and conduct risk data analytics capability. The
Committee considered and approved updates to the Conduct Risk
Policy and its application across the Group.
In addition to UK conduct risks, the Committee also reviewed
conduct and compliance risks across our markets and received a
deep dive on conduct risk in our Turkish and French businesses.
The Committee monitored material compliance developments and
changes in the regulatory landscape particularly from a conduct risk
perspective. The Committee also reviewed and approved the annual
Group Compliance Plan and reviewed performance against this Plan
and the delivery of good customer outcomes. The Committee
continued to monitor the financial crime risks for the Group, and
focused on
associated action plans and during
strengthening first line anti-fraud controls.
the year
Governance
The Committee focused on changes in the internal governance of the
Group, particularly governance within our subsidiary businesses. The
Committee continued to receive updates and approved changes to
the subsidiary governance principles and subsidiary succession
management framework to provide a consistent governance
framework across the Group. The governance around managing
multi-disciplined projects was also strengthened to provide a
consistent approach to major change projects.
The Committee also reviewed the outcomes of the board evaluations
completed by subsidiaries across the Group and monitored the
action plans developed by subsidiary boards to reflect those
outcomes.
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Committee activities during 2019
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
the Group’s Financial Crime,
Regulatory Business and Corporate Responsibility, Environment
and Climate Change Business Standards
reporting and
• 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 2018 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 2019 subsidiary board effectiveness
reviews
• Considered succession planning for material subsidiaries around
the Group
• Reviewed the outcomes of the governance review and monitored
implementation of the recommendations to the governance
framework
People
• Reviewed the results of the Voice of Aviva surveys
• Reviewed and considered the talent development programmes for
leadership across the Group, with a focus on diversity
• Approved updates to 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 the implementation of the data governance and data
privacy framework
• 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
Directors’ and Corporate Governance report
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 approved
updates to the Business Ethics Code to include explicit references to
human rights and the reporting of climate change related risks. The
Committee also continued to monitor and support our community
investment.
The Committee reviewed Aviva’s reporting on modern slavery and
received updates on the Aviva Foundation, which had been
established to distribute the proceeds of the Company’s share
forfeiture programme. The Foundation has committed over
£3.7 million to projects that support our communities and vulnerable
customers. This included funding a pilot to provide a counselling
package to vulnerable home insurance customers’ experiencing
trauma following a serious event such as flooding; and funding a
national programme to help people over 50
increase their
employability skills and to promote, among businesses, the benefits
of being an age friendly employer. The Foundation also supported
the World Benchmarking Alliance which aims to challenge
businesses to do more to achieve the UN Sustainable Development
Goals.
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 to identify the most
important sustainability issues for customers, the business and our
wider stakeholders. Further
integrated
responsibility and sustainable business approach can be found on
the Company’s website at www.aviva.com/social-purpose
information on our
Culture, diversity and inclusion
The Committee reviewed the outcomes of the employee Voice of
Aviva engagement survey, which provided insights into employee
concerns and the culture of the Group. The Committee also received
updates on Global Inclusion and the evolution of the working culture
to actively embrace all individuals and build an agile and diverse
workforce. The Committee recognised that shifting demographics
were making it ever more important to understand and reflect the
diversity of the markets Aviva operated in. During 2019, the
Committee prioritised two dimensions of diversity, gender and
ethnicity, and progress is being made in both areas, evidenced by the
success of both internal interventions and external recognition.
Committee effectiveness review
The Committee undertakes a review of its effectiveness annually.
More information can be found in the Directors’ and Corporate
Governance report.
2020 priorities
In 2020, the Committee will begin to operate under its revised Terms
of Reference as the CCRC, with an enhanced focus on the customer
agenda, customer conduct issues, the Group’s exposure in managing
financial risks from climate change and concentrating on further
improving the experience we provide to our customers.
The Committee will also focus on overseeing Aviva’s reputation, our
conduct risk profile and corporate responsibility agenda.
Amanda Blanc
Chair of the Governance Committee
4 March 2020
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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 2019.
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 business relationships – suppliers, customers and others
• Our strategy – Delivering on a clear plan of action
• Important events since the financial year end
• Future developments
Details of significant post balance sheet events that have occurred
after 31 December 2019 are disclosed in note 66.
report
The management
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
and
governance
Transparency Rule 7.2.1.
statement under Disclosure
Our policy on hedging
The hedging policy is disclosed in note 61.
Related party transactions
Related party transactions are disclosed in note 63 which is
incorporated into this report by reference.
Dividends
Dividends for ordinary shareholders of Aviva plc are as follows:
• Paid
interim dividend of 9.50 pence per ordinary share
(2018: 9.25 pence)
• Proposed final dividend of 21.40 pence per ordinary share
(2018: 20.75 pence)
• Total ordinary dividend of 30.9 pence per ordinary share (2018: 30.0
pence)
• Total cost of ordinary dividends paid in 2019 was £1,184 million
(2018: £1,128 million)
Subject to shareholder approval at the 2020 AGM, the final dividend
for 2019 will become due and payable on 2 June 2020 to all holders
of ordinary shares on the Register of Members at the close of business
on 24 April 2020 (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 35.
Dividend policy
For the full year dividend for 2019 the Board of Directors has
proposed a 3% increase to 30.9 pence per share. Aviva has adopted
a progressive dividend policy. This means that, under ordinary
circumstances, the Board of Directors would aim to at least maintain
the 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. Moderating the rate of dividend per share growth
will enhance our flexibility to repay debt and invest in business
improvement.
‘distributable profits’ available.
Under UK company law, we may only pay dividends if the Company
has
‘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 non distributable
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 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
2014
2015
2016
2017
2018
2019
1 Euro dividend rate per share
Interim
dividend
per share
(pence)
Interim
dividend
per share
(cents)1
5.85
6.75
7.42
8.40
9.25
9.50
N/A
N/A
N/A
9.50
10.25
10.62
Final
dividend
per share
(pence)
12.25
14.05
15.88
19.00
20.75
21.4
Final
dividend
per share
(cents)1
N/A
N/A
18.71
21.77
24.12
–
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Directors’ and Corporate Governance report
Continued
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 2019, Aviva plc itself had distributable reserves of greater
than £3.9 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
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 insurance, 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.
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 2019 and shares issued during the year are given in notes
33 to 36. The calculation of earnings per share is included in note 15.
Share capital
During the year, 18,776,934 ordinary shares were allotted to satisfy
amounts under the Group’s employee share and incentive plans. At
31 December 2019 the:
• issued ordinary share capital totalled 3,921,129,145 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 33.
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 2020 AGM, shareholders will be asked to
renew the directors’ authority to allot new securities. Details are
contained in the Notice of 2020 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
At the Company’s 2019 AGM, shareholders renewed the Company’s
authorities to make market purchases of up to 391 million ordinary
shares, up to 100 million 8¾% preference shares and up to 100
million 8⅜% preference shares. The authority was not used and no
shares were purchased during 2019. At the 2020 AGM, shareholders
will be asked to renew the authorities to buy Aviva shares 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 (DTRs) notified to the
Company as at 31 December 2019 and 4 March 2020. Information
provided to the Company under the DTRs is publicly available via the
regulatory information services and on the Company’s website.
Shareholding interest
Shareholder
BlackRock, Inc1
Notified holdings Nature of holding Notified holdings Nature of holding
Above 5%
Indirect
Above 5%
Indirect
At 31 December 2019
At 4 March 2020
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 is shown earlier in the report.
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Directors’ and Corporate Governance report
Continued
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.
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.
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 are qualifying third-party indemnity provisions as defined
by section 234 of the Companies Act 2006. These indemnities 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 risk management’ section and in note 60
on risk management.
Political donations
Aviva did not make any political donations during 2019.
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 Annual report and
accounts 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 2020 AGM of the Company will be held on Tuesday 26 May 2020
at the Queen Elizabeth II Centre, Broad Sanctuary, Westminster,
London SW1P 3EE at 1.30pm. 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 or
Proxymity voting, must be received by our Registrar, Computershare
Investor Services PLC, by no later than 1.30pm on Thursday 21 May
2020. 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
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 53); its
contingent liabilities and other risk factors (note 56); its capital
management (note 58); management of its risks including market,
credit and liquidity risk (note 60); and derivative financial instruments
(note 61).
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 31 of the 2018 UK
Corporate Governance 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 60 of the IFRS financial statements).
The assessment of the Group’s prospects by the directors covers the
three years to 2022 and is underpinned by management’s 2020-2022
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 the current assumptions in the business plan. 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.
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Directors’ and Corporate Governance report
Continued
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 Aviva Leadership team and
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
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 and 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.
Listing Rules 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 35
Shareholder waivers of future dividends IFRS Financial
Statements – note 35
By order of the Board on 4 March 2020.
Maurice Tulloch
Chief Executive Officer
Jason Windsor
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
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.
financial statements and
that
the
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.
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Directors’ Remuneration report
Remuneration
Committee report
On behalf of the Remuneration Committee (the Committee), I am
pleased to present the Directors’ Remuneration report (DRR), for the
year ended 31 December 2019.
Company performance
As described in our strategic report, 2019 has been a year of
significant change to our business and in our leadership team, and
we began to build operating momentum. We made progress relative
to our financial targets including a strong start in pursuit of the five
key financial objectives that we are targeting for 2022. Our Solvency II
return on equity1 (SII RoE) was 14.3%, Group adjusted operating
profit2 increased 6% to £3.2 billion and our capital position remains
strong. We delivered higher sales and customer flows across the
Group and costs have begun to decline. Despite this progress, we
recognise that our share price continues to underperform versus our
peers and the broader market.
The Committee’s primary remit is to ensure that executive pay is
aligned with Aviva’s performance
in
considering outcomes under the 2019 Annual Bonus and the 2017-19
Long Term Incentive Plan (LTIP), the Committee has sought to ensure
that they reflect Aviva’s overall progress over these timeframes.
in the round. As such,
2019 Annual Bonus
financial and strategic
The Committee carefully considered
performance of the Group, business unit and individual Executive
Director (ED) performance during 2019.
Details of this assessment are contained in this report. The formulaic
outcome against the 2019 bonus scorecard prior to any adjustments
was 101.1% (out of a maximum of 200%).
As part of the annual bonus framework, further details of which are
provided on page 86, the Committee conducted an extensive
analysis of the quality of earnings, noting recommendations by the
Audit Committee. In addition, the Committee consulted with the Risk
Committee, and noted the significant progress made to remediate
risk and control issues during 2019. Overall, there has been a very
positive response to particular risk and control challenges.
Nevertheless, this is a critical area for Aviva, and it was concluded that
further work is required to fully embed the desired risk culture and to
deliver the target state risk and control environment against a
backdrop of internal/external change. Accordingly, a 10% downward
adjustment has been applied to the scorecard for risk and controls,
which represents an escalation from the 5% applied for 2018. The
Committee believes this provides a clear statement of the emphasis
which is being placed on continual improvement across 2020 and is
further reflected in our annual bonus targets for 2020. This resulted
in an adjusted scorecard outcome of 91.1%.
In assessing the individual performance of the EDs, the Committee
noted the EDs contributions in establishing the strategic direction for
the Group,
the simplification agenda, building an
experienced Aviva Leadership Team (ALT) and turning our new
strategy into clear financial targets as announced at the Capital
Markets Day in November 2019.
leading
As a result, annual bonuses for Maurice Tulloch and Jason Windsor
were 95% and 101% of salary respectively.
The Committee was satisfied that these outcomes fairly reflected the
overall performance of the business during 2019, and that no further
adjustments were required.
2017-19 LTIP
As a result of our three-year performance over the 2017-19 period, the
2017 LTIP vested at 50% of maximum. This reflects strong
performance against the adjusted IFRS return on equity1 (IFRS RoE)
performance condition. The relative Total Shareholder Return (TSR)
condition lapsed. No discretion regarding the vesting outcome of the
2017 LTIP was exercised by the Committee.
Appointment of new Chief Financial Officer (CFO)
As announced on 26 September 2019, the Board appointed Jason as
our new Group CFO. The Committee gave careful consideration to
the remuneration package for Jason, taking into account the terms
of our Remuneration Policy
(the Policy), Jason’s current
remuneration arrangements, and shareholder expectations.
Jason’s remuneration consists of:
• A salary of £675,000 per annum
• Our standard benefits package for EDs, including private family
medical insurance, life insurance, and reasonable travel benefits
• Pension contribution of 14% of salary which is aligned with the rate
available to the majority of our UK workforce
• A maximum annual bonus opportunity of 150% 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 2020, Jason will be eligible for the grant of an award under the
LTIP of 225% of basic salary
• Jason is also subject to a shareholding requirement of 200% of
salary, which will continue for two years post-cessation
Jason’s salary is below that of Tom Stoddard prior to his departure,
reflecting that Jason is new to the role.
Departure of Andy Briggs and Tom Stoddard
On 24 April and 30 June 2019, Andy and Tom respectively stepped
down from the Board. The Committee carefully considered the
treatment to be applied to their remuneration arrangements as a
result of their departure.
Reflecting their performance during their tenure, the leadership and
commitment demonstrated during the Group Chief Executive Officer
(CEO) transition, the Committee, in its discretion, determined to treat
both Andy and Tom as good leavers under the Annual Bonus Plan
(ABP) and LTIP. Following his appointment at Phoenix Group, Andy’s
LTIP awards have lapsed. Further details can be found on page 93.
Both were eligible to receive an annual bonus in respect of 2019, pro-
rated to reflect the period prior to being placed on garden leave. The
annual bonus was calculated in the same manner as for the
continuing EDs.
1 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.
2 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.
Aviva plc Annual report and accounts 2019
83
Strategic report
Governance
IFRS financial statements
Other information
Directors’ Remuneration report
Continued
Revised Corporate Governance Code
The UK Corporate Governance Code (the Code) came into effect from
1 January 2019. As outlined in last year’s report, several areas were
already aligned with the new provisions with further enhancements
made over the course of 2019. These included:
• Implementation of post-cessation shareholding guidelines:
EDs are now required to hold shares for a further two years
following their departure from the Group. For 2020, a transitional
arrangement applies where any leaver will be required to hold the
lower of their current holding at cessation or 50% of the current
(within employment) guideline. From 1 January 2021, the post-
cessation guideline will be the same level as the current (within
employment) guideline. Reflecting the Committee’s view of its
importance, this has also been extended to the ALT.
• Pensions: On their respective appointments the pension
provisions for both Maurice and Jason were set at 14% of salary in
line with the rate available to the majority of our UK workforce.
• Addition of LTIP and ABP post-retirement activity restrictions:
If after receiving good leaver treatment as a retiree EDs take up
employment elsewhere, these restrictions allow awards to be
reduced or recovered accordingly.
Gender Pay Gap Report (GPGR)
We released our third GPGR in January 2020, 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
Shareholder consultation
On behalf of the Committee, I sought the views of a number of our
shareholders and key proxy voting agencies towards the end of 2019.
Following the financial and strategic plans which were presented at
the Capital Markets Day in November, we wanted to consult with
shareholders to get their view on several changes to the incentive
measures to ensure continued alignment with this new direction.
I am pleased to say that the overall feedback we received was
positive, and I would like to thank shareholders for their time and
input.
Remuneration in 2020
Salary
Maurice and Jason received salary increases of 1.5%, consistent with
other Aviva employees in the UK
Annual Bonus
The current split of financial (70%) and non-financial (30%) metrics
will be retained. However, we have refined the metrics to place
greater emphasis on key areas of focus (capital generation, delivering
great customer outcomes and a strong risk and control environment)
in line with the Group’s strategy.
On financial performance, there are two changes:
• Increased weighting on Operating Capital Generation (OCG)1 from
25% to 30% of the total bonus scorecard
• Replace Operating Earnings Per Share (EPS)2,3 with Group adjusted
Operating Profit3 with a reduced weighting
• A risk metric (15% weighting): Percentage of Risks Inside Tolerance.
The metric will be focused on the High and Very High risks for the
major businesses across the Group and is aligned to the
Operational Risk Appetite. It will build on the progress made during
2019, on our established risk management framework and risk
monitoring and will reinforce our focus on customer outcomes
Separately, the Risk and Controls modifier, covering a range of
quantitative and qualitative measures, and sitting outside the
scorecard, will remain. The other two non-financial modifiers will be
Employee Engagement and Customer Trust.
2020 LTIP
The Group’s three financial priorities are to improve our Return on
Capital1, deliver a progressive dividend and further deleverage our
debt profile. Achieving these will require management to focus on
Cash Remittances1 to the Group, OCG1, Group adjusted Operating
Profit3 and delivering improved customer outcomes.
To ensure that the LTIP aligns with these business goals, SII RoE1
replace Operating EPS2,3 as one half of the framework. SII RoE1 is a
fundamental building block to increasing shareholder return over
the long-run. SII RoE1 is important in measuring the productive use
of our economic capital. A Solvency II cover ratio1 (SII cover ratio) will
continue to act as an underpin to the financial metric.
Relative TSR remains an important metric which aligns the EDs to
shareholders and continues to be weighted at 50%.
Awards will be 300% for the Group CEO and 225% for the CFO of basic
salary.
Committee changes during the year
Claudia Arney and Glyn Barker stepped down from the Board and the
Committee at the end of 2019 and I would like to thank them for their
hard work and commitment during their tenures. George Culmer
joined the Committee in January 2020 and brings significant financial
services and accounting experience gained from a long and
successful career in banking and insurance. The Committee works
hard to ensure alignment with shareholder interests, and over the
last year has dealt with a number of time critical matters, including
changes to the Board. I want to thank all Committee members, past
and present, for their dedication and active participation on this
Committee.
2020 focus areas
The Committee intends to perform a detailed review of the
remuneration framework for EDs and senior leadership team ahead
of the next vote on the Policy at the 2021 Annual General Meeting
(AGM). We look forward to engaging with shareholders during the
course of developing the Policy to get their views and inputs on
remuneration framework at Aviva.
I look forward to meeting with shareholders at the 2020 AGM.
Non-financial metrics will comprise:
• Two customer metrics
(with a total weighting of 15%):
Transactional Net Promoter Score (TNPS) and Relationship Net
Promotor Score (RNPS)
Patricia Cross
Chair of the Remuneration Committee
4 March 2020
1 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.
2 This measure is derived from the Group adjusted operating profit Alternative Performance Measure (APM). Further details of this measure are included in the ‘Other Information’ section of the Annual report and accounts.
3 Group adjusted operating profit is an 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.
Aviva plc Annual report and accounts 2019
84
Strategic report
Governance
IFRS financial statements
Other information
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 2019. 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 were no
changes during 2019.
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
6
4
3
2
The Committee met ten times during 2019, of which four were
scheduled meetings and six were additional meetings outside of the
normal timetable. Details of attendance at Committee meetings are
shown on page 63.
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 Committee
meeting.
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 Group CEO;
• the Group CFO;
• the Chief People Officer;
• the Group Reward and Performance 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 advisers 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 Limited, 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 £192,300 and
Tapestry Compliance Limited were paid fees totalling £62,730 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 2019, the Committee undertook an 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 2019
Governance, regulatory issues and reporting policy
• Reviewed and approved the Committee’s Terms of Reference
• Reviewed updates from external advisers on the regulatory
environment and on benchmarking the company’s remuneration
policies and practices against industry best practice
• Approved our Employment Shareholding Policy, setting out our
post-employment holding requirements in line with the 2018 Code
• Engaged with key investors on financial and non-financial metrics
for 2020 ABP targets and 2020-2022 LTIP
• Reviewed and approved the Company’s annual remuneration
regulatory reporting and disclosures
• Considered and agreed the remuneration packages for the
departing EDs, and approved associated regulatory disclosures
• Focused on the alignment of the Policy with an appropriate risk
culture and to appropriate sustainability metrics
• Reviewed and approved the Reward Governance Framework
Policies
• Approved the list of in scope staff in respect of the different
regulatory regimes to which the Company is subject
Senior management objectives, bonus target setting and pay
decisions
• Determined appropriate levels of discretion to be applied to EDs
in
and senior managers remuneration outcomes,
relation to Ogden, risk and controls environment and events
related to our preference shares
including
• Reviewed engagement with investors on 2019 ABP targets,
including customer and trust metrics as strategic progress
measures
• Discussed and approved the ABP targets for 2019
• Reviewed and approved the proposed individual remuneration for
each member of the ALT in relation to their performance
• Agreed an appropriate approach to a remuneration package for
incoming and outgoing EDs and ALT members
• Reviewed wider workforce pay and employment conditions
elsewhere in the Group
• Reviewed the Risk and Internal Audit 2019 Performance Opinion in
relation to remuneration
• Discussed and approved the overall maximum bonus pool
available to senior managers for the 2019 performance year, taking
into account metrics on culture and risk as well as on financial
performance
Aviva plc Annual report and accounts 2019
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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 2019 LTIP awards
• Approved vesting of the 2016 LTIP and noted the interim testing for
the 2017, 2018 and 2019 awards
• Reviewed the proposed changes to future LTIP grants
• Approved the terms of the Aviva Savings Related Share Option
Scheme 2019 (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 Long Term
Participation Plan and the Deferred Plan rules
• Reviewed and approved any application of malus/clawback
provisions under incentive plans
• Approved amendments to share plans rules in line with the 2018
Code
2018 Corporate Governance Code
In determining remuneration arrangements at Aviva, the Committee
aims to ensure that they support the execution of our strategy and
the delivery of sustainable long-term shareholder value. In doing so,
the Committee takes into account the 2018 Code, wider workforce
remuneration and emerging best practice
in relation to ED
remuneration.
Reward Governance Framework
The Committee believes that our remuneration framework is clear
and transparent and aligned with our culture. We operate a simple
incentive framework of an annual bonus and LTIP. Award levels are
capped with pay-out linked to performance against a limited number
of measures that are aligned to our strategy. Stretching but fair
targets are set. This ensures that potential reward outcomes are clear
and aligned with the performance achieved, with the Committee
having the discretion to adjust outcomes where this is not
considered to be the case.
Pay levels are set taking into account internal and external reference
points to ensure that pay is competitive while remaining equitable
within the Company. A number of additional factors are in place to
mitigate reputational and other risks, including malus and clawback
provisions, unfettered discretion, a two-year holding period on LTIP
awards, and both within and post-employment shareholding
guidelines.
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
Terminations
Buyouts
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 2019
86
Strategic report
Governance
IFRS financial statements
Other information
Directors’ Remuneration report
Continued
Single total figures of remuneration for 2019
The table below sets out the total remuneration for 2019 and 2018 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 4 March 2019. 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. Maurice was appointed Group CEO on 4 March 2019 and remuneration figures up to this date reflect his role as CEO of
International Insurance.
1 Total 2019 remuneration – Executive Directors (audited information)
Basic Salary1
Benefits2
Annual Bonus3
LTIP4
Pension5
Total
Maurice Tulloch6
Executive Directors
Jason Windsor7
Tom Stoddard8
Former Executive Directors
Andy Briggs9
Total emoluments of
Executive Directors10
2019
£000
946
443
886
588
138
2018
£000
706
51
598
637
198
3,001
2,190
2019
£000
177
10
178
82
22
469
2018
£000
—
—
—
—
—
—
2019
£000
370
47
338
559
104
2018
£000
728
85
616
645
204
1,418
2,278
2019
£000
241
19
218
—
67
545
2018
£000
746
44
632
662
209
2,293
2019
£000
1,734
519
1,620
1,229
331
5,433
2018
£000
2,180
180
1,846
1,944
611
6,761
1 Basic salary received during the relevant year.
2 The benefits disclosure includes the cost, where relevant, of private medical insurance, life insurance, accommodation, travel and car benefits. In the case of Maurice, Jason and Andy this also includes benefits resulting from the
UK HMRC tax-advantaged SAYE plan, and for Andy only 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. As disclosed on appointment and in last year’s report Maurice was provided with 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 date of appointment. During 2019, £139,000 of this allowance was used reflecting temporary accommodation, ongoing
residential accommodation and flights between Canada and the UK. This is shown as £246,000 in the table above, grossed-up for tax. Other benefits include: Private medical insurance (£17,000), taxable travel and subsistence
(£59,000,of which £50,000 is the grossed-up tax value of flights), accompanied travel (£32,000), car benefits (£40,000) and advisor fees (£40,000) in relation to tax assistance. Benefits for Tom and Andy include a small amount
relating to the correction of an under deduction of NIC in relation to pension cash allowance.
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 With the exception of Jason, the value of the LTIP for 2019 relates to the 2017 award, which had a three-year performance period ending 31 December 2019. 50% of the award will vest in March 2020. An assumed share price of
411.2 pence has been used to determine the value of the award based on the average share price over the final quarter of the 2019 financial year. The proportion of the value of the LTIP that is attributable to share price
depreciation (the depreciation being the difference between the face value at the date of award and the vested value of the award) is 22.4% for Maurice and Tom. In a similar manner, the LTIP amounts shown in last year’s report
in respect of the LTIPs awarded in 2016 were calculated with an assumed share price of 415.20 pence. The actual share price at vesting was 412.25 pence, and the table has been updated to reflect this change. The estimated
value of the awards for the EDs was £1,958,000; the actual value was £1,944,000 (decrease of £14,000). Jason, prior to becoming an ED, was granted a Restricted Stock Unit (RSU) award. This award does not have performance
conditions and in accordance with the regulations, a pro-rated amount is shown in respect of qualifying services during the year, using the share price at grant to determine the value of the award. Following confirmation of his
role at Phoenix Group, Andy’s 2017 LTIP award has lapsed. 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. For Maurice, following his appointment as Group
CEO on 4 March 2019 and for Jason the total was 12.34% of basic salary (pension contribution of 14% which is reduced for the effect of employers’ National Insurance contributions when paid as cash). For former EDs (and
Maurice prior to his appointment as Group CEO) the aggregate total was 28% of basic salary. No ED has prospective entitlement to benefit in a defined benefit scheme.
6 Maurice was appointed as Group CEO on 4 March 2019. Prior to his appointment he was CEO of International Insurance and his basic salary and benefits were set in Canadian dollars, which have been converted to sterling using
an average exchange rate for 2019 of CAD 1.70
7 Jason was appointed to the Board on 26 September 2019. For 2019, the values relate to the period while he was an ED
8 Tom stepped down from the Board on 30 June 2019; values for 2019 relate to the period while he was an ED. Details of Tom’s leaving arrangements are set out on page 93.
9 Andy stepped down from the Board on 24 April 2019; values for 2019 relate to the period while he was an ED. Details of Andy’s leaving arrangements are set out on page 93.
10 Year on year decrease is primarily driven by changes in Board membership.
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.
Aviva plc Annual report and accounts 2019
87
20%
Operating
EPS1,2
25%
Cash remittances3
25%
OCG3
20%
RNPS
10%
Multiple Product
Holdings (MPH)
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
2019 annual bonus outcomes
The chart below summarises how our annual bonus operates for 2019.
Step I – Bonus scorecard
Step II – Non-financial performance modifiers
Employee
engagement
Customer
Risk & Controls
The bonus scorecard outcome as
determined under step I 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 bonus scorecard outcome coming out of step II may then be modified
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.
Individual adjustments are not determined in a formulaic manner. The
Committee reviews overall performance against each individual’s
objectives and applies judgement as to whether any adjustment is
warranted. In recent years adjustments have ranged from -17.5% to +22%.
Performance is assessed against defined minimum, target
and maximum targets.
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.
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.
2 2019 performance against bonus scorecard for Executive Directors’ bonuses
Measure
Financial measures (70% of total)
Operating EPS1,2
Cash remittances3
OCG3
Total financial measures
Strategic measures (30% of total)
RNPS
MPH (% growth)
Total strategic measures
Scorecard outcome
Weighting
Minimum
Target
Maximum
Actual
Outcome
20.0%
25.0%
25.0%
70.0%
54.0p
£2,531m
£1,535m
—
58.3p
£2,736m
£1,735m
—
62.6p
£2,941m
£1,935m
—
57.2p
£2,597m
£2,259m
—
20.0%
10.0%
30.0%
100.0%
3
5%
—
8
8%
—
11
11%
—
6.5
1.7%
—
17.6%
16.5%
50.0%
84.1%
17.0%
0.0%
17.0%
101.1%
1 This measure is derived from the Group adjusted operating profit Alternative Performance Measure APM. Further details of this measure are included in the ‘Other Information’ section of the Annual report and accounts.
2 Group adjusted operating profit is an 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.
3 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.
Aviva plc Annual report and accounts 2019
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Strategic report
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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 2019 non-financial modifiers relating to bonus scorecard
Modifier
Employee
Employee engagement.
Customer
Performance against our overall focus on customer
outcomes, including Brand Trust.
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 91.1%.
Assessment
Engagement remains high at 73% but is slightly down on 2018 (76%) due to a
period of uncertainty and change.
Pride, motivation and advocacy remain strong and consistent. The proportion
of employees recommending Aviva as a great place to work is at an all-time high.
Significantly more colleagues believe that Aviva cares for their health and
wellbeing (up 6 points to 80%) and there have also been solid uplifts in the view
that Aviva is a place where people are free from judgement or discrimination.
This result in 2019 (82%) is now 13 points higher than in 2015 – a major
improvement on Aviva’s culture of inclusion in a short space of time. There is
also a strong link between improvements on this metric and those colleagues
who feel they have greater freedom to make decisions in their job.
Of the seven core businesses measured, five were either at or above the
competitor benchmark.
We are working hard to meet our strategic priority of delivering great customer
outcomes by improving service and product simplicity as well as reducing
complaints through root cause analysis work.
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.
Notwithstanding improvements made in 2019, it was concluded that further
work is required to embed a strong risk culture and deliver the target state risk
and control environment against a backdrop of internal/external change. As a
result, and to provide a clear statement of the focus on continual improvement
across 2020 the Committee applied a downward adjustment of 10% to the
bonus scorecard outcome in respect of this modifier.
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89
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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.
Maurice Tulloch
Jason Windsor
Maurice was appointed Group CEO from 4 March 2019, previously his
role was CEO International and Chairman Global General Insurance
(GI). Since being appointed as Group CEO, Maurice has provided
strong leadership in the Group and at the PLC Board, with some
notable achievements:
• Establishment of the strategic direction for the Group to simplify
the business and definition of new financial targets as announced
at the Capital Markets Day in November
• Built an experienced ALT, promoting talents internally and
recruiting seasoned external leaders, with a number of new
appointments, including new Group CFO, Group Chief Operating
Officer, Group Chief People Officer, Group Chief Risk Officer, with
role changes for CEO Europe, Global CEO General Insurance and
CEO Investments, Savings & Retirement (IS&R)
• Rebuilt relationships with investor community with two capital
market days and a significant investor outreach program
• Maintained financial strength of the Group and achieved 6% Group
adjusted operating profit1 growth and increased SII RoE2 to 14.3%
• Implemented a new operational model to make Aviva simpler,
separating UK GI and Life management teams, aligning UK Digital
to UK GI, and creating the new IS&R division
• Launched a new project to reduce costs by £300 million net by
2022, with £72 million reduction achieved in 2019
Jason was appointed as CFO and ED of the Company from
26 September 2019, after becoming interim CFO on 1 July 2019
following Tom’s departure. Jason’s contribution to the finance
function and the wider Aviva Group was critical to many key deliveries
including:
• Assisting the Group CEO in defining the strategic direction and
turning it into a coherent set of financial targets as announced at the
Capital Markets Day in November
• Maintained financial strength of the Group with a SII cover ratio2,3 of
206% and centre liquidity4 of £2.4 billion despite macroeconomic
volatility, particularly low interest rates across Europe (most notably
in France) and continued uncertainty around the decision for the UK
to leave the European Union
• Increased profile of the Risk & Control environment with clear
accountability and engagement, and steps taken to increase the
strength of our control environment
• Restructure of the finance function to make it simpler, leaner and
more commercial
• Rationalisation of the finance change programme and continued
progress in the implementation of IFRS17
Andy Briggs
Tom Stoddard
Andy was the CEO of Aviva UK Insurance until 30 April 2019. Over this
period Andy provided strong leadership in the UK and continued to
play an active leadership role at the PLC Board. Notable milestones
in 2019 include:
• Setting and driving ambitious financial targets for UK Insurance
during Q1 to contribute to the overall success of Aviva
• Continuing to define and implement growth opportunities across
the UK Insurance portfolio
• Led the Group wide Customer Pillar work as a fundamental priority
for the business
• Drove ongoing implementation of AvivaPlus and oversaw post-
launch review process on potential strategic impact on existing
customer propositions
• Continued sponsorship of Aviva’s Generations community,
focussing on supporting an intergenerational workplace, as well as
acting as the Government’s Business Champion for Older Workers
Tom was the Group CFO until 30 June 2019. Over this period Tom
played a critical role in supporting Maurice in his transition to CEO.
Notable achievements in 2019 include:
• Driving delivery of the overall financial objectives for the Group and
delivered strong half year financial results as presented during the
interim results
• Assisting incoming Group CEO in developing the strategic direction
for Aviva
• Provided an orderly handover with his successor to ensure
continuity in the finance function
• Coordinated IFRS17 implementation and the Finance & Innovation
joint costs and managed
their
to minimise
programme
dependencies
• Continued sponsorship of the Aviva ‘Origins’ community, promoting
race, ethnicity, religion and social mobility as an important
dimension of diversity and inclusion
The Committee carefully considered the individual performance of each ED. Details of the individual adjustments are reflected in table 4.
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 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.
4 Stated as at end February 2020.
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Directors’ Remuneration report
Continued
4 2019 bonus outcomes for Executive Directors
Bonus scorecard (0% – 200%)
– Non-financial modifiers
– Individual adjustment
Final Outcome
Target opportunity
Maximum opportunity for 20192
Final bonus outcomes
– % of salary4
– % of maximum
– £ amount
Maurice Tulloch
Jason Windsor
Tom Stoddard
Andy Briggs
100.2%1
(10.0%)
5.0%
95.2%
101.1%
(10.0%)
10.0%
101.1%
101.1%
(10.0%)
0.0%
91.1%
101.1%
(10.0%)
0.0%
91.1%
100% of salary
100% of salary
192% of salary3 150% of salary
100% of salary
100% of salary
150% of salary 150% of salary
95.2%
49.7%
£886,3155
100.6%
67.0%
£177,6986
91.1%
60.7%
£337,9266
91.1%
60.7%
£218,2186
1 Pro-rated to reflect International and Group scorecards of 94.1% and 101.1% respectively.
2 The Group CEO has a maximum bonus opportunity of two times target (i.e. 200% of salary) while other EDs have a maximum opportunity of one and a half times target (150% of salary).
3 Maximum bonus opportunity is pro-rated for 2019 to reflect the time spent as CEO International and as Group CEO during the year.
4 The bonus scorecard for EDs can range from 0 to 200%. When the final outcome is above 100%, the resulting final bonus outcome, as a % of salary, is on a ‘1% for 1%’ basis for the Group CEO and on a ‘2% for 1%’ basis for other
EDs; e.g. a final outcome of 140% would result in a bonus of 140% of salary for the Group CEO and 120% of salary for other EDs. When below 100% scaling is ‘1% for 1%’, such that a final outcome of 80% would result in a bonus
of 80% of salary for all EDs, including the Group CEO.
5 Pro-rated for different salary as CEO International and as Group CEO during the year
6 This outcome is pro-rated to reflect the time served on the Board
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. Taking into account the impact of 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
and no discretion regarding outcomes was therefore exercised by the Committee.
2017 LTIP vesting in respect of performance period 2017-2019
All references to adjusted IFRS RoE relate to the 2017 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 IFRS RoE1 and TSR2 outcome for the 2017 LTIP are detailed in the table below.
50% of the award will vest in March 2020. No discretion regarding the vesting outcome of the 2017 LTIP was exercised by the Committee.
5 2017 LTIP award – performance conditions (audited information)
Adjusted IFRS RoE1 Performance
Relative TSR2 Performance
Weighting
Threshold
(20% vest)
Maximum
(100% vest)
50%
50%
28.8%
35.2%
Median Upper quintile and above
Outcome
42.9%
10.3/14
Vesting
(% of
maximum)
100%
0%
1 2017 adjusted IFRS RoE performance outcome excludes the positive impact of the £300 million and £600 million share buy-backs (in 2017 and 2018 respectively).
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 preceding the start of the three year performance period.
Quality of earnings assessment – 2019 remuneration decisions
The Committee discussed those items that impacted the overall results in 2019 including to update e.g. 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.
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6 Awards granted during the year (audited information)
Share and option awards granted to EDs during the year are set out below.
Maurice Tulloch
Jason Windsor3
Former Directors4
Tom Stoddard
Andy Briggs
Date of Award
25 Mar 2019
25 Mar 2019
01 Oct 2019
25 Mar 2019
25 Mar 2019
01 Oct 2019
Award
Type1
LTIP
ABP
SAYE
LTIP
ABP
SAYE
25 Mar 2019
25 Mar 2019
25 Mar 2019
25 Mar 2019
14 Oct 2016
LTIP5
ABP
LTIP5
ABP
AESOP
Face Value
(% of basic
salary)2
300%
41%
1.85%
N/A
N/A
2.67%
225%
56%
225%
56%
0.37%
Face Value
(£)2
£2,925,000
£398,759
£18,000
£310,000
£136,025
£18,000
£1,650,060
£410,677
£1,691,775
£421,063
£2,750
Threshold
Performance
(% of face
value)
Maximum
Performance
(% of face
value)
End of
performance period
End of vesting/
holding period
20%
N/A
N/A
N/A
20%
N/A
20%
N/A
N/A
100%
31 Dec 2021
N/A
N/A
100%
31 Dec 2021
100%
31 Dec 2021
25 Mar 2024
25 Mar 2022
01 Dec 2022
25 Mar 2022
25 Mar 2022
01 Dec 2022
25 Mar 2024
25 Mar 2022
25 Mar 2024
25 Mar 2022
17 Oct 2022
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
2018 bonus deferred into shares which vests in three equal tranches. Shares issued in lieu of dividends accrue on ABP and LTIP awards during the ABP deferral period and the LTIP performance period. SAYE awards are savings-
related options normally exercisable during the six-month period following the end of the relevant 3 or 5 year savings contract. 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 25 March 2019 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, of 421.00 pence. For SAYE the option price is fixed 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 (284.00 pence). AESOP has been calculated using the average price achieved at purchase of the partnership shares throughout 2019 of 407.00 pence.
3 Jason was not an ED at the time his 2019 LTIP and ABP awards were made. The 2019 LTIP award is a RSU award. This award does not have performance conditions.
4 Andy stepped down from the Board on 24 April 2019 and Tom on 30 June 2019.
5 LTIP awards for Tom and Andy have subsequently lapsed, in line with the leaving arrangements outlined on page 93.
Operating EPS1,2 targets for awards made in 2019
Operating EPS1,2 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 2019 targets are provided below.
7 2019 LTIP operating EPS1 targets (audited information)
Achievement of Operating EPS1,2 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 EPS1,2 element of the LTIP is subject to two gateway hurdles – SII RoE3 and SII shareholder cover ratio3,4. The
SII RoE3 hurdle is 12% p.a. and the SII shareholder cover ratio3,4 is to meet or exceed the minimum of the stated working range (in 2019, this
was 160% to 180%).
1 This measure is derived from the Group adjusted operating profit Alternative Performance Measure (APM). Further details of this measure are included in the ‘Other Information’ section of the Annual report and accounts.
2 Group adjusted operating profit is an 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.
3 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.
4 The estimated Solvency II position represents the shareholder view. Please refer to note 58 and the ‘Other Information’ section of the Annual report and accounts for more information.
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Continued
TSR targets for awards made in 2019
Relative TSR performance determines the vesting of the other 50% of the LTIP award. For the 2019 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 2019. 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 2019 LTIP award (audited information)
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%
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 and subsequently stepped down on 26 September 2019
• The emoluments he received in respect of this directorship for the 2019 financial year was €67,500
Payments for loss of office (audited information)
We announced on 24 April 2019 that the Board and Andy Briggs had decided that Andy would step down as CEO UK Insurance and as a
Director of the Company with immediate effect.
• Andy was placed on garden leave for six months with effect from 30 April 2019 to 23 October 2019. During this period, he continued to
receive his salary and contractual benefits. For the period 25 April 2019 to 23 October 2019 these totalled £500,592
• Andy received a pro-rated bonus in respect of 2019, reflecting the portion of the year worked prior to going on garden leave. The bonus was
determined on the normal timetable and can be found in the bonus section in table 4
• Reflecting his performance during his tenure, leadership and commitment demonstrated during the Group CEO transition, the Committee
exercised discretion to treat Andy as a good leaver under the ABP and LTIP
– Andy’s outstanding deferred share awards under ABP will continue to vest on the normal vesting dates. All outstanding awards will remain
subject to malus and clawback
– Andy’s 2019 LTIP award lapsed on his departure. Andy’s 2017 and 2018 LTIP awards were allowed to continue to vest, pro-rated for the
time from the date of grant to his leave date and remained subject to performance vesting. Following confirmation of his new role at
Phoenix Group, these awards have lapsed
• In line with the Policy, Andy was entitled to a capped contribution of £5,000 (excluding VAT) towards legal fees incurred in connection with
his departure
We announced on 5 June 2019 that the Board and Tom Stoddard had decided that Tom would step down as CFO and as a Director of the
Company from 30 June 2019.
• Tom was placed on garden leave for six months with effect from 1 July 2019 to 31 December 2019. During this period, he continued to
receive his salary and contractual benefits. For the period of his garden leave these totalled £531,336
• In line with his arrangements while a Director, Tom will receive tax support for the UK financial year 2019/20 and the US tax year 2019. The
total value of this benefit is anticipated to be £9,000
• Tom received a pro-rated bonus in respect of 2019, reflecting the portion of the year worked prior to going on garden leave. The bonus was
determined on the normal timetable and can be found in the bonus section in table 4
• Reflecting his performance during his tenure, leadership and commitment demonstrated during the Group CEO transition, the Committee
exercised discretion to treat Tom as a good leaver under the ABP and LTIP
– Tom’s outstanding deferred share awards under ABP will continue and will vest on the normal vesting dates
– Tom’s 2017 and 2018 LTIP awards will to continue to vest, pro-rated for the time from the date of grant to his leave date and remain
subject to performance vesting. His 2019 LTIP award has lapsed
– All outstanding share awards will remain subject to malus and clawback
• In line with the Policy, Tom was entitled to a capped contribution of £5,000 (excluding VAT) towards legal fees incurred in connection with
his departure
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Continued
9 Total 2019 remuneration for Non-Executive Directors (audited information)
The table below sets out the total remuneration earned by each NED who served during 2019 for Group-related activities.
Aviva plc total
Subsidiaries fees
Group total
2019
£000
2018
£000
Chairman
Sir Adrian Montague
Non-Executive Directors
Claudia Arney2
Glyn Barker2
Patricia Cross
George Culmer3
Patrick Flynn3
Belén Romana García
Michael Mire
Former Non-Executive Directors4
Michael Hawker
Keith Williams
2019
£000
550
155
177
128
29
55
139
118
34
59
Fees
2018
£000
550
155
168
128
—
—
105
118
138
150
Total emoluments of NEDs
1,444
1,512
2019
£000
88
2
2
—
2
2
15
3
—
—
114
Benefits1
2018
£000
88
2
3
—
—
—
10
1
—
2
2019
£000
638
157
179
128
31
57
154
121
34
59
2018
£000
638
157
171
128
—
—
115
119
138
152
—
73
—
60
—
—
44
—
—
—
177
2019
£000
638
230
179
188
31
57
198
121
34
59
2018
£000
638
235
171
188
—
—
155
119
138
152
—
78
—
60
—
—
40
—
—
—
106
1,558
1,618
178
1,735
1,796
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 Claudia Arney and Glyn Barker retired from the Board on 31 December 2019.
3 Patrick Flynn was appointed to the Board on 16 July 2019 and George Culmer on 25 September 2019.
4 Michael Hawker stepped down from the Board on 31 March 2019 and Keith Williams on 23 May 2019.
The Aviva plc total amount paid to NEDs in 2019 was £1,558,000 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 £72,500 (2018: £78,346) in respect of her duties as Non-Executive Chairman and Conduct
Committee member of Aviva UK Digital Limited. Claudia subsequently stepped down on 31 December 2019.
• Patricia Cross received an additional fee of £60,000 (2018: £60,000) in respect of her duties as Senior Independent Director of Aviva Investors
Holdings Limited
• Belén Romana García received an additional fee of €50,000 (2018: €44,712) 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
• Sir Adrian Montague became a director of Aviva Group Holdings Ltd on 9 October 2018 and stepped down on 4 March 2019 as part of his
transition back to his Non-Executive Chairman role. He also became a director of Aviva SA on 24 April 2019. He received no fees in respect
of these appointments
Percentage change in remuneration of the Group CEO
The table below sets out the increase in the basic salary, bonus and benefits of the Group CEO and that of the wider workforce. The UK
employee workforce was chosen as a suitable comparator group, as the Group CEO and CFO are based in the UK (albeit with global
responsibilities), and pay changes across the Group vary widely depending on local market conditions. Given that both the Group CEO and
his predecessor served for a part-year only in 2019, the Group CEO’s pay for each year has been annualised so as to provide a comparison.
The reduction in salary reflects the differences in the incumbent’s package. The increase in benefits reflects relocation and taxable travel and
subsistence.
10 Percentage change in remuneration of Group CEO
Group CEO1
All UK-based employees2
% change in basic salary 2018-2019
% change in bonus 2018-2019
% change in benefits 2018-2019
(8.5)%
3.8%
4.7%
(10.8)%
269.4%
27.2%
1 Salary, annual bonus and benefit amounts for 2019 for the Group CEO and 2018 for the former Group CEO have been annualised up to reflect what they would have been over a full 12-month period to add comparison. The
increase in benefits reflects relocation and taxable travel and subsistence.
2 The increase in benefits for UK based employees has been driven by changes in pieces of tax legislation leading to a) some car parking provision now being a taxable benefit and b) an increase in company car benefit. Without
these changes, benefits increased by 4.3%.
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Continued
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 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
250
200
150
100
50
0
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
The table below summarises the historical Group CEO single figure for total remuneration, and annual bonus and LTIP outcomes as a
percentage of maximum over this period.
12 Historical Group CEO remuneration outcomes
Group CEO
2010
2011
2012
Annual bonus payout (as a % of
maximum opportunity)
LTIP vesting (as a % of maximum
opportunity)
Group CEO single figure of
remuneration (£000)
Maurice Tulloch1
Mark Wilson2
Andrew Moss3
Maurice Tulloch
Mark Wilson
Andrew Moss
Maurice Tulloch
Mark Wilson
Andrew Moss
—
—
—
—
74.3%
81.0%
—
—
—
—
72.3%
81.7%
—
—
—
—
—
—
—
—
—
—
—
—
2013
—
2014
—
2015
—
2016
—
2017
—
2018
—
2019
48.1%
75.0%
86.7%
91.0%
91.0%
94%
42.0%
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
53.0%
41.3%
36.9%
—
—
—
—
—
—
—
—
—
—
—
2,615
2,600
5,438
4,523
4,318
1,836
—
—
50.0%
—
—
2,352
2,748
3,477
554
—
—
—
—
—
—
—
1 Maurice was appointed Group CEO on 4 March 2019
2 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
3 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 4 March 2019. 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.
CEO Pay ratio reporting
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.
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Continued
13 CEO Pay ratio table
Year
2019
2018
Method
Option A
Option A
P25 (lower quartile)
P50 (median)
P75 (upper quartile)
90:1
76:1
63:1
53:1
37:1
32:1
We would highlight the following in terms of the approach taken:
• In calculating the Group CEO data for 2019, we have aggregated the amount shown in the single figure table of £106,625 for Sir Adrian
Montague in respect of his services as Executive Chairman from 1 January to 3 March 2019 (for which he received no additional payment),
and the amount shown in the single figure table of £2.35 million for Maurice in respect of his services from 4 March to 31 December 2019.
Similar to 2018, as 2019 was an atypical year for Aviva, we have provided an additional ratio below, calculated on a full-year basis using
total target remuneration
• In 2018, the single figure for Mark Wilson was aggregated with the pro-rata fees for Sir Adrian Montague as Executive Chairman
• The P25, P50 and P75 employees were calculated based on full-time equivalent data as at 31 December of the relevant years
• 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 increase in the ratio reflects:
• 2019 remuneration outcomes for the CEO include LTIP vesting, whereas there was no LTIP vesting for 2018
• Maurice Tulloch was CEO for approximately one month longer in 2019 than Mark Wilson was in 2018
• A slightly higher bonus outturn for Maurice Tulloch as a % of maximum (48% for period as CEO compared to 42% in 2018 for Mark Wilson)
• An increase in benefits partly reflecting relocation costs which run for 24 months from appointment
Whilst the CEO pay ratio has increased, the salary and total remuneration for each quartile employee has also increased (median salary has
increased 3.9% and median total compensation increased 4.5%).
Table 14 below provides further information on the total remuneration figure for each quartile employee, and the salary component within
this.
14 Salary and total remuneration used in the CEO pay ratio calculations
Year
2019
Pay element
P25 (lower quartile)
P50 (median)
P75 (upper quartile)
Salary
Total remuneration
£22,413
£27,285
£31,600
£39,134
£53,128
£65,664
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 both 2019 and 2018 are unusual years 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 Maurice had been
employed for the full year 2019 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 £3.98 million and the following Group CEO pay ratios.
Year
2019 (illustrative based on a notional ‘target’ package)
P25 (lower quartile)
P50 (median)
P75 (upper quartile)
146:1
102:1
61:1
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 and 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 including equal parental leave
• Our competitive pension scheme provides an 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. Our priorities in 2019 were mental and financial
wellbeing, our priorities for 2020 are mental wellbeing and menopause support
• UK colleagues are eligible to participate in our SAYE and AESOP offerings with similar plans operating for many of our overseas colleagues.
We are proud of the participation rates in these plans, with over 60% participating in the SAYE and over 70% in the AESOP
Aviva plc Annual report and accounts 2019
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Other information
Directors’ Remuneration report
Continued
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.
15 Relative importance of spend on pay
Group adjusted operating profit1
Dividends paid2
Share buy-backs
Total staff costs3
Restated4
2017
£m
2,975
983
300
1,942
Restated4
2018
£m
3,004
1,128
600
1,974
2019
£m
3,184
1,184
—
2,036
%
change between
2018 & 2019
6%
5%
(100)%
3%
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 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 31,791 (2019) and 31,232 (2018).
4 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see
note 1(b) of the Annual report and accounts). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been restated
resulting in a reduction in the prior period Group adjusted operating profit of £112 million (2017: £93 million). There is no impact on profit before tax attributable to shareholders’ profit.
Statement of directors’ shareholdings and share interests
EDs share ownership requirements
Under our Employment Shareholding Policy, 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 period not exceeding five-years
• Unvested share awards, including shares held in connection with bonus deferrals, are not taken into account in applying this test
• A post-cessation holding period of two years applies. There will be a transitional period until 31 December 2020, where any leaver will be
required to hold 50% of the current (within employment) guideline. From 1 January 2021, the post-cessation guideline will be the same
level as the current (within employment) guideline. 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
Maurice Tulloch
Jason Windsor
Andy Briggs
Tom Stoddard
Unvested and
subject to
performance
conditions2
1,291,728
—
—
453,626
Shares held
Unvested and
subject to
continued
employment3
290,810
298,218
351,730
347,460
Unvested and
subject to
continued
employment4
6,338
6,338
5,128
—
Options held
Vested but
not exercised
—
—
—
—
Owned outright1
471,522
427,708
431,289
509,702
Shareholding
requirement
(% of salary)
Current
shareholding5
(% of salary)
Requirement
met
300
200
200
200
202%
265%
235%
285%
No6
Yes
Yes
Yes
1 Directors’ beneficial holdings in the ordinary shares of the Company. This information includes holdings of any connected persons.
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. For Jason, this also includes RSU awards, granted under the LTIP prior to his appointment to the
Board. Details of these awards can be found in table 18.
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 2019 of 418.7 pence. The closing middle-market price of an ordinary share of the Company during the year ranged from
352.3 pence to 438.8 pence.
6 Maurice is still within the timeframe required to meet his shareholding requirement, which increased upon his appointment to Group CEO.
There were no changes to the EDs interests in Aviva shares during the period 1 January 2020 to 4 March 2020.
17 Non-Executive Directors’ shareholdings1 (audited information)
Sir Adrian Montague
Claudia Arney
Glyn Barker
Patricia Cross
George Culmer
Patrick Flynn
Belén Romana García
Michael Mire
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 2020 to 4 March 2020.
1 January 2019
31 December 2019
58,553
14,000
22,700
25,112
—
—
4,475
50,000
58,553
14,000
47,700
30,574
31,276
—
10,223
50,000
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Directors’ Remuneration report
Continued
Share awards and share options
Details of the EDs who were in office for any part of the 2019 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 34.
18 LTIP, ABP and options over Aviva shares (audited information)
At 1January 2019
(number)
Options/awards
granted during year1
(number)
Options/awards
exercised/vesting
during year
(number)
Options/awards
lapsing during year
(number)
At 31 December 2019
(number)
Market price at date
awards granted2
(number)
SAYE exercise price
(options)
(pence)
Market price at date
awards
vested/option
exercised(pence)
Normal
vesting date/
exercise period5
Maurice Tulloch
LTIP3,4
2016
2017
2018
2019
ABP
2016
2017
2018
2019
SAYE6
2019
Jason Windsor5
LTIP
20165
2017
2018
2019
ABP
2016
2017
2018
2019
SAYE8
2019
Andy Briggs6
LTIP3,4
2016
2017
2018
2019
ABP
2016
2017
2018
2019
SAYE8
2016
Tom Stoddard7
LTIP3,4
2016
2017
2018
2019
ABP
2016
2017
2018
2019
320,972
302,532
325,892
—
92,510
116,530
135,185
—
5,128
313,144
295,153
317,857
—
120,618
118,061
131,851
—
309,278
286,091
310,863
—
63,144
85,564
110,529
—
—
—
—
694,774
—
—
—
94,717
181,8939
—
—
—
74,2739
—
—
—
—
6,338
—
206,185
77,358
83,333
—
50,721
18,721
33,333
32,310
—
—
—
73,634
—
—
—
—
121,2619
—
—
—
59,6609
10,4359
11,7579
—
—
6,338
—
154,639
—
—
—
—
—
—
—
—
103,093
—
—
—
—
—
—
—
—
160,486
302,532
325,892
401,846
—
286,091
310,863
694,774
—
85,564
110,529
94,717
456.70
523.00
542.60
409.00
456.70
523.00
494.10
409.00
—
—
—
—
—
—
—
—
409.90
—
—
—
409.90
—
—
—
Mar-19
Mar-20
Mar-21
Mar-22
Mar-19
Mar-20
Mar-21
Mar-22
6,338
—
284.00
— Dec-22 – May-23
—
77,358
83,333
73,634
—
9,361
22,222
32,310
6,338
—
—
—
—
456.70
523.00
494.10
409.00
456.70
523.00
494.10
409.00
—
—
—
—
—
—
—
—
409.90
—
—
—
409.90
—
—
—
Mar-19
Mar-20
Mar-21
Mar-22
Mar-19
Mar-20
Mar-21
Mar-22
—
284.00
— Dec-22 – May-23
456.70
523.00
542.60
409.00
456.70
523.00
494.10
409.00
—
—
—
—
—
—
—
—
409.90
—
—
—
409.90
—
—
—
Mar-19
Mar-20
Mar-21
Mar-22
Mar-19
Mar-20
Mar-21
Mar-22
—
—
—
401,846
—
—
—
100,015
188,7709
—
—
—
108,8149
—
—
—
—
—
—
—
—
116,530
135,185
100,015
—
—
5,128
—
—
351.00
— Dec-19 – May-20
—
—
—
391,938
—
—
—
97,548
184,1679
—
—
—
141,8769
—
—
—
156,572
23,160
136,224
391,938
—
—
—
—
—
271,993
181,633
—
—
118,061
131,851
97,548
456.70
523.00
542.60
409.00
456.70
523.00
494.10
409.00
—
—
—
—
—
—
—
—
409.90
—
—
—
409.90
—
—
—
Mar-19
Mar-20
Mar-21
Mar-22
Mar-19
Mar-20
Mar-21
Mar-22
1 The aggregate net value of share awards granted to the EDs in the period was £8.0 million (2018: £11.1 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 2016: 485 pence, 2017: 530 pence,
2018: 504 pence and 2019: 421 pence.
3 For the 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 Insurance Group. For the 2018 and 2019 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 Group.
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 LTIP awards for Jason comprise RSUs and were granted prior to his appointment to the Board. The transfer of the shares at the end of the period is not subject to the attainment of performance conditions but the shares can
be forfeited if he leaves service before the end of the period.
6 Andy stepped down from the Board on 24 April 2019. Following confirmation of Andy joining Phoenix Group, the 2017, 2018 and 2019 LTIP awards lapsed in full.
7 Tom stepped down from the Board on 30 June 2019. The 2017 and 2018 LTIP awards have been time pro-rated to reflect the number of days worked from the date of grant to the final date of service, and the 2019 LTIP award
lapsed in full.
8 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.
9 The shares comprised in these vested awards include shares issued in lieu of dividends accrued during the deferral period.
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Directors’ Remuneration report
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 35.
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 3.58% and 1.89% respectively on
31 December 2019.
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, Aviva Investors UK Funds Services Ltd is 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 2019 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 2019 AGM in respect of the 2018 Directors’ Remuneration report is set out in table 19.
The Committee was pleased with the level of support received from shareholders for the resolution.
19 Results of votes at 2019 AGM
Directors’ Remuneration Policy1
Directors’ Remuneration Report
1 Voting on Remuneration Policy at 2018 AGM.
Percentage of votes cast
Number of votes cast
For
97.13%
97.61%
Against
2.87%
2.39%
For
Against
Votes withheld
2,809,661,298
2,574,643,176
83,164,398
63,055,053
3,970,718
2,660,993
Approach to NED fees for 2020
NED fees are reviewed annually and were last increased with effect from 1 April 2014. The only change to the current fee levels is to the basic
Board membership fee, as set out in the table below.
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 January 2020
Fee from
1 January 2019
£550,000
£75,000
£550,000
£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 2020
The implementation of the Policy will be consistent with that outlined in table 22.
2020
2021
2022
2023
2024
2025
Key Element
Phasing
Salary1
Bonus6
2/3rds deferred into shares vesting in
three equal tranches over three years
1/3rd
paid in
cash
Released
after 1 year
Released
after 2 years
Released
after 3 years
Implementation in 2020
• Group CEO – £989,625 per annum
• CFO – £685,125 per annum
• One-year performance assessed against financial and non-
financial performance measures
• As outlined in the Chair’s letter, the annual bonus metrics have
been updated to reflect key strategic priorities:
Financial measures (70% of total):
• 15% – Group adjusted operating profit2
• 25% – Cash remittances3
• 30% – OCG3
Non-financial strategic measures (30% of total):
• 7.5% – RNPS
• 7.5% – TNPS
• 15% – Risks Inside Tolerance
• A quality of earnings assessment will be undertaken by the
Committee to provide assurance that bonus payouts
appropriately
the
shareholder experience
reflect underlying performance and
• Performance against a number of other non-financial
modifiers will be considered when determining bonus payouts
(employee engagement, customer trust and risk)
• Personal performance during the year will be taken into
LTIP
2-year holding period
Award released
account
• Group CEO – 300% of salary
• CFO – 225% of salary
As outlined in the Chair’s letter, for 2020 LTIP awards, Operating
EPS2,4 will be replaced with SII RoE3:
• 50% SII RoE3 subject to a SII shareholder cover ratio3
• 50% relative TSR against a comparator group5
For the 2020 awards, the SII shareholder cover ratio3 is to meet or
exceed the minimum of the stated working range (currently
160% to 180%).
TSR Ranking
Below median
Median
Between median and
upper quintile
50% TSR target
Vesting level
0%
10%
Pro rata between 10% and 50%
on a straight line basis
SII RoE2 %
Below 11%
11 %
Between 11% and 13%
50% SII RoE2 target
Vesting level
0%
10%
10-50% (straight line)
Above 13%
50%
Upper quintile and above
50%
1 Salary will be effective from 1 April 2020.
2 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.
3 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.
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 2020 LTIP Comparator Group: Aegon, Allianz, Assicurazioni Generali, Axa, Direct Line Group, Intact, Legal & General, Lloyds Banking Group, M&G, Phoenix, RSA, Standard Life Aberdeen, Zurich Insurance Group.
6 The target ranges are considered by the Board to be commercially sensitive and will be disclosed in the 2020 DRR.
Approval by the Board
This Directors’ Remuneration report was reviewed and approved by the Board on 4 March 2020.
Patricia Cross
Chair, Remuneration Committee
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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 2018 Annual report and accounts, which can be found on our website at
https://www.aviva.com/reports/
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
2020 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
increase awarded
Maximum opportunity
There is no maximum increase within the Policy. However,
basic salary increases take account of the average basic
the broader employee
to
salary
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
performance of the individual and the Group.
in basic salary takes account of the
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.
Benefits
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.
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).
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.
Maximum opportunity
350% of basic salary.
Performance measures
Awards will vest based on a combination of financial, strategic
and TSR performance metrics. For the 2020 awards the
measures and weightings will be:
• 50% SII RoE1
• 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)
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.
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 compensated 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,
light of all applicable
in the
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 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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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 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
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
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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.
• 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.
• Maximum with share price increase – indicative maximum remuneration, assuming a notional LTIP vesting at maximum and share price
appreciation of 50% on the LTIP.
Maurice Tulloch
Potential earnings by pay element
Jason Windsor
Potential earnings by pay element
£m
8
7
6
5
4
3
2
1
0
£3.8
39%
26%
35%
£1.3
100%
£6.2
48%
32%
20%
2020
Minimum
2020
Target
2020
Maximum
£7.7
58%
25%
17%
2020
Maximum
with 50%
share price
appreciation
£2.3
34%
30%
36%
£0.8
100%
£3.4
46%
30%
24%
£4.1
56%
25%
19%
2020
Minimum
2020
Target
2020
Maximum
2020
Maximum
with 50%
share price
appreciation
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 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.
The value of the LTIP assumes a constant share price (with the exception of the maximum with share price increase scenario) and does not include additional shares awarded in lieu of dividends that may have been accrued during
the vesting period.
The LTIP is as proposed to be awarded in 2020.
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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 2020 AGM on 26 May from 1.15pm 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
Policy
6 months.
12 months, rolling. No notice or payment in lieu of notice to be paid where the Company terminates for
cause.
Termination Payment
Pay in lieu of notice up to a maximum of 12 months’ basic salary.
Remuneration and Benefits
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.
The operation of the annual bonus and LTIP is at the Company’s discretion.
Expenses
Reimbursement of expenses reasonably incurred in accordance with their duties.
Holiday entitlement
30 working days plus public holidays.
Private medical insurance
Other benefits
Sickness
Non-compete
Contract dates
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 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.
100% of salary for the first 52 weeks and up to £150,000 per annum for a further 5 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
Jason Windsor
Date current contract commenced
4 March 2019
26 September 2019
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
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.
Element
Chairman and NEDs’ fees
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.
Chairman’s Travel Benefits Purpose
NED Travel and
Accommodation
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.
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.
Director
Nomination
Audit
Governance
Remuneration
Risk
Committee appointments
Appointment date1
Appointment end date2
Sir Adrian Montague
Amanda Blanc
Patricia Cross
George Culmer
Patrick Flynn
Belén Romana García
Michael Mire
C
✓
✓
✓
✓
✓
✓
✓
✓
C
✓
C
✓
✓
C
✓
14 January 2013
2 January 2020
1 December 2013
25 September 2019
16 July 2019
26 June 2015
12 September 2013
✓
✓
✓
C
✓
AGM 2020
AGM 2020
AGM 2020
AGM 2020
AGM 2020
AGM 2020
AGM 2020
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.
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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
Changes to comparative amounts
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
Lease assets and liabilities
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
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
66
186
Pension surpluses, other assets, prepayments and
accrued income
186
Assets held to cover linked liabilities
187
Ordinary share capital
188
Group’s share plans
190
Treasury shares
190
Preference share capital
191
Direct capital instrument and tier 1 notes
192
Merger reserve
192
Currency translation and other reserves
193
Retained earnings
193
Non-controlling interests
193
Contract liabilities and associated reinsurance
Insurance liabilities
195
Insurance liabilities methodology and assumptions 200
204
Liability for investment contracts
206
Financial guarantees and options
208
Reinsurance assets
210
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
Capital 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
211
212
213
214
220
223
224
224
225
225
227
228
241
243
245
246
248
263
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
264
264
265
266
267
268
109
117
132
133
134
136
137
138
139
141
141
141
143
148
149
150
151
153
155
155
156
157
159
160
161
163
164
166
167
168
168
170
177
178
179
181
184
185
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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 2019 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 2019;
• 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 cash flows for the year then ended;
• the Consolidated and Company statements of changes in equity 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 financial statements, we have provided no non-audit services to the Group or the Company in
the period from 1 January 2019 to 31 December 2019.
Our audit approach
Overview
• Overall group materiality: £158.0 million (2018: £156 million), based on 5% of Group adjusted operating profit before tax attributable to
shareholders’ profits.
• Overall Company materiality: £47.8 million (2018: £105.0 million), based on 5% of Profit for the year 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.
• 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, Aviva Central Services and Aviva Group Holdings
components.
• Our risk assessment analysis identified the following as areas of focus for the audit of the financial statements:
– Valuation of life insurance contract liabilities;
– Valuation of non-life insurance contract liabilities;
– Valuation of hard to value investments; and
– Valuation of specific UK Life provisions.
• Significant changes in our approach: In our 2019 report the following changes to the key audit matters identified have been made,
compared with our 2018 report:
– The key audit matter regarding the valuation of a specific UK Life provision has been updated to include an additional provision
identified at UK Life during the period; and
– We no longer consider the implementation of a new actuarial modelling system at UK Life to be a key audit matter as its implementation
was a one-off event in the prior year.
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.
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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Capability of the audit in detecting irregularities, including fraud
Based on our understanding of the Group, Company and their industries, 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, UK tax legislation and equivalent local laws and regulations applicable to in-scope components.
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 are 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, including those in relation to
compliance with laws and regulations;
• Reviewing relevant meeting minutes including those of the Board of Directors and Audit Committee;
• Making enquiries of the Group Investigations team who are responsible for independently investigating suspected or alleged fraudulent
activity across the group, utilising activities including, but not limited to, whistle blowing hotlines and data analytics;
• Identifying and testing journal entries based on risk criteria;
• 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 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 Committee report, Accounting policy (L) Insurance and participating investment contract liabilities – Long-term business provisions and note 43 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 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 over the preparation of the liabilities,
including manually calculated components. We focused on the
consistency in treatment and methodology period-on-period and with
reference to recognised actuarial practice;
• We tested key controls which support the calculation of the liabilities;
• 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; and
• We assessed the disclosures in the financial statements.
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Key audit matter
How our audit addressed the key audit matter
As part of our consideration of the entire set of assumptions, we focused
particularly on 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. These aspects of our
work have been considered in more detail below.
Based on the work performed and the evidence obtained, we consider
the methodology and assumptions used to value the life insurance
contract liabilities to be appropriate.
Annuitant mortality assumptions (Group)
Refer to the Audit Committee report, Accounting policy (L) Insurance and participating investment contract liabilities – Long-term business provisions and note 44 Insurance liabilities methodology and assumptions (a) Long-term business.
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 2018 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; and
• 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.
Annuitant mortality assumptions at UK Life 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 have adopted the most recent CMI 2018 model
in setting this assumption with specific
and dataset
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.
Credit default assumptions for illiquid assets, specifically: commercial mortgages and equity release mortgages (Group)
Refer to the Audit Committee report, Accounting policy (L) Insurance and participating investment contract liabilities – Long-term business provisions and note 44 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.
Management use an active approach to setting the associated
credit default assumptions on these illiquid assets. 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.
In respect of the credit default assumptions, we performed the following:
• We tested the methodology and credit risk pricing models used by
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; and
• 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
assumptions used for credit default risk on commercial mortgages and
equity release mortgages to be appropriate.
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Key audit matter
How our audit addressed the key audit matter
Expense assumptions (Group)
Refer to the Audit Committee report, Accounting policy (L) Insurance and participating investment contract liabilities – Long-term business provisions and note 44 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 at UK Life. 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 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; and
• 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.
Valuation of non-life insurance contract liabilities (Group)
Refer to the Audit Committee report, Accounting policy (L) Insurance and participating investment contract liabilities – General insurance and health provisions and note 43 Insurance liabilities methodology and assumptions (c) 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 2019, 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 actuarial liabilities in the UK General Insurance and
Canada General Insurance components.
In the UK General Insurance and Canada components, we assessed the
calculation of the non-life insurance liabilities by performing the following
procedures:
• We understood and tested the governance process in place to
determine the insurance contract liabilities, including testing the
associated financial reporting control framework;
• 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;
• 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 applied, or performed a diagnostic check to identify and
investigate any anomalies; and
• 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 Committee report, Accounting policies (F) and (T) and note 24 Fair Value methodology, note 26 Securitised mortgages and related assets and note 28 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);
• Collateralised loan obligations and non-recourse loans (UK
Life); and
• Structured bond-type investments (France 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 valuation 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; and
• 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 value hard to value
assets to be appropriate.
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Key audit matter
How our audit addressed the key audit matter
Valuation of specific UK Life provisions (Group)
Refer to Audit Committee report, Accounting policies (AA) and note 51 Pension deficits and other provisions (b) Movements on restructuring and other provisions.
The valuation of product governance provisions involves
significant judgement. Given the historic nature of these
provisions, information to calculate redress amounts can be
limited.
There were two material provisions held at the year end at UK
Life.
The first provision relates to advised sales by Friends
Provident. The valuation of this provision involves a high
degree of judgement due to the time elapsed since the advice
was given. The estimate of the provision could change
substantially over time as specific case
investigations
continue and new information is obtained.
The second provision relates to past communications to a
specific sub-set of pension policyholders on a product sold
between 1985 and 1989 by an entity acquired by the Group
through the purchase of Friends Life. Specifically, these
policyholders may not have been adequately informed of
switching options into with-profit funds that were available to
them. The valuation of the provision involves a high degree of
judgement and estimation uncertainty due
the
dependence on decisions made by customers.
to
We assessed management's approach to valuation for these provisions by
performing the following procedures:
• We understood management's approach to
identifying product
governance provisions;
• We assessed these product governance provisions against the IAS 37
recognition criteria;
• We evaluated the methodology and key assumptions used by
management, including the populations of policies affected and the
redress factor applied;
• We reviewed material assumptions, tested a sample of customer
calculations used to determine the assumptions and agreed inputs in
these calculations to supporting documentation; and
• We assessed the adequacy of the disclosure in the financial statements.
In respect of the first provision, we also assessed management's approach
to valuation of the provision by performing the following procedure:
• We assessed the expertise and independence of management's experts.
In respect of the second provision, we also assessed management's
approach to valuation of the provision by performing the following
procedure:
• We used auditors’ experts to assess certain key assumptions to confirm
whether they were based on regulatory expectations.
Based on the work performed and the evidence obtained, we consider the
valuation of the provisions 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 enough 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 industries 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 obtained sufficient coverage across all financial statement line items in the consolidated financial statements. Our
scoping provided us with audit coverage of 86% for IFRS profit before tax (2018: 94%) and 79% of Group adjusted operating profit before tax
attributable to shareholders’ profits (2018: 80%). We also obtained audit coverage of 83% for Gross Written Premiums (2018: 83%) and 83%
for Total Assets (2018: 82%).
The Group’s primary reporting format aggregates individual operating segments into market reporting lines with supplementary information
being given by business activity. The IFRS 8 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 instruction.
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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 consolidated financial statements as a whole. In our role
as Group auditors, we exercised oversight of 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 Audit Committee meetings for certain in-scope components.
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
£158.0 million (2018: £156.0 million).
£47.8 million (2018: £105.0 million).
5% of Profit for the year before tax.
In determining our materiality, we considered
financial metrics which we believed to be
relevant, and concluded, consistent with the
prior year that profit before tax was the most
relevant benchmark as the Company is profit-
financial
orientated and users of
statements will be
this
benchmark.
the
focused on
5% of Group adjusted operating profit
before tax attributable to shareholders’
profits.
In determining our materiality, we
considered
financial metrics which we
believed to be relevant, and concluded,
consistent with the prior year that Group
adjusted operating profit before
tax
attributable to shareholders’ profit 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.
We draw attention to Accounting policy (B),
which describes amendments made to the
definition of this metric during the period.
The benchmark we have used has been
updated for these amendments.
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 £145 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)
(2018: £7 million) and £2.4 million (Company audit) (2018: £5.2 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
Outcome
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.
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 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 of the United
Kingdom’s withdrawal from the European Union are not clear, and it is
difficult to evaluate all of the potential implications on the Group and
Company’s business, customers, suppliers and the wider economy.
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 2019 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 65 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; and
• The directors’ explanation on page 81 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 82, 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 73 describing the work of the Audit Committee does not appropriately address matters
communicated by us to the Audit Committee; and
• 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)
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 82, 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.
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Continued
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
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
is located on the FRC’s website at:
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 8 years, covering
the years ended 31 December 2012 to 31 December 2019.
Andrew Kail (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
4 March 2020
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.
Aviva plc Annual report and accounts 2019
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Governance
IFRS financial statements
Other information
Accounting policies
Aviva plc (the ‘Company’), a public limited company incorporated
and domiciled in the United Kingdom (UK), together with its
subsidiaries (collectively, the
‘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.
‘Group’ or
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 264 to 273.
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 and/or the
Company
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 2019:
(i)
IFRS 16, Leases
In January 2016, the IASB published IFRS 16 Leases. This
standard replaces IAS 17 Leases and applies to annual
reporting periods beginning on or after 1 January 2019. The
standard has been endorsed by the EU.
The adoption of IFRS 16 has resulted in an update to the
Group’s stated accounting policy for leases. The standard has
introduced a definition of a lease with a single lessee
accounting model, eliminating the previous classification of
either operating or finance leases. Lessees are required to
recognise lease assets and liabilities on the statement of
financial position for all leases, with the exception of short-
term and low-value leases. Further information can be found in
accounting policy Z.
The Group has chosen to adopt the modified retrospective
approach on transition permitted by IFRS 16. This approach
does not require prior period comparatives to be restated, and
the impact of adoption of the standard on retained earnings is
shown as an adjustment to opening retained earnings. On
transition, and where applicable, the Group has applied the
following practical expedients:
• Applied a single discount rate to a portfolio of leases with
reasonably similar characteristics;
• Relied on existing assessments on whether leases are
onerous as an alternative to performing an impairment
review. Where such leases existed, the onerous lease
provision held at 31 December 2018 was offset against the
initial right-of-use asset at the date of initial application as
permitted by IFRS 16;
• Excluded initial direct costs for the measurement of the
right-of-use asset at the date of initial application; and
• Used hindsight in determining the lease term where the
contract contains options to extend or terminate the lease.
The Group has reviewed existing service and outsourcing
contracts to determine whether they are either a lease or
contain a lease at the date of initial application. This has not
resulted in any additional contracts being recognised as leases
in the statement of financial position.
Application of the modified retrospective approach on
transition has resulted in a reduction of retained earnings of
£110 million at 1 January 2019. This reflects the fact that the
right-of-use assets and lease liabilities amortise to nil at
different rates over the lease term. A higher initial amortisation
of the right-of-use asset compared to the lease liability results
in the asset value being lower than the lease liability during the
lease term, with the difference between the two generally
converging to nil as the lease term ends. There have been
corresponding increases in the value of assets (£434 million)
and liabilities (£544 million), representing the right-of-use
assets and liabilities, net of any tax impacts, not previously
recognised on the balance sheet in accordance with IAS 17.
There has been no material impact on profit before tax.
The weighted average discount rate applied to the lease
liabilities recognised at 1 January 2019 was 2.95%.
Future contractual aggregate minimum lease payments under
non-cancellable operating leases, as disclosed in note 56 of the
Group’s 2018 annual report and accounts, were £728 million at
31 December 2018. Lease liabilities in respect of operating
leases brought on to the balance sheet at 1 January 2019
following the adoption of IFRS 16 were £544 million. The
balance shown at 1 January 2019 represents a present value of
lease payments, whereas the figure disclosed at 31 December
2018
is the aggregated undiscounted payments. Other
differences between the commitments disclosed and the
opening IFRS 16 lease liabilities recognised relate primarily to
amounts paid under service contracts that were included as a
commitment in prior periods, but do not meet the definition of
a lease under IFRS 16.
Lessor accounting remains similar to the previous approach
set out in IAS 17. The Group’s lessor accounting policies have
not changed as a result of the introduction of IFRS 16.
Leased property classified as investment property is held at fair
value and measured in accordance with IAS 40 Investment
Property. This is consistent with the approach adopted under
IAS 17.
The introduction of IFRS 16 has had no impact on the
Company’s financial statements.
The following amendments to existing standards and
IFRIC
interpretations have been issued and endorsed by the EU, are
effective from 1 January 2019 or earlier, and do not have an impact
on the Group’s consolidated financial statements.
Aviva plc Annual report and accounts 2019
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Other information
Accounting policies
Continued
(ii)
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
reporting beginning on or after 1 January 2019.
(iii) 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.
(ii)
(iv) 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.
(v)
Annual Improvements to IFRS Standards 2015-2017 Cycle
These improvements consist of amendments to four IFRSs
IFRS 11 Joint
including
Arrangements, IAS 12 Income taxes and IAS 23 Borrowing Costs.
The amendments are effective for annual reporting beginning
on or after 1 January 2019.
IFRS 3 Business Combinations,
Standards, interpretations and amendments to published
standards that are not yet effective and have not been adopted
early by the Group
The following new standards and amendments to existing standards
have been issued, are not yet effective for the Group and have not
been adopted early by the Group:
(i)
for
covering
IFRS 17, Insurance Contracts
In May 2017, the IASB published IFRS 17 Insurance Contracts, a
comprehensive new accounting standard
insurance
contracts
and measurement,
recognition
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 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
insurance
period (coverage period); the presentation of
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 significantly impacts the
measurement and presentation of the contracts in scope of the
standard. Following the publication of an Exposure Draft of
proposed amendments to IFRS 17 in June 2019, it is expected
that the standard will apply to annual reporting periods
beginning on or after 1 January 2022 at the earliest. The final
standard is due to be published mid-2020 and remains subject
to endorsement by the EU and the UK. We note the UK’s
endorsement procedure, following departure from the EU,
remains under development through the transition period to
the end of December 2020.
that addressed
IFRS 9, Financial Instruments
In September 2016, the IASB published amendments to IFRS 4
Insurance Contracts
the accounting
consequences of the application of IFRS 9 to insurers prior to
implementing IFRS 17. The amendments introduced 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. The
Group has met the eligibility requirements of the deferral
approach as set out below and has opted to apply this deferral
from 1 January 2018. The Group has however been required to
apply the additional disclosure requirements of IFRS 9 which
are set out in note 54 and note 60.
Eligibility for the deferral approach was based on an assessment
of the Group’s liabilities as at 31 December 2015, in accordance
with the date specified in the amendments to IFRS 4. At this date
the Group’s liabilities connected with insurance exceeded 90%
of the carrying amount of the Group’s total liabilities. 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
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).
investment contract
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 were included in an exposure draft
published in July 2019, with final amendments expected to be
published in mid-2020.
The impact of the adoption of IFRS 9 on the Group’s
consolidated financial statements will be 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.
IFRS 9 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
Aviva plc Annual report and accounts 2019
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Governance
IFRS financial statements
Other information
Accounting policies
Continued
risk management practices and follow a more principle based
approach.
The Company is not eligible to apply the deferral approach and
has adopted IFRS 9 from 1 January 2018. IFRS 9 information
relating to entities within the Group which have applied IFRS
from 1 January 2018 can be found in the entities’ publicly
available individual financial statements.
The following new standards and amendments to existing standards
have been issued, are not yet effective and are not expected to have
a significant
financial
statements:
impact on the Group’s consolidated
(iii) 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 were endorsed by the EU on 29 November 2019.
(iv) Amendment to IFRS 3 Business Combinations
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.
(v)
(vi)
Amendment to 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 were endorsed by the EU on 29 November 2019.
Interest Rate Benchmark Reform: Amendments to IFRS 9, IAS 39
and IFRS 7
Published by the IASB in October 2019. The amendments are
effective for annual reporting beginning on or after 1 January
2020 and were endorsed by the EU on 15 January 2020.
(B) Group adjusted operating profit
The long-term nature of much of the Group’s operations means that,
internal performance
for management’s decision-making and
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 excludes impairment of goodwill,
associates and joint ventures; amortisation and impairment of
intangibles acquired in business combinations; 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. For 2019,
the Group adjusted operating profit APM has been amended and
now excludes only the amortisation and impairment of intangible
assets acquired in business combinations. Group adjusted operating
profit now includes amortisation and impairment of internally
generated intangible assets to provide more relevant information by
better reflecting their operational nature. These assets include
advisor platforms, digital distribution channels and claims and policy
administration systems which are used to support operational
activities. The 2018 comparative figures have been restated (see note
1(b)).
In addition, integration and restructuring costs are now included in
Group adjusted operating profit. There is no impact on 2018
comparative figures.
Group adjusted operating profit also excludes other items, which 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 72.
Aviva plc Annual report and accounts 2019
119
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Governance
IFRS financial statements
Other information
Accounting policies
Continued
The following accounting policies are those that have the most
significant impact on the amounts recognised in the financial
statements, with
involving estimation
summarised thereafter.
judgements
those
Item
Critical accounting judgement
Accounting policy
Consolidation
Insurance and
participating
investment
contract
liabilities
Financial
investments
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.
As part of this assessment Aviva applies a
corridor approach to consolidation
thresholds, where the Group’s percentage
ownership in certain investment vehicles
fluctuates daily.
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.
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.
Classification of investments including the
application of the fair value option.
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.
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, that have a
significant risk of resulting in a material adjustment to the carrying
amounts of assets and liabilities within the next financial year, and
the relevant accounting policy and note disclosures.
Item
Critical accounting estimates
Accounting
policy
Note
investment
property
Valuation of two
specific UK Life
provisions
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 valuations for financial
investments.
UK Life hold provisions relating to
two historical product governance
issues. The amount of the 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 provisions
involves a high degree of judgement
and estimation uncertainty due to
either the time that has elapsed since
the customer contracts were
incepted or due to the dependence
on decisions made by customers.
AA
51(b)
During the year management reassessed the critical estimates
previously provided and, based on their assessment of qualitative
and quantitative risk factors, resolved that amortisation and
impairment of acquired value of in-force business (AVIF) and deferred
acquisition costs (DAC) were no longer critical estimates in the
context of the Group results.
(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.
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.
Accounting
policy
L
Note
44(a)
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.
Item
Critical accounting estimates
Measurement of
insurance and
participating
investment
contract
liabilities
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).
44(b)
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. In determining whether the Group controls
such vehicles, primary considerations include whether the Group is
acting as a principal or an agent (including an assessment of the
substantive removal rights of third parties) and the variability in the
returns associated with the Group’s aggregate economic interest in
the fund (direct interest and expected management fees) relative to
the total variability of returns.
Additionally, the Group’s percentage ownership in these vehicles can
fluctuate on a daily basis according to the level of participation of the
Group and third-parties. To avoid transitory or minor changes in fund
holdings (which do not reflect the wider facts and circumstances of
the Group’s involvement) resulting in binary changes in the
consolidation conclusions, the Group takes into account the trend of
Fair value of
financial
instruments and
Where quoted market prices are not
available, valuation techniques are
used to value financial instruments
and investment property. These
F,T,U
24(g)
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Other information
Accounting policies
Continued
ownership over a period of time. This is performed in line with the
following principles:
• Where the entity is managed by a Group asset manager, and the
Group’s ownership holding in the entity exceeds 40 per cent, the
Group is judged to have control over the entity;
• Where the entity is managed by a Group asset manager, and the
Group’s ownership holding in the entity is between 30 per cent and
40 per cent, the facts and circumstances of the Group’s
involvement in the entity are considered, in forming a judgement
as to whether the Group has control over the entity. Considerations
include the rights held by other parties, the Group’s rights to fees
from the entity, the variability in the returns associated with the
Group’s aggregate economic interest in the fund and the nature of
the Group’s exposure to variability compared with that of other
investors;
• Where the entity is managed by a Group asset manager, and the
Group’s ownership holding in the entity is less than 30 per cent, the
Group is judged to not have control over the entity.
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.
Consolidation procedure
Subsidiaries are consolidated from the date the Group obtains
control and are excluded from consolidation from the date the Group
loses control. All
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.
intercompany
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.
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.
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Accounting policies
Continued
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
joint ventures, and of borrowings and other currency
and
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
investment valuation reserve within equity.
included
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.
in the
(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
in
instrument
transactions
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
(i.e. without
the same
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.
in accounting policy A,
As noted
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
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).
insurance contracts
for
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
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Accounting policies
Continued
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.
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.
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
investment management, surrenders or other
administration,
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.
(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.
income consists of dividends,
(K) Net investment income
Investment
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
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.
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
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.
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Accounting policies
Continued
long-term
Unallocated divisible surplus
In certain participating
investment
business, the nature of the policy benefits is such that the division
between shareholder reserves and policyholder
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.
insurance and
liabilities
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.
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 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.
is subject to various periodic
Other assessments and levies
The Group
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
for non-linked non-participating
fair value. Certain
contracts are measured at amortised cost.
liabilities
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 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.
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Accounting policies
Continued
(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
liabilities are discounted, any
corresponding reinsurance assets are also discounted using
consistent assumptions.
insurance
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.
(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
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,
impairment
subsequently incurred. Goodwill arising before 1 January 1998 was
eliminated against reserves and has not been reinstated.
less any
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. Finite life 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, goodwill and
Impairment testing
For
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.
This excludes owner-occupied properties held under
lease
arrangements, which are measured at amortised cost. Refer to
accounting policy Z for further information.
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.
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Accounting policies
Continued
Depreciation is calculated on a straight-line basis 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 annually
for possible reversal of the impairment.
(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
income statement.
amortisation credited or charged to the
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
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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
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.
Hedge accounting
Hedge accounting is applied to certain transactions which meet the
criteria set out in IAS 39, in order to mitigate the Group’s exposure to
risk. 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,
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highly effective in offsetting the risk in the hedged item, both at
inception and on an ongoing basis.
Changes in the fair value of hedging instruments that are designated
and qualify as a hedge of a net investment in a foreign operation (net
investment hedges) or 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 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 hedging instruments that are designated
and qualify as a hedge of the fair value of a recognised asset or
liability (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.
The Group does not currently apply the specific hedge accounting
rules to its derivative transactions which are treated as derivatives
held for trading. The fair value gains and losses on these derivatives
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
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.
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.
(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 (see 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 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.
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.
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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
reinsurer.
deferred acquisition costs
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.
is attributed
the
to
Other receivables and payables are initially recognised at cost, being
fair value. Subsequent to initial measurement they are measured at
amortised cost.
(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
Where the Group is the lessee, a lease liability equal to the present
value of outstanding lease payments and a corresponding right-of-
use asset equal to cost are initially recognised. The right-of-use asset
is subsequently measured at amortised cost and depreciated on a
straight-line basis over the length of the lease term. Depreciation on
lease assets and interest on lease liabilities is recognised in the
income statement.
The Group has made use of the election available under IFRS 16 to
not recognise any amounts on the balance sheet associated with
leases that are either deemed to be short term, or where the
underlying asset is of low value. A short-term lease in this context is
defined as any arrangement which has a lease term of 12 months or
less. Lease payments associated with such arrangements are
recognised in the income statement as an expense on a straight-line
basis. The Group’s total short term and low value lease portfolio is
not material.
Where the Group is the lessor, leases are classified as finance leases
if the risks and rewards of ownership are substantially transferred to
the lessee and operating leases if they are not substantially
transferred. 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 as lessor.
Comparative figures
Prior period comparatives have not been restated to reflect the
adoption of IFRS 16. The accounting policy relating to leases applied
to comparatives is set out below.
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.
Where 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
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
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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.
(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.
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.
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
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.
relevant
tax authority. Provisions
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
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.
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In the pro forma reconciliations, the Group adjusted operating profit
has been calculated after charging policyholder tax.
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.
(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
Aviva plc Annual report and accounts 2019
131
Strategic report
Governance
IFRS financial statements
Other information
Consolidated financial statements
Consolidated income statement
For the year ended 31 December 2019
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 income/(expense)
Share of profit after tax of joint ventures and associates
(Loss)/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 (expense)/credit
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
42(b)
49
8
14(d)
AC & 14
14(d)
14(d)
41
AG & 15
2019
£m
Restated1
2018
£m
31,243
(3,563)
27,680
(209)
27,471
2,141
40,577
85
(22)
28,659
(2,326)
26,333
(81)
26,252
2,178
(10,912)
112
102
70,252
17,732
(23,096)
(5,702)
(24,095)
(3,985)
(5,536)
(3,329)
(576)
(23,142)
6,246
5,321
3,237
(3,326)
(3,843)
(573)
(66,319)
(16,080)
3,933
(559)
3,374
(1,270)
559
(711)
2,663
2,548
115
2,663
63.8
63.1
1,652
477
2,129
35
(477)
(442)
1,687
1,568
119
1,687
38.2
37.8
1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The restatement has had no impact on the profit for the year or equity.
See note 1(a) for further information.
The accounting policies (identified alphabetically) on pages 117 to 131 and notes (identified numerically) on pages 139 to 263 are an integral
part of the financial statements.
Aviva plc Annual report and accounts 2019
132
Strategic report
Governance
IFRS financial statements
Other information
Consolidated financial statements
Continued
Consolidated statement of comprehensive income
For the year ended 31 December 2019
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
Fair value gains transferred to profit on disposals
Share of other comprehensive income/(loss) 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
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
2019
£m
2018
£m
2,663
1,687
39
39
39
39, 41
14(b)
39
40
14(b)
39
(19)
22
(219)
6
3
(867)
103
(932)
57
(78)
(10)
5
8
1
(279)
43
(253)
1,731
1,434
1,655
76
1,731
1,310
124
1,434
The accounting policies (identified alphabetically) on pages 117 to 131 and notes (identified numerically) on pages 139 to 263 are an integral
part of the financial statements.
Aviva plc Annual report and accounts 2019
133
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 2019
Group adjusted operating profit before tax attributable to shareholders’ profits
Life business
General insurance and health
Fund management
Other:
Other operations
Corporate centre
Group debt costs and other interest
Note
2019
£m
3,000
644
92
(114)
(183)
(255)
Restated1
2018
£m
2,976
651
143
(270)
(216)
(280)
Group adjusted operating profit before tax attributable to shareholders’ profits
3,184
3,004
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 acquired in business combinations
Amortisation and impairment of acquired value of in-force business
(Loss)/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 group adjusted operating profit
Tax on other activities
Profit for the year
9
10(a)
10(a)
17(a), 20
18
18
4(a)
15(a)(i)
15(a)(i)
654
167
(54)
(15)
(87)
(406)
(22)
(47)
190
3,374
(668)
(43)
(711)
2,663
(197)
(476)
1
(13)
(97)
(426)
102
231
(875)
2,129
(625)
183
(442)
1,687
1 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see
note 1(b)). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been restated resulting in a reduction in the
prior period Group adjusted operating profit of £112 million. There is no impact on profit before tax attributable to shareholders’ profit.
2 Other in 2019 relates to a charge of £45 million in relation to a change in the discount rate used for estimating lump sum payments in settlement of bodily injury claims (see note 44(b)) and a charge of £2 million relating to
negative goodwill which arose on the acquisition of Friends First (see note 3). Other in 2018 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, 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 requirements to equalise members’ benefits of 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.
The accounting policies (identified alphabetically) on pages 117 to 131 and notes (identified numerically) on pages 139 to 263 are an integral
part of the financial statements.
Aviva plc Annual report and accounts 2019
134
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):
For the year ended 31 December 2019
United Kingdom
Canada
France
Poland
Italy, Ireland and Other
Asia
Aviva Investors
Other Group activities
Corporate Centre
Group debt costs and other interest
Total
For the year ended 31 December 2018 restated2
United Kingdom
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
1,820
—
425
171
258
299
—
27
3,000
285
191
94
20
69
(8)
—
(7)
644
—
—
—
—
—
(4)
96
—
92
Long-term
business
£m
General
insurance and
health
£m
Fund
management
£m
1,848
—
436
170
225
300
1
(4)
2,976
421
26
109
20
90
(16)
—
1
651
—
—
—
—
—
(4)
147
—
143
Other1
£m
—
—
(46)
3
(13)
(12)
—
(46)
(114)
Other1
£m
—
1
(35)
8
(15)
(19)
—
(210)
(270)
Total
£m
2,105
191
473
194
314
275
96
(26)
3,622
(183)
(255)
3,184
Total
£m
2,269
27
510
198
300
261
148
(213)
3,500
(216)
(280)
3,004
1 Other Group activities within Other includes net expenses of £15 million (2018 restated: £180 million) in relation to the Group’s UK digital business.
2 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see
note 1(b)). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been restated resulting in a reduction in the
prior period Group adjusted operating profit of £112 million. There is no impact on profit before tax attributable to shareholders’ profit.
The accounting policies (identified alphabetically) on pages 117 to 131 and notes (identified numerically) on pages 139 to 263 are an integral
part of the financial statements.
Aviva plc Annual report and accounts 2019
135
Strategic report
Governance
IFRS financial statements
Other information
Consolidated financial statements
Continued
Consolidated statement of changes in equity
For the year ended 31 December 2019
Ordinary
share
capital
Note 33
£m
Preference
share
capital
Note 36
£m
Capital
reserves1
Note
33b, 38
£m
Treasury
shares
Note 35
£m
Currency
translation
reserve
Note 39
£m
Other
reserves
Note 39
£m
Retained
earnings
Note 40
£m
Total
equity
excluding
non-
controlling
interests
£m
DCI and
tier 1
notes
Note 37
£m
Non-
controlling
interests
Note 41
£m
Total
equity
£m
Balance at 1 January
Adjustment at 1 January for adoption of IFRS 162
Balance at 1 January restated2
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
Reclassification of tier 1 notes to financial liabilities3
Reserves credit for equity compensation plans
Shares issued under equity compensation plans
Treasury shares held by subsidiary companies
Forfeited dividend income
Changes in non-controlling interests in subsidiaries
Change in equity accounted option
Shares purchased in buy-back
Transfer to profit on disposal of subsidiaries, joint ventures
and associates
Capital contributions from non-controlling interests
Aggregate tax effect – shareholder tax
975
—
975
—
—
—
—
—
—
—
5
—
—
—
—
—
—
—
—
200 10,232
—
—
200 10,232
—
—
—
—
—
—
—
—
(15) 1,122
—
—
(279) 4,523
(110)
—
(15) 1,122
—
(308)
(308)
—
—
—
—
—
(279) 4,413
— 2,548
178
(763)
178 1,785
— (1,244)
731 17,489
(110)
—
731 17,379
— 2,548
—
(893)
— 1,655
— (1,244)
966 18,455
(110)
—
966 18,345
115 2,663
(39)
(932)
76 1,731
— (1,244)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
25
—
—
—
—
—
—
—
—
—
—
—
(5)
13
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
62
(62)
—
—
—
—
—
—
—
—
—
21
—
55
—
4
—
22
—
—
—
9
—
(231)
—
—
—
—
—
—
—
—
—
—
—
(210)
62
18
13
4
—
22
—
—
—
9
(63)
—
—
—
—
—
(2)
—
—
—
—
—
(63)
(210)
62
18
13
4
(2)
22
—
—
—
9
Balance at 31 December
980
200 10,257
(7)
814
(101) 5,065
500 17,708
977 18,685
1 Capital reserves consist of share premium of £1,239 million, a capital redemption reserve of £44 million and a merger reserve of £8,974 million.
2 The Group adopted IFRS 16 Leases from 1 January 2019. In line with the transition options available, prior period comparatives have not been restated and the impact of the adoption has been shown as an adjustment to opening
retained earnings. See accounting policy A for further information.
3 On 17 October 2019, notification was given that the Group would redeem the 6.875% £210 million tier 1 notes. At that date, the instrument was reclassified as a financial liability of £210 million, representing its fair value at that
date. On 21 November 2019, the instrument was redeemed in full at a cost of £210 million. The difference between its carrying amount of £231 million and fair value of £210 million has been charged to retained earnings. See
note 37 for further details.
For the year ended 31 December 2018
Ordinary
share
capital
Note 33
£m
Preference
share
capital
Note 36
£m
Capital
reserves1
Note
33b, 38
£m
Treasury
shares
Note 35
£m
Currency
translation
reserve
Note 39
£m
Other
reserves
Note 39
£m
Retained
earnings
Note 40
£m
DCI and tier
1 notes
Note 37
£m
Total
equity
excluding
non-
controlling
interests
£m
Non-
controlling
interests
Note 41
£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
Reclassification of tier 1 notes to financial liabilities
Reserves credit for equity compensation plans
Shares issued under equity compensation plans
Treasury shares held by subsidiary companies
Forfeited dividend income
Changes in non-controlling interests in subsidiaries
Change in equity accounted option
Shares purchased in buy-back2
Transfer to profit on disposal of subsidiaries, joint ventures
and associates
Capital contributions from non-controlling interests
Aggregate tax effect – shareholder tax
1,003
—
—
—
—
200 10,195
—
—
—
—
—
—
—
—
(14) 1,141
—
—
28
—
28
—
—
—
(274) 4,918
1,568
—
(50)
(236)
(50) 1,332
(1,189)
—
731 17,900
1,568
(258)
1,310
(1,189)
—
—
—
—
1,235 19,135
119 1,687
(253)
124 1,434
(1,189)
—
5
—
—
—
2
—
—
—
—
(30)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
7
—
—
—
—
30
—
—
—
—
—
—
(1)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(7)
—
—
(40)
—
—
—
—
64
(55)
—
—
—
—
—
36
—
—
—
—
—
49
—
4
1
—
(600)
—
—
8
—
—
—
—
—
—
—
—
—
—
—
—
—
—
64
2
—
4
(6)
—
(600)
(4)
—
8
(90)
—
—
—
—
—
(306)
—
—
—
3
—
(90)
—
64
2
—
4
(312)
—
(600)
(4)
3
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 33 for further details of the shares purchased in buy-back.
The accounting policies (identified alphabetically) on pages 117 to 131 and notes (identified numerically) on pages 139 to 263 are an integral
part of the financial statements.
Aviva plc Annual report and accounts 2019
136
Strategic report
Governance
IFRS financial statements
Other information
Consolidated financial statements
Continued
Consolidated statement of financial position
As at 31 December 2019
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
Note
O & 17
O & 18
D & 19
D & 20
P & 21
Q & 22
V & 25
S, T, U & 28
N & 47
AC & 50
29
X & 30
X & 31
X & 31(b)
Y & 59(d)
AH & 4(b)
AE
33
36
33(b)
33(b)
D & 38
35
39
39
40
37
41
2019
£m
Restated1
2018
£m
Restated1
1 January 2018
£m
1,855
2,800
1,227
304
889
11,203
38,579
343,418
12,356
151
132
8,995
3,156
2,799
3,143
19,524
9,512
1,872
3,201
1,214
304
548
11,482
36,184
319,825
11,755
185
76
8,639
2,965
3,341
3,149
15,926
8,855
1,876
3,455
1,221
421
509
10,797
37,227
331,690
13,492
144
94
8,151
2,906
3,468
3,117
13,377
10,871
460,043
429,521
442,816
980
200
1,180
1,239
44
8,974
10,257
(7)
814
(101)
5,065
17,208
500
17,708
977
18,685
975
200
1,175
1,214
44
8,974
10,232
(15)
1,122
(279)
4,523
16,758
731
17,489
966
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
18,455
19,135
144,077
202,468
5,949
16,338
1,399
1,885
254
9,420
17,681
3,074
8,521
148,650
203,986
9,082
18,176
1,429
2,377
290
10,286
16,676
2,856
9,873
441,358
411,066
423,681
460,043
429,521
442,816
L & 43
M & 45
L & 49
D
AA, AB & 51
AC & 50
AD & 53
S & 54
55
AH & 4(b)
149,338
222,127
9,597
16,610
1,565
2,155
569
9,039
18,138
3,094
9,126
1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The restatement has had no impact on the profit for the year or equity.
See note 1(a) for further information.
Approved by the Board on 4 March 2020
Jason Windsor
Chief Financial Officer
Company number: 2468686
The accounting policies (identified alphabetically) on pages 117 to 131 and notes (identified numerically) on pages 139 to 263 are an integral
part of the financial statements.
Aviva plc Annual report and accounts 2019
137
Strategic report
Governance
IFRS financial statements
Other information
Consolidated financial statements
Continued
Consolidated statement of cash flows
For the year ended 31 December 2019
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 activities2
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 (used in)/from 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 borrowings3
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
Other4
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
2019
£m
6,517
(549)
5,968
(19)
12
(84)
4
(63)
(150)
27
—
(9)
580
(927)
(347)
(553)
(17)
(1,184)
4
(43)
—
(63)
(5)
(2,190)
3,628
16,051
(245)
19,434
Restated1
2018
£m
5,848
(447)
5,401
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)
2,373
13,617
61
16,051
Note
59(a)
59(b)
59(c)
21
33
53(e)
16
16
16
41
41
59(d)
1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The restatement has had no impact on the profit for the year or equity.
See note 1(a) for further information.
2 Cash flows from operating activities include interest received of £5,834 million (2018 restated: £5,758 million) and dividends received of £5,614 million (2018 restated: £4,880 million).
3 2019 includes the redemption of 6.875% £210 million tier 1 notes. 2018 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 notes.
4 2019 includes a £5 million (2018: £3 million) donation of forfeited dividend income to a charitable foundation. 2018 also includes £10 million related to goodwill payments to preference shareholders, which was announced on 30
April 2018, and associated administration costs (see note 36).
The accounting policies (identified alphabetically) on pages 117 to 131 and notes (identified numerically) on pages 139 to 263 are an integral
part of the financial statements.
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Other information
Notes to the consolidated financial statements
1 – Changes to comparative amounts
(a) Presentation of consolidated investment funds
Following a review of the Group’s presentation of consolidated investment funds, corrections to previous reported values on the consolidated
statement of financial position and consolidated income statement have been identified (with corresponding impacts on the consolidated
statement of cash flows) and comparative amounts have been restated. There has been no impact on profit for the period or equity for any
of the periods presented. The nature of the restatements are as follows:
• Fixed maturity securities, loans, derivatives and receivables held indirectly through certain majority-owned fund investments in the UK and
France, which in 2018 were presented as cash and cash equivalents, are now presented as financial investments, loans, receivables and
payables and other financial liabilities which reflect the classification of the underlying holdings;
• Corrections to the calculation of minority ownership of certain fund investments have resulted in a restatement of net asset value
attributable to unitholders and an adjustment to de-consolidate two investment funds where the Group was incorrectly deemed to have
been the controlling entity in 2018;
• Corrections to the calculation of minority ownership have resulted in a restatement of the investment income attributable to minority
shareholders recorded in fee and commission expense, net investment expense and fee and commission income for the period ending
31 December 2018; and
• Accrued interest on certain fixed maturity securities held indirectly through certain majority-owned funds, which in 2018 was presented
within financial investments, is now presented in prepayments and accrued income (consistent with accrued interest on the Group’s
directly held fixed maturity securities).
The impact of the changes above on the following captions in the income statement for the prior period presented is shown below:
Fee and commission income
Net investment expense
Fee and commission expense
31 December 2018
Effect of
changes
£m
(2)
(65)
67
Restated
£m
2,178
(10,912)
(3,326)
As reported
£m
2,180
(10,847)
(3,393)
The impact of the changes above on the statement of financial position for the prior periods presented is shown below:
Assets
Loans
Financial investments
Receivables
Prepayments and accrued income
Cash and cash equivalents
Other
Total assets
Liabilities
Net asset value attributable to unit holders
Payables and other financial liabilities
Other liabilities
Other
Total liabilities
Total equity
31 December 2018
Effect of
changes
£m
Restated
£m
As reported
£m
1 January 2018
Effect of
changes
£m
Restated
£m
7,399
22,240
(240)
202
(30,558)
—
36,184
319,825
8,639
3,149
15,926
45,798
27,857
311,082
8,285
2,860
43,347
49,254
9,370
20,608
(134)
257
(29,970)
—
37,227
331,690
8,151
3,117
13,377
49,254
As reported
£m
28,785
297,585
8,879
2,947
46,484
45,798
430,478
(957) 429,521
442,685
131
442,816
18,125
16,882
3,043
373,973
412,023
18,455
(1,787)
799
31
—
16,338
17,681
3,074
373,973
18,327
16,459
2,791
385,973
(151)
217
65
—
18,176
16,676
2,856
385,973
(957) 411,066
423,550
131
423,681
—
18,455
19,135
—
19,135
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Other information
Notes to the consolidated financial statements
Continued
1 – Changes to comparative amounts continued
(a) Presentation of consolidated investment funds continued
The impact of the changes above on the following captions in the statement of cash flows for the prior period presented is shown below:
Cash generated from operating activities
Total net cash from operating activities
Total net increase in cash and cash equivalents
Cash and cash equivalents at 1 January1
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at 31 December1
31 December 2018
Effect of
changes
£m
(557)
(557)
(557)
(29,970)
(31)
Restated
£m
5,848
5,401
2,373
13,617
61
As reported
£m
6,405
5,958
2,930
43,587
92
46,609
(30,558)
16,051
1 Cash and cash equivalents shown in the statement of cash flows above include cash and cash equivalents of operations classified as held for sale and bank overdrafts.
The above items have also resulted in a number of corresponding reclassifications in the Group’s fair value hierarchy level disclosures
included in note 24. The primary changes reflect:
• The inclusion of fixed maturity securities in level 2 and loans in amortised cost (the assets were previously classified as cash and cash
equivalents and therefore not included in the fair value hierarchy); and
• A reduction in financial investments reflecting the de-consolidation of two investment funds where the Group was incorrectly deemed to
have been the controlling entity.
Additionally, following the review, £33,050 million of fixed maturity securities previously included within level 1 have been reclassified to level
2 at 31 December 2018.
(b) Amendment to Group adjusted operating profit
For 2019, the Group adjusted operating profit APM has been amended and now includes amortisation and impairment of internally generated
intangible assets to provide more relevant information by better reflecting their operational nature. These assets include advisor platforms,
digital distribution channels and claims and policy administration systems which are used to support operational activities. Group adjusted
operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations as these items
principally relate to merger and acquisition activity which we view as strategic in nature. The effect of this change is to move £112 million
relating to amortisation of internally generated intangible assets into Group adjusted operating profit for 2018. The 2018 comparative figures
have been restated in the Reconciliation of Group adjusted operating profit to profit for the year and the Segmental income statement (see
note 5). The relevant EPS metrics (operating EPS and diluted operating EPS) for 2018 have also been restated (see note 15). There is no impact
from this change on profit before tax attributable to shareholders’ profit.
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Other information
Notes to the consolidated financial statements
Continued
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)
2019
2018
£0.88
£0.85
£0.59
£0.58
£0.20
£0.20
£0.88
£0.90
£0.58
£0.57
£0.21
£0.21
3 – Subsidiaries, joint ventures and associates – acquisitions
The Group completed minor acquisitions in Canada, the UK and France in 2019. The aggregate consideration paid in these transactions was
£20 million. With the exception of the acquisition of an associate in Canada, the acquired entities are all consolidated subsidiaries. During
2019, an adjustment of £2 million was made to the acquisition balance sheet of Friends Life Assurance Company DAC (Friends First), which
became a wholly owned subsidiary on 1 June 2018. This resulted in a corresponding decrease in the negative goodwill previously recognised.
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 (loss)/profit on disposal and remeasurements
2019
£m
6
(28)
—
(22)
2018
£m
113
(13)
2
102
The loss on the disposal and remeasurement of subsidiaries, joint ventures and associates during the year of £22 million (2018: £102 million
gain) consists of £6 million of gains relating to small disposals and a £28 million remeasurement loss relating to Friends Provident
International Limited (FPI), see note 4(b) for further details. In 2018, the profit on disposal of £113 million primarily related to the disposals of
Avipop Assicurazioni S.p.A. (Italy Avipop) and three businesses in Spain and the remeasurement loss of £13 million was related to FPI.
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Other information
Notes to the consolidated financial statements
Continued
4 – Subsidiaries, joint ventures and associates – disposals and held for sale continued
(b) 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 2019 are as follows:
Assets
Acquired value of in-force business and intangible assets
Interests in, and loans to, joint ventures and associates
Property and equipment
Loans
Financial investments
Reinsurance assets
Other assets
Cash and cash equivalents
Total assets
Liabilities
Gross insurance liabilities
Gross liabilities for investment contracts
External borrowings
Other liabilities
Total liabilities
Net assets
2019
£m
2018
£m
526
8
8
1
7,824
75
290
780
9,512
687
8,324
28
87
9,126
386
660
—
5
—
7,251
45
206
688
8,855
121
8,341
—
59
8,521
334
Assets and liabilities of operations classified as held for sale as at 31 December 2019 relate primarily to the expected disposal of the
international operations of FPI and also include Group’s operations in Hong Kong. See below for further details. Assets and liabilities of
operations classified as held for sale during 2018 relate entirely to 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, and FPI has been reported as held for sale by the Group since 31 December 2017. 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. However, if events or circumstances extend the period to complete the sale beyond 12 months, a held for sale
classification continues to be appropriate if certain conditions are met.
The transaction remains subject to regulatory approvals. The delays to receiving these approvals have been beyond the control of the Group
and both the Group and RL360 have continued to cooperate with the regulatory approval process throughout. The Group remains committed
to completing the transaction and now expects it to complete in 2020. As such, the subsidiary continues to be classified as held for sale and
has been remeasured at fair value less costs to sell of £334 million, based on the agreed price. This resulted in a total loss on remeasurement
of £28 million in 2019 (2018: £13 million) (see note 18). The business remains a consolidated subsidiary of Aviva at the balance sheet date.
(ii) Hong Kong joint venture
On 20 November 2019, Aviva announced the sale of its entire 40% shareholding in its Hong Kong joint venture (Blue) to Hillhouse AV Holdings
Limited for 450 million HKD (approximately £44 million). In addition to the investment in the joint venture, Aviva retained control of certain
activities under the previous sale agreement reached in 2018, which remain fully consolidated at the balance sheet date, and which form part
of the sale agreement to Hillhouse AV Holding Limited. No remeasurement loss has been recognised on reclassification to held for sale.
(c) 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.
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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. In November 2019 the Group announced the creation of new divisions. From 2020 UK Life will focus on three product lines –
annuities and equity release, protection and health and heritage. The Investments, Savings and Retirement division, will bring together Aviva
Investors and the modern UK Savings and Retirement business that is currently reported in UK Life. The global General Insurance division
will report the results of the UK, Canada and our European and Asian general insurance businesses. Europe Life and Asia Life will no longer
include the results of the European and Asian general insurance businesses. The following segments represent how the business has been
managed in 2019 and are consistent with the segments presented in 2018.
(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 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
Operating Segments. The principal activities of our operations in Italy and Ireland are long-term business and general insurance. Our ‘Other’
operations include our life operations in Turkey. This segment also includes Friends First, which was acquired on 1 June 2018. The
comparative results include our operations within Spain up to the date of disposal (Caja Murcia Vida and Caja Granada Vida on 11 July 2018
and Pelayo Vida on 1 October 2018), the principal activity of which was the sale of accident and health insurance and a selection of savings
products. The comparative results also include Avipop, part of our operations in Italy, up to the date of disposal on 29 March 2018.
Asia
Our activities in Asia principally comprise our long-term business operations in China, India, Singapore, Hong Kong (see note 4(b)), Vietnam,
Indonesia, and FPI (see note 4(b)). This segment also includes general insurance and health operations in Singapore and health operations
in Indonesia.
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’. The results of our internal reinsurance
operations and the Group’s interest in Wealthify are also included in this segment, as are the elimination entries for certain inter-segment
transactions and group consolidation adjustments.
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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 2019
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 of joint ventures and associates
Profit/(loss) on the disposal and remeasurement of
subsidiaries, joint ventures and associates
United Kingdom
Life
£m
GI
£m
Canada
£m
France
£m
Poland
£m
Europe
Italy,
Ireland and
Other
£m
Asia
£m
Aviva
Investors
£m
Other
Group
activities2
£m
Total
£m
8,596
(2,271)
—
6,325
(2)
6,323
951
7,274
27,070
—
20
4,624
(406)
—
4,218
(57)
4,161
113
4,274
254
—
—
3,204
(143)
—
3,061
(99)
2,962
24
2,986
171
—
—
6,883
(86)
—
6,797
(28)
6,769
305
7,074
6,267
—
48
643
(12)
—
631
2
633
99
732
155
—
—
5,761
(264)
—
5,497
(9)
5,488
123
5,611
4,352
—
12
1,532
(381)
1
1,152
(16)
1,136
205
1,341
967
—
33
—
—
—
—
—
—
320
320
61
247
—
— 31,243
(3,563)
—
—
(1)
(1) 27,680
(209)
—
(1) 27,471
1 2,141
— 29,612
1,280 40,577
247
85
—
(28)
—
—
6
—
—
—
(28)
—
—
(22)
Segmental income1
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
34,364
4,528
3,163 13,389
887
9,975
2,313
628
1,252 70,499
(9,569)
(3,428)
(16,411)
162
(669)
(1,332)
(218)
(159)
(2,614)
(53)
—
—
(1,265)
(298)
(6)
(4)
(1,938)
(16)
—
—
(823)
(162)
(6)
(7)
(4,751)
(1,112)
(4,041)
(2,010)
(816)
(246)
(2)
(1)
(380)
(49)
1
(4)
(156)
(95)
(5)
(1)
(2,820)
(1,062)
(3,365)
(1,764)
(352)
(230)
(10)
(6)
(1,003)
(32)
(216)
(369)
(257)
(283)
—
(8)
—
—
(63)
—
(27)
(447)
—
—
(21) (23,096)
50
(5,702)
— (24,095)
(3,985)
—
(1,171) (5,536)
(236) (3,329)
(247)
(576)
—
(390)
Segmental expenses
(31,624)
(4,240)
(2,952) (12,979)
(689)
(9,609)
(2,168)
(537)
(1,768) (66,566)
Profit/(loss) before tax
Tax attributable to policyholders’ returns
2,740
(487)
288
—
211
—
410
—
198
—
366
(14)
145
(58)
91
—
(516) 3,933
(559)
—
Profit/(loss) before tax attributable to shareholders’
profits
2,253
288
211
410
198
352
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 acquired in
business combinations
Amortisation and impairment of AVIF
(Profit)/loss on the disposal and remeasurement of
subsidiaries, joint ventures and associates
Other3
Group adjusted operating profit/(loss) before tax
attributable to shareholders’ profits
—
(695)
(8)
—
33
—
46
84
—
—
—
54
243
—
—
(102)
(64)
(95)
27
—
—
—
—
45
2
2
13
—
(6)
—
24
—
2
2
—
—
—
(4)
(5)
—
—
5
—
—
—
—
(42)
(33)
—
—
2
33
—
2
87
—
10
—
—
13
11
126
28
—
91
(516) 3,374
5
(76)
—
—
—
—
—
—
—
—
—
(7)
(654)
132
(167)
1
—
—
2
—
—
54
15
87
406
22
47
1,855
250
191
473
194
314
275
96
(464) 3,184
1 Total reported income, excluding inter-segment revenue, includes £39,041 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 Other Group activities include internal reinsurance and net expenses of £15 million in relation to the UK digital business. The reduction of £165 million from 2018 reflects the alignment of the UK digital business with the UK Life
and UK GI businesses during the year.
3 Other includes a charge of £45 million in relation to a change in the discount rate used for estimating lump sum payments in settlement of bodily injury claims (see note 44(b)) and a charge of £2 million relating to the negative
goodwill that arose on acquisition of Friends First (see note 3).
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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 2018 – restated1,2
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 income3
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:
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 acquired in business
combinations
Amortisation and impairment of AVIF
(Profit)/loss on the disposal and remeasurement of subsidiaries,
joint ventures and associates
Other6
Group adjusted operating profit/(loss) before tax attributable to
United Kingdom
Life
£m
GI
£m
Canada
£m
France
£m
Poland
£m
7,302
(1,666)
—
5,636
14
5,650
939
6,589
(6,771)
—
144
4,504
(317)
6
4,193
(87)
4,106
122
4,228
16
—
—
3,047
(119)
—
2,928
27
2,955
24
2,979
51
—
1
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
(38) 4,244
3,031
3,489
632
5,499
(10,184)
6,184
7,540
270
(738)
(1,663)
(232)
(172)
(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)
1,005
(3,831)
(3,106)
(3,063)
(454)
(5,196)
967
469
1,436
413
—
413
(75)
—
(75)
426
—
426
178
—
178
303
1
304
—
(16)
115
—
—
172
—
—
50
285
4
—
—
—
—
—
—
(190)
31
—
45
—
—
26
—
—
—
48
(6)
44
(5)
—
1
2
—
—
—
10
2
—
2
6
—
—
—
(1)
57
57
—
—
2
6
(89)
(36)
Asia
£m
Aviva
Investors4
£m
Other
Group
activities5
£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
90
—
21
—
—
3
12
130
5
—
—
—
—
—
—
—
368
368
37
259
—
27
691
—
—
(39)
—
(33)
(449)
—
—
(521)
170
—
170
— 28,659
(2,326)
(2)
—
3
1 26,333
(81)
—
1 26,252
2,178
3
4 28,430
(473) (10,912)
259
112
—
(66)
(9)
102
(544) 17,991
(58) (23,142)
6,246
51
5,321
—
3,237
—
(3,326)
633
(3,843)
(507)
(259)
(2)
(573)
(386)
(269) (16,339)
(813) 1,652
477
—
(813) 2,129
5
(67)
—
—
—
—
—
—
—
(27)
—
—
156
197
476
—
8
—
3
9
(5)
(1)
13
97
426
(102)
(231)
shareholders’ profits
1,886
383
27
510
198
300
261
148
(709) 3,004
1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The restatement has had no impact on the profit for the year or equity.
As a result of the review, there have been reclassifications between operating segments to ensure a consistent presentation of investment fund consolidation entries in the Other Group Activities segment. These consolidation
adjustment reclassifications relate to UK property funds (£66 million reclassified to Other Group Activities, which predominately includes net investment expense (£78 million), other expenses (£24 million credit) and finance
costs (£15 million)). This segmental restatement has had no impact on the consolidated income statement. See note 1(a) for further information.
2 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see
note 1(b)). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been restated resulting in a reduction in the
prior period Group adjusted operating profit of £112 million. There is no impact on profit before tax attributable to shareholders’ profit.
3 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.
4 Aviva Investors adjusted operating profit includes £1 million profit relating to the Aviva Investors Pensions Limited business.
5 Other Group activities include internal reinsurance and net expenses of £180 million (restated) in relation to the UK digital business.
6 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, 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 the goodwill payments to preference shareholders, which was announced on 30 April 2018, and associated administration costs.
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Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
5 – Segmental information continued
(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.
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 and group consolidation adjustments.
(b) (i) Segmental income statement – products and services for the year ended 31 December 2019
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 income/(expense)
Inter-segment revenue
Share of profit of joint ventures and associates
(Loss)/profit 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
health2
£m
Fund
management
£m
20,335
(2,879)
17,456
—
17,456
1,490
18,946
38,722
—
113
(28)
10,908
(684)
10,224
(209)
10,015
126
10,141
622
—
—
6
57,753
10,769
(16,612)
(5,566)
(24,095)
(3,985)
(1,546)
(1,850)
(237)
(170)
(6,484)
(136)
—
—
(2,672)
(649)
(13)
(10)
(54,061)
(9,964)
3,692
(559)
3,133
(133)
3,000
805
—
805
(161)
644
—
—
—
—
—
319
319
(1)
250
—
—
568
—
—
—
—
(27)
(453)
—
—
(480)
88
—
88
4
92
Other3
£m
Total
£m
—
—
—
—
—
206
206
1,234
—
(28)
—
31,243
(3,563)
27,680
(209)
27,471
2,141
29,612
40,577
250
85
(22)
1,412
70,502
—
—
—
—
(1,291)
(377)
—
(396)
(23,096)
(5,702)
(24,095)
(3,985)
(5,536)
(3,329)
(250)
(576)
(2,064)
(66,569)
(652)
—
(652)
100
(552)
3,933
(559)
3,374
(190)
3,184
1 Gross written premiums include inward reinsurance premiums assumed from other companies amounting to £62 million, which all relates to property and liability insurance.
2 General insurance and health business segment includes gross written premiums of £944 million relating to health business. The remaining business relates to property and liability insurance.
3 Other includes net expenses of £15 million in relation to the UK digital business. The reduction of £165 million from 2018 reflects the alignment of the UK digital business with the UK long-term and general insurance businesses
during the year.
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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 2018 – restated1, 2
Gross written premiums3
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 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
18,140
(1,775)
16,365
—
16,365
1,496
17,861
(10,453)
—
178
84
7,670
(16,540)
6,044
5,321
3,237
(1,245)
(2,128)
(249)
(179)
(5,739)
1,931
477
2,408
568
2,976
General
insurance and
health4
£m
Fund
management
£m
Other5
£m
Total
£m
10,519
(551)
9,968
(81)
9,887
138
10,025
63
—
—
—
10,088
(6,602)
202
—
—
(2,592)
(596)
(12)
(6)
(9,606)
482
—
482
169
651
—
—
—
—
—
365
365
(1)
263
—
27
654
—
—
—
—
(31)
(461)
—
—
(492)
162
—
162
(19)
143
—
—
—
—
—
179
179
(521)
—
(66)
(9)
(417)
—
—
—
—
542
(658)
(2)
(388)
(506)
(923)
—
(923)
157
(766)
28,659
(2,326)
26,333
(81)
26,252
2,178
28,430
(10,912)
263
112
102
17,995
(23,142)
6,246
5,321
3,237
(3,326)
(3,843)
(263)
(573)
(16,343)
1,652
477
2,129
875
3,004
1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The restatement has had no impact on the profit for the year or equity.
As a result of the review, there have been reclassifications between operating segments to ensure a consistent presentation of investment fund consolidation entries in the Other segment. These consolidation adjustment
reclassifications relate to property funds (£66 million reclassified from Long-term business to Other, which predominately includes net investment expense (£78 million), other expenses (£24 million credit) and finance costs
(£15 million)). This segmental restatement has had no impact on the consolidated income statement. See note 1(a) for further information.
2 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see
note 1(b)). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been restated resulting in a reduction in the
prior period Group adjusted operating profit of £112 million. There is no impact on profit before tax attributable to shareholders’ profit.
3 Gross written premiums include inward reinsurance premiums assumed from other companies amounting to £56 million which all relates to property and liability insurance.
4 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.
5 Other includes net expenses of £180 million (restated) in relation to the UK digital business.
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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 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 43(c)(v))
Reinsurers’ share of change in provision for unearned premiums (note 47(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 gains/(losses) on disposals
Unrealised gains and losses (see accounting policy K)
Gains/(losses) arising in the year
(Losses)/gains recognised now realised
Other income from investments designated as other than trading
Realised gains on disposals
Unrealised gains and losses (see accounting policy K)
Gains/(losses) 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 (losses)/gains on investments other than trading
Other investment expenses
Net investment income/(expense)
Share of profit after tax of joint ventures (note 19(a)(i))
Share of profit after tax of associates (note 20(a)(i))
Share of profit after tax of joint ventures and associates
(Loss)/profit on disposal and remeasurement of subsidiaries, joint ventures and associates (note 4(a))
Total income
2019
£m
Restated1
2018
£m
12,906
7,429
10,908
31,243
(3,563)
(231)
22
(209)
27,471
1,064
439
451
32
175
(20)
2,141
11,064
7,076
10,519
28,659
(2,326)
(98)
17
(81)
26,252
1,059
527
403
26
164
(1)
2,178
29,612
28,430
5,950
49
5,999
5,614
5,716
54
5,770
4,881
1,388
(803)
1,866
(1,388)
478
1,866
(1,887)
803
(1,084)
(1,887)
9,130
8,044
27,050
(9,130)
17,920
27,050
(20,757)
(8,044)
(28,801)
(20,757)
19
78
555
(158)
58
93
548
(454)
(65)
583
(121)
69
307
838
192
(27)
40,577
(10,912)
18
67
85
(22)
91
21
112
102
70,252
17,732
1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The restatement has had no impact on the profit for the year or equity.
See note 1(a) for further information.
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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 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 42(b))
Change in reinsurance asset for insurance provisions (note 42(b))
Change in insurance liabilities, net of reinsurance
Change in investment contract provisions
Investment expense/(income) allocated to investment contracts
Other changes in provisions
Participating investment contracts (note 45(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 49)
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 expense/(income) 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)
Impairment of intangible assets (note 18)
Other expenses (see below)
Impairments
Net impairment on loans
Net impairment on receivables and other financial assets
Other net foreign exchange losses
Other expenses
Finance costs (note 8)
Total expenses
2019
£m
Restated1
2018
£m
13,017
5,333
7
6,765
25,122
12,163
6,117
8
6,913
25,201
(2,029)
3
(1,984)
(75)
23,096
23,142
6,824
(1,122)
5,702
(6,415)
169
(6,246)
14,972
(6,128)
7,365
1,767
(9)
24,095
3,985
540
272
(5)
(5,321)
(3,237)
2,829
(163)
39
1,048
(83)
1,355
511
5,536
1,161
183
98
6
406
212
13
1,345
4
10
(109)
3,329
576
2,678
(183)
32
996
84
(771)
490
3,326
1,172
216
40
13
426
209
—
1,729
1
9
28
3,843
573
66,319
16,080
1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The restatement has had no impact on the profit for the year or equity.
See note 1(a) for further information.
Other expenses were £1,345 million (2018: £1,729 million) which included costs relating to property, IT and a charge of £2 million relating to
negative goodwill on the acquisition of Friends First. Other expenses in 2018 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 (see note 52(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.
Change in insurance liabilities includes a charge of £45 million (2018: 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 44(b)).
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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 53) 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 52(b)(i))
Interest on lease liabilities
Other similar charges
Total finance costs
2019
£m
336
16
(1)
351
21
77
98
10
23
14
80
2018
£m
364
6
(2)
368
20
95
115
8
22
—
60
576
573
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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
(a) Definitions
Group adjusted operating profit for life business is based on expected long-term investment returns on financial investments backing
shareholder funds over the period, with consistent allowance for the corresponding expected movements in liabilities. Group adjusted
operating profit includes the effect of variance in experience for operating items, such as mortality, persistency and expenses, and the effect
of changes in operating assumptions. 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, in investment variances and economic assumption changes.
(b) 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 attributable to shareholders’ profits.
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.
(c) Assumptions
The expected rate of investment return is determined using consistent assumptions at the start of the period 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
2019
4.9%
4.3%
Equity
2018
4.8%
4.4%
2019
3.4%
2.8%
Property
2018
3.3%
2.9%
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 at the start of the period are set out in the table below:
Territories
United Kingdom
Eurozone
2019
3.5%
2.0%
2018
3.5%
2.0%
2019
1.4%
0.8%
2018
1.3%
0.9%
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 available 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 2019
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
9 – Life business investment variances and economic assumption changes continued
(d) Investment variances and economic assumption changes
The investment variances and economic assumption changes excluded from the life adjusted operating profit are as follows:
Life business
Investment variances and economic assumptions
2019
£m
654
2018
£m
(197)
Investment variances and economic assumption changes were £654 million (2018: £197 million negative). This is primarily due to the UK where
there was a positive variance as a result of a reduction in yields, a narrowing of fixed income spreads and a consequent impact from economic
assumption changes, including an alignment of methodology across the UK, partially offset by the impact of increases in equities. The impact
of yields and equities reflects the fact that we hedge on an economic rather than on an IFRS basis.
The Group continues to keep under review the allowance in our assumptions for future property prices and rental income in relation to our
commercial and equity release mortgages, for the possible adverse impact including but not limited to the ultimate arrangements regarding
the UK’s exit from the European Union. At 31 December 2019 this allowance has been determined in line with previous periods and is
estimated at £440 million (2018: £395 million). As more clarity is provided on the terms of the UK’s exit from the European Union, the Group
will look to establish core property assumptions without an explicit allowance for Brexit uncertainty.
The variance in 2018 was 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.
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
10 – Non-life business: short-term fluctuations in return on investments
(a) Definitions
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 short-term fluctuations in investment return and economic assumption changes attributable to the non-life business result and reported
outside Group adjusted operating profit were as follows:
Non-life business
Short-term fluctuations in investment return (see (d) below)
Economic assumption changes (see (e) below)
2019
£m
167
(54)
113
2018
£m
(476)
1
(475)
(b) Methodology
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 Group adjusted 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.
(c) Assumptions
The principal assumptions underlying the calculation of the long-term investment return are:
United Kingdom
Eurozone
Canada
Long-term rates
of return Equities
Long-term rates of return
Investment properties
2019
%
4.9
4.3
6.0
2018
%
4.8
4.4
5.9
2019
%
3.4
2.8
4.5
2018
%
3.3
2.9
4.4
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.
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Notes to the consolidated financial statements
Continued
10 – Non-life business: short-term fluctuations in return on investments continued
(d) Analysis of investment return
The total investment income on our non-life business, including short-term fluctuations, are as follows:
Non-life business
Analysis of investment income:
Net investment income/(expenses)
Foreign exchange gains/(losses) and other charges
Analysed between:
Long-term investment return, reported within Group adjusted operating profit
Short-term fluctuation in investment return, reported outside Group adjusted operating profit
General insurance and health
Other operations1
2019
£m
511
55
566
2018
£m
(88)
(8)
(96)
399
380
296
(129)
167
566
(315)
(161)
(476)
(96)
1 Other operations represents short-term fluctuations on assets backing non-life business in Group centre investments, including the centre hedging programme.
The short-term fluctuations during 2019 of £167 million favourable is primarily due to strong market conditions across all our major markets.
This resulted in significant gains on equities plus gains on fixed income securities driven by interest rates falling and a narrowing of credit
spreads. These gains are partly offset by losses on hedges held by the Group, including the Group centre hedging programme, and other
adverse movements on centre holdings.
The adverse short-term fluctuations during 2018 were mainly 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.
(e) Economic assumption changes
In the general insurance and health business, there is a negative impact of £54 million (2018: £1 million positive) primarily as a result of a
decrease in interest rates used to discount claims reserves for both periodic payment orders 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 44.
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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:
At 31 December
Average for the year1
United Kingdom
Canada
France
Poland
Italy, Ireland, Spain and Other
Asia
Aviva Investors
Other Group activities
Total employee numbers
2019
Number
15,335
4,264
3,911
1,648
1,969
1,876
1,495
683
2018
Number
15,746
4,334
3,928
1,708
1,950
1,832
1,471
734
2019
Number
15,863
4,338
3,925
1,696
1,933
1,842
1,485
709
31,181
31,703
31,791
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.
(b) Staff costs
Wages and salaries
Social security costs
Post-retirement obligations
Defined benefit schemes (note 52(d))
Defined contribution schemes (note 52(d))
Profit sharing and incentive plans
Equity compensation plans (note 34(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)
Total staff costs
2018
Number
15,414
4,330
3,911
1,716
1,864
1,817
1,460
720
31,232
2018
£m
1,260
233
23
163
221
64
10
2019
£m
1,321
239
22
164
193
62
35
2,036
1,974
2019
£m
611
197
67
1,161
2,036
2018
£m
565
161
76
1,172
1,974
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 2019 was £7 million (2018: £10 million). Employer contributions to pensions for executive
directors for qualifying periods were £18,813 (2018: £165,373). The aggregate net value of share awards granted to the directors in the period
was £8.0 million (2018: £11.1 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 (2018: no share options).
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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 Mazars LLP and its associates for the statutory audit of Group subsidiaries in Italy
Fees payable to PwC LLP, BDO LLP, Mazars LLP and their associates for services to Group companies
Fees payable to PwC LLP and its associates for Group occupational pensions scheme audits
2019
£m
1.8
13.7
0.8
16.3
4.9
0.7
21.9
—
—
—
0.1
22.0
0.4
0.3
22.7
0.3
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
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 2019, 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 £20.4 million (2018: £20.0 million).
Other assurance services in 2019 of £0.7 million (2018: £0.9 million) mainly include fees relating to providing an annual Audit and Assurance
Faculty (AAF) report for Aviva Investors to give internal and external clients and their auditors comfort over the operating effectiveness of
internal controls and review of the information security business protection standard and associated controls.
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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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 charged/(credited) to the income statement
(i) The total tax charge/(credit) 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 charged/(credited) to income statement
2019
£m
1,062
(179)
883
402
(6)
(9)
387
1,270
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 charge attributable to policyholder returns included in the charge above is £559 million (2018: credit of £477 million).
(iii) The tax charge/(credit) above, comprising current and deferred tax, can be analysed as follows:
UK tax
Overseas tax
2019
£m
851
419
1,270
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 charge
by £nil and £11 million (2018: £nil and £nil), respectively.
(v) Deferred tax charged/(credited) to the income statement represents movements on the following items:
2019
£m
(1,185)
4
1,554
21
4
4
(63)
48
387
2018
£m
907
3
(1,453)
2
7
(7)
(64)
60
(545)
2019
£m
(49)
(10)
(59)
(56)
1
5
(50)
(109)
2018
£m
(59)
(1)
(60)
16
—
(7)
9
(51)
Long-term business technical provisions and other insurance items
Deferred acquisition costs
Unrealised gains/(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 charged/(credited) to income statement
(b) Tax credited to other comprehensive income
(i) The total tax credit 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 gains on owner-occupied properties
In respect of unrealised gains/(losses) on investments
Total tax credited to other comprehensive income
(ii) There is no tax charge/(credit) attributable to policyholders’ return included above in either 2019 or 2018.
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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
£9 million (2018: £8 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% (2018: 19.00%)
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 charged/(credited) to income statement
Shareholder
£m
Policyholder
£m
2019
£m
Shareholder
£m
Policyholder
£m
3,374
641
—
5
(51)
(1)
41
98
(6)
(4)
(8)
(4)
711
559
106
454
—
—
—
—
(1)
—
—
—
—
559
3,933
747
2,129
405
454
5
(51)
(1)
41
97
(6)
(4)
(8)
(4)
—
(16)
(4)
(59)
50
71
—
(3)
(6)
4
1,270
442
(477)
(91)
(385)
—
—
—
—
(1)
—
—
—
—
(477)
2018
£m
1,652
314
(385)
(16)
(4)
(59)
50
70
—
(3)
(6)
4
(35)
The tax charge/(credit) 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.
During 2019 changes were made in France to alter the reduction in corporation tax rates, delaying the reduction to 32.02% to 1 January 2020
and amending the rate to take effect from 1 January 2021 to 28.41%. These revised rates have been used in the calculation of France’s
deferred tax assets and liabilities as at 31 December 2019.
During 2019, the UK Government indicated that it would reverse the reduction in corporation tax rate to 17% due from 1 April 2020. As of the
31 December 2019, this measure had not been substantively enacted and therefore no impact is reflected in the calculation of the UK’s
deferred tax assets and liabilities as at 31 December 2019. Were this measure to be introduced, it would increase the Group’s deferred tax
liability by approximately £73 million.
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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
2019
£m
Total
£m
3,374
(711)
2,663
(115)
(17)
Adjusting
items
£m
190
(43)
147
(17)
—
Group
adjusted
operating
profit
£m
3,004
(625)
2,379
(100)
(17)
Adjusting
items
£m
(875)
183
(692)
(19)
—
Restated1
2018
£m
Total
£m
2,129
(442)
1,687
(119)
(17)
—
(34)
(36)
—
(36)
130
2,497
2,226
(711)
1,515
Group
adjusted
operating
profit
£m
3,184
(668)
2,516
(98)
(17)
(34)
2,367
1 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see
note 1(b)). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been restated resulting in a reduction in the
prior period Group adjusted operating profit of £112 million. There is no impact on profit before tax attributable to shareholders’ profit.
(ii) Basic earnings per share is calculated as follows:
Group adjusted operating profit attributable to ordinary shareholders
Adjusting items:
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 acquired in business combinations2
Amortisation and impairment of acquired value of in-force business
Profit on disposal and remeasurement of subsidiaries, joint ventures and associates
Other3
2019
£m
Net of tax, NCI,
preference
dividends and
DCI1
£m
Before tax
£m
Per share
p
Before tax
£m
Net of tax, NCI,
preference
dividends and
DCI1
£m
Restated2
2018
£m
Per share
p
3,184
2,367
60.5
3,004
2,226
56.2
654
167
(54)
(15)
(87)
(406)
(22)
(47)
535
129
(33)
(15)
(61)
(356)
(23)
(46)
13.7
3.3
(0.8)
(0.4)
(1.6)
(9.1)
(0.6)
(1.2)
63.8
(197)
(476)
1
(13)
(97)
(426)
102
231
(198)
(378)
(1)
(13)
(82)
(371)
102
230
(5.0)
(9.6)
—
(0.3)
(2.1)
(9.4)
2.6
5.8
2,129
1,515
38.2
Profit attributable to ordinary shareholders
3,374
2,497
1 DCI includes the direct capital instrument and tier 1 notes.
2 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see
note 1(b)). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been restated resulting in a reduction in the
prior period Group adjusted operating profit of £112 million. There is no impact on profit before tax attributable to shareholders’ profit. Following the change in the definition of Group adjusted operating profit, comparative
amounts for operating earnings per share have also been restated resulting in a reduction in the prior period of 2.2 pence.
3 Other in 2019 relates to a charge of £45 million in relation to a change in the discount rate used for estimating lump sum payments in settlement of bodily injury claims (see note 44(b)) and a charge of £2m relating to negative
goodwill which arose on the acquisition of Friends First (see note 3). Other in 2018 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, 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 requirements to equalise members’ benefits of 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.
(iii) The calculation of basic earnings per share uses a weighted average of 3,911 million (2018: 3,963 million) ordinary shares in issue, after
deducting treasury shares. The actual number of shares in issue at 31 December 2019 was 3,921 million (2018: 3,902 million) and 3,919 million
(2018: 3,899 million) excluding treasury shares.
(iv) On 1 May 2018 the Group announced a share buy-back of ordinary shares for an aggregate purchase price of up to £600 million, which
was carried out in full during the period from 1 May 2018 to 17 September 2018. The number of shares in issue reduced by 119 million as at
31 December 2018 in respect of shares acquired and cancelled under the buy-back programme.
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IFRS financial statements
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
3,911
45
3,956
Total
£m
2,497
—
2,497
2019
£m
Per share
p
63.8
(0.7)
63.1
Weighted
average
number of
shares
million
3,963
47
4,010
Total
£m
1,515
—
1,515
(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
3,911
45
3,956
Total
£m
2,367
—
2,367
2019
£m
Per share
p
60.5
(0.7)
59.8
Weighted
average
number of
shares
million
3,963
47
4,010
Total
£m
2,226
—
2,226
2018
£m
Per share
p
38.2
(0.4)
37.8
Restated1
2018
£m
Per share
p
56.2
(0.7)
55.5
1 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see
note 1(b)). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been restated resulting in a reduction in the
prior period Group adjusted operating profit of £112 million. There is no impact on profit before tax attributable to shareholders’ profit. Following the change in the definition of Group adjusted operating profit, comparative
amounts for diluted earnings per share have also been restated resulting in a reduction in prior period diluted group adjusted operating profit per share of 2.2 pence.
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 period
Final 2018 – 20.75 pence per share, paid on 30 May 2019
Final 2017 – 19.00 pence per share, paid on 17 May 2018
Interim 2019 – 9.50 pence per share, paid on 26 September 2019
Interim 2018 – 9.25 pence per share, paid on 24 September 2018
Preference dividends declared and charged to equity in the period
Coupon payments on DCI and tier 1 notes
2019
£m
812
—
372
—
1,184
17
43
1,244
2018
£m
—
764
—
364
1,128
17
44
1,189
Subsequent to 31 December 2019, the directors proposed a final dividend for 2019 of 21.40 pence per ordinary share (2018: 20.75 pence),
amounting to £839 million (2018: £812 million) in total. Subject to approval by shareholders at the AGM, the dividend will be paid on 2 June
2020 and will be accounted for as an appropriation of retained earnings in the year ending 31 December 2020.
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. This year’s tax relief is obtained at a rate of 19% (2018: 19%).
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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 January1
Carrying amount at 31 December
Less: Assets classified as held for sale
Carrying amount at 31 December
2019
£m
2018
£m
1,991
4
(5)
(22)
1,968
(119)
(6)
—
12
(113)
1,872
1,855
—
2,080
8
(99)
2
1,991
(168)
(13)
63
(1)
(119)
1,912
1,872
—
1,855
1,872
1 The balance on 1 January 2018 includes goodwill of £36 million which was part of operations classified as held for sale.
Goodwill from acquisitions and additions in 2019 arose from small acquisitions in Canada and the UK (see note 3). Goodwill from acquisitions
and additions in 2018 arose on the acquisition of Wealthify. In 2018, negative goodwill of £36 million arose on the purchase of Friends First,
this was recognised immediately in the income statement.
Disposals in 2019 relate to a small disposal in Canada. Disposals in 2018 include those related to the disposal of the Italy Avipop business as
well as the remainder of the business in Spain.
The total impairment of goodwill in 2019 is a charge of £6 million comprised of impairments of goodwill relating to businesses in Asia and
Canada. The total impairment of goodwill in 2018 was a charge of £13 million relating to businesses in the UK, Asia and Poland. 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 (CGUs) 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
Ireland – general insurance and health
Asia
Carrying
amount of
goodwill
2018
£m
663
924
82
—
27
26
99
51
2019
£m
663
927
77
—
25
24
94
45
1,855
1,872
Carrying
amount of
intangibles
with indefinite
useful lives
(detailed in
note 18)
2019
£m
—
1
—
52
7
—
—
1
61
2018
£m
—
—
—
56
7
—
—
—
63
2019
£m
663
928
77
52
32
24
94
46
Total
2018
£m
663
924
82
56
34
26
99
51
1,916
1,935
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.
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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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 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 the European Insurance and Occupational Pensions Authority (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%.
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 which is based on the Capital Asset Pricing Model (CAPM). The inputs include
the risk-free rate of interest appropriate to the geographic location of the cash flows related to each CGU being tested, market risk premium,
beta and other adjustments to factor local market risks and risks specific to each CGU.
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
2019
%
1
Nil
Nil
4
2018
%
1
Nil
Nil
4
2019
(Pre-tax)
%
6.8
6.8
10.3
8.0
2018
(Pre-tax)
%
6.3
6.9
12.5
7.8
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
Management’s impairment review of the Group’s cash generating units identified the need to impair goodwill by a total amount of £6 million
(£4 million of which relates to one of the cash generating units within the Asia operating segment, and £2 million to one of the cash generating
units within the Canada operating segment). This impairment is due to current and forecast performance of the related cash generating units
being below the original financial plan. Impairment in 2018 totalling £13 million related to one of the cash generating units in the UK within
the Other Group Activities operating segment, one of the cash generating units within the Asia operating segment and one of the cash
generating units within the Poland operating segment.
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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
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 2018
Additions and transfers
Disposals
Foreign exchange rate movements
At 31 December 2018
Additions and transfers
Disposals
Foreign exchange rate movements
At 31 December 2019
Accumulated amortisation
At 1 January 2018
Amortisation for the year
Disposals and transfers
Foreign exchange rate movements
At 31 December 2018
Amortisation for the year3
Disposals and transfers
Foreign exchange rate movements
At 31 December 2019
Accumulated Impairment
At 1 January 2018
Impairment charges
Disposals
Foreign exchange rate movements
At 31 December 2018
Impairment charges4
Disposals
Foreign exchange rate movements
At 31 December 2019
Carrying amount
At 1 January 2018
At 31 December 2018
At 31 December 2019
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
2,620
67
—
5
2,692
—
—
(21)
2,671
(1,060)
(183)
—
(4)
(1,247)
(180)
—
18
2,697
30
—
(1)
2,726
—
—
(1)
2,725
(838)
(243)
—
—
(1,081)
(226)
—
1
(1,409)
(1,306)
(27)
—
—
—
(27)
—
—
—
(27)
(134)
(13)
—
—
(147)
(28)
—
—
(175)
1,533
1,418
1,725
1,498
1,235
1,244
(29)
1,206
(496)
748
1,966
153
(488)
(8)
1,623
136
(36)
(6)
1,717
(544)
(209)
48
2
(703)
(212)
28
—
(887)
(46)
—
8
—
(38)
(13)
6
1
(44)
1,376
882
786
(1)
785
380
(57)
(189)
—
134
2
(1)
(7)
128
(57)
—
57
—
—
—
—
—
—
(71)
—
—
—
(71)
—
—
4
(67)
252
63
61
—
61
Total
£m
7,663
193
(677)
(4)
7,175
138
(37)
(35)
7,241
(2,499)
(635)
105
(2)
(3,031)
(618)
28
19
(3,602)
(278)
(13)
8
—
(283)
(41)
6
5
(313)
4,886
3,861
3,326
(526)
2,800
1 On insurance and participating investment contracts.
2 On non-participating investment contracts.
3 Amortisation of other intangible assets with finite useful lives includes £87 million (2018: £97 million) of amortisation in respect of intangible assets acquired in business combinations.
4
Impairment charges comprise £28 million (2018: £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).
(a) Acquired value of in-force business
AVIF on insurance and investment contracts is generally recoverable in more than one year. Of the total of £2,479 million, £2,380 million
(2018: £2,904 million) is expected to be recoverable more than one year after the statement of financial position date.
Non-participating investment 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 in 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 2019, an impairment charge of £28 million (2018: £13 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 measured at the estimated fair value less costs to sell.
Aviva plc Annual report and accounts 2019
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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 intangible assets with finite lives in 2019 and 2018 relate to capitalisation of software costs in relation to the Group’s
digital initiatives.
(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 2019 (2018: £nil).
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
Share of (loss)/profit after tax
Reclassification from subsidiary
Additions
Disposals
Share of gains/(losses) taken to other comprehensive income
Dividends received from joint ventures
Foreign exchange rate movements
At 31 December
Less: Joint venture classified as held for sale
At 31 December
1 Comprises other intangibles of £5 million (2018: £5 million).
Goodwill and
intangibles
£m
46
—
—
—
(5)
(5)
—
—
—
—
—
(3)
38
—
38
Equity
interests
£m
1,168
27
(4)
23
—
23
—
131
(96)
22
(27)
(24)
2019
Total
£m
1,214
27
(4)
23
(5)
18
—
131
(96)
22
(27)
(27)
1,197
1,235
(8)
(8)
1,189
1,227
Goodwill and
intangibles
£m
57
—
—
—
(5)
(5)
—
—
—
—
—
(6)
46
—
46
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)
1,168
1,214
—
—
1,168
1,214
Additions and disposals during 2019 relate mainly to the Group’s holdings in property management undertakings.
On 20 November 2019, Aviva announced the sale of its entire 40% shareholding in its Hong Kong joint venture (Blue) to Hillhouse AV Holdings
Limited for 450 million HKD (approximately £44 million). In addition to the investment in the joint venture, Aviva retained control of certain
activities under the previous sale agreement reached in 2018, which remain fully consolidated at the balance sheet date, and which form part
of the sale agreement to Hillhouse AV Holding Limited. No remeasurement loss has been recognised on reclassification to held for sale, as
detailed in note 4(b).
The Group’s share of total comprehensive income related to joint venture entities is £40 million (2018: £81 million).
Aviva plc Annual report and accounts 2019
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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
—
38
—
38
792
397
8
2019
Total
£m
792
435
8
Goodwill and
intangibles
£m
Equity
interests
£m
797
363
8
—
46
—
46
2018
Total
£m
797
409
8
1,197
1,235
1,168
1,214
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 £320 million (2018: £294 million) and it has a carrying value at cost of £123 million
(2018: £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 (2018: none). The Group’s principal joint ventures are as follows:
Proportion of
ownership interest
Name
Nature of activities
Principal place of business
2019
2018
Ascot Real Estate Investments LP
2-10 Mortimer Street Limited Partnership
Aviva-COFCO Life Insurance Company Limited
PT Astra Aviva Life
Aviva Life Insurance Company Limited
AvivaSA Emeklilik ve Hayat A.S
Property management
Property management
Life insurance
Life and Health insurance
Life insurance
Life insurance
UK
UK
China
Indonesia
Hong Kong
Turkey
50.00%
50.00%
50.00%
50.00%
40.00%
40.00%
50.00%
50.00%
50.00%
50.00%
40.00%
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) From time to time group joint ventures may receive liability claims or become involved in actual or threatened related litigation. At
31 December 2019 this includes a contingent liability in respect of a dispute where the Group’s maximum exposure is approximately
£95 million. In the opinion of the directors it is unlikely that the Group will suffer financial loss arising from this dispute. The joint ventures
have no other contingent liabilities to which the Group has significant exposure. The Group has commitments to provide funding to property
management joint ventures of £13 million (2018: £13 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).
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Other information
Notes to the consolidated financial statements
Continued
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 after tax
Acquisitions
Additions
Reduction in Group interest
Reclassification to investment
Dividends received from associates
Foreign exchange rate movements
Movements in carrying amount
At 31 December
2019
Equity
interests
£m
2018
Equity
interests
£m
304
80
(4)
76
(9)
67
1
1
(1)
—
(54)
(14)
—
304
421
22
(1)
21
—
21
—
2
(78)
(54)
(8)
—
(117)
304
The Group’s share of total comprehensive income related to associates is £67 million (2018: £21 million).
(ii) No associates are considered to be material from a Group perspective (2018: 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 Logipierre 1
Lend Lease JEM Partners Fund Limited
SCPI Ufifrance Immobilier
AI UK Commercial Real Estate Debt Fund1
Life insurance
Property Management
Investment holding
Property Management
Property Management
India
France
Singapore
France
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
2019
2018
49.00%
44.46%
22.50%
20.40%
17.53%
49.00%
44.46%
22.50%
20.40%
17.16%
(iii) The associates have no contingent liabilities to which the Group has significant exposure. The Group has commitments to provide funding
to property management associates of £6 million (2018: £5 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).
An impairment charge of £9 million (2018: £nil) was recognised within the income statement as a component of share of profit after tax of
joint ventures and associates following management’s annual impairment review of the Group’s associate in India, Aviva Life Insurance
Company India Limited (Aviva India).
Aviva plc Annual report and accounts 2019
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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 2018
Additions
Disposals
Fair value gains
Foreign exchange rate movements
At 31 December 2018
Adjustment at 1 January for adoption of IFRS 161
At 1 January 2019 restated
Additions
Disposals
Fair value losses
Foreign exchange rate movements
At 31 December 2019
Depreciation and impairment
At 1 January 2018
Depreciation charge for the year
Disposals
Impairment charge
Foreign exchange rate movements
At 31 December 2018
Adjustment at 1 January for adoption of IFRS 161
At 1 January 2019 restated
Depreciation charge for the year
Disposals
Impairment charge
Foreign exchange rate movements
At 31 December 2019
Carrying amount
At 31 December 2018
At 31 December 2019
Less: Assets classified as held for sale
At 31 December 2019
Properties
under
construction
£m
Owner-
occupied
properties
£m
Motor vehicles
£m
Computer
equipment
£m
Other assets
£m
1
1
(2)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
340
21
(8)
3
3
359
1,149
1,508
53
(6)
(3)
(18)
1,534
(3)
—
—
—
—
(3)
(739)
(742)
(62)
1
(22)
—
(825)
356
709
(7)
702
3
1
—
—
—
4
—
4
—
—
—
—
4
(2)
(1)
—
—
—
(3)
—
(3)
—
—
—
—
(3)
1
1
—
1
155
24
(7)
—
3
175
—
175
19
(16)
—
(3)
175
(125)
(14)
6
—
(4)
(137)
—
(137)
(16)
16
—
2
(135)
38
40
—
40
265
40
(6)
—
7
306
—
306
12
(16)
—
(6)
296
(120)
(25)
2
—
(5)
(148)
—
(148)
(20)
15
—
4
(149)
158
147
(1)
146
Total
£m
764
87
(23)
3
13
844
1,149
1,993
84
(38)
(3)
(27)
2,009
(250)
(40)
8
—
(9)
(291)
(739)
(1,030)
(98)
32
(22)
6
(1,112)
553
897
(8)
889
1 The Group has adopted IFRS 16 Leases from 1 January 2019. In line with the transition options available, prior period comparatives have not been restated and the impact of the adoption has been shown as an adjustment to
opening property and equipment.
Owner-occupied properties, excluding £385 million held under lease arrangements, 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.
Owner-occupied properties held under lease arrangements are stated at amortised cost and are amortised on a straight-line basis over the
lease term. For further information on the Group’s lease arrangements see note 23.
If owner-occupied properties were stated on a historical cost basis, the carrying amount would be £431 million (2018: £364 million).
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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.
Carrying value
At 1 January
Acquisitions
Additions
Capitalised expenditure on existing properties
Fair value gains/(losses)
Disposals
Reclassification
Foreign exchange rate movements
At 31 December
Freehold
£m
Leasehold
£m
9,601
—
731
143
183
(1,036)
—
(243)
1,881
—
189
68
(90)
(200)
—
(24)
2019
Total
£m
11,482
—
920
211
93
(1,236)
—
(267)
9,379
1,824
11,203
Freehold
£m
Leasehold
£m
9,147
218
543
136
307
(713)
(82)
45
9,601
1,650
208
97
15
—
(177)
82
6
1,881
2018
Total
£m
10,797
426
640
151
307
(890)
—
51
11,482
See note 24 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 2019 was £10,931 million
(2018: £11,172 million). Future contractual aggregate minimum lease rentals receivable under the non-cancellable portion of these leases are
given in note 23.
23 – Lease assets and liabilities
From 1 January 2019 the Group has adopted IFRS 16 Leases, the standard which replaces IAS 17 Leases. Adoption of the standard has resulted
in assets previously held under operating leases (and their corresponding lease liabilities) being recognised on the statement of financial
position for the first time. Adoption of the standard resulted in the following assets and liabilities being included within the statement of
financial position for the first time at 1 January 2019:
• £410 million owner-occupied property assets, included within Property and equipment (see note 21);
• £24 million deferred tax assets; and
• £544 million lease liabilities, included within Payables and other financial liabilities (see note 54).
The Group’s leased assets primarily consist of properties occupied by Group companies carried at amortised cost (see note 21) and leasehold
investment properties carried at fair value (see note 22) which are sublet to third parties. Leasehold investment properties are measured in
accordance with IAS 40 Investment Property (see accounting policy Q) and there have been no changes to their classification or measurement
arising from the adoption of IFRS 16.
Although the Group is exposed to changes in the residual value at the end of the current leases to third parties on investment property, the
Group typically enters into new operating leases and therefore is not expected to immediately realise any reduction in residual value at the
end of these leases. Expectations about the future residual values are reflected in the fair value of the properties.
(i) The following amounts in respect of leased assets have been recognised in the Group’s consolidated income statement.
Interest expense on lease liabilities
Total lease expenses recognised in the income statement
2019
£m
14
14
Total cash outflows recognized in the period in relation to leases were £70 million. Expenses recognised in the Group consolidated income
statement in relation to short-term and low-value leases were £nil. Variable lease payments not included in the measurement of lease
liabilities were £nil.
(ii) The following table analyses the right-of-use assets relating to leased properties occupied by Group companies.
Balance at 1 January
Additions
Disposals
Foreign exchange rate movements
Depreciation
Balance at 31 December
2019
Total
£m
410
42
(1)
(4)
(62)
385
There were no gains arising from sale and leaseback transactions during the year. Included within the income statement is £2 million of
income in respect of sublets of right-of-use assets.
Aviva plc Annual report and accounts 2019
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Notes to the consolidated financial statements
Continued
23 – Lease assets and liabilities continued
(iii) Lease liabilities included within note 54 total £572 million. Future contractual aggregate minimum lease payments are as follows:
Within 1 year
Later than 1 year and not later than 5 years
Later than 5 years
2019
£m
89
296
237
622
The Group is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in the lease
liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and
adjusted against the right-of-use asset.
The lease agreements do no impose any covenants other than the security interest in the leased assets that are held by the lessor.
(iv) Future contractual aggregate minimum lease rentals receivable under non-cancellable operating leases are as follows:
Within 1 year
Between 1 and 2 years
Between 2 and 3 years
Between 3 and 4 years
Between 4 and 5 years
Later than 5 years
2019
£m
265
205
183
161
208
1,599
2,621
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Other information
Notes to the consolidated financial statements
Continued
24 – 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.
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Notes to the consolidated financial statements
Continued
24 – 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 16.8% (2018: 16.6%) of assets and 3.1% (2018: 3.4%) 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 2018 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.
2019
Carrying
amount
£m
Fair value
£m
Fair value
£m
Restated1
2018
Carrying
amount
£m
Financial assets
Loans (note 25(a))
Financial investments (note 28(a))
Fixed maturity securities2
Equity securities
Other investments (including derivatives)2
Financial liabilities
Non-participating investment contracts (note 45(a))
Net asset value attributable to unitholders
Borrowings (note 53(a))3
Derivative liabilities (note 61(b))
38,559
38,579
343,418 343,418
198,832 198,832
99,570
45,016
99,570
45,016
36,130
319,825
191,675
88,227
39,923
36,184
319,825
191,675
88,227
39,923
129,365 129,365
16,610
9,039
6,517
16,610
10,268
6,517
112,013
16,338
9,826
6,478
112,013
16,338
9,420
6,478
1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The review identified amounts presented within cash and cash
equivalents and other investments that are now presented as loans, fixed maturity securities and equity securities in the table above. The restatement has had no impact on the profit for the year or equity. See note 1a for further
information.
2 Following a review of the classification of financial assets, comparative amounts have been amended from those previously reported. The effect of this change is to reclassify £2,201 million of assets from fixed maturity securities
to other investments.
3 Within the fair value total, the estimated fair value has been provided for the portion of borrowings that are carried at amortised cost as disclosed in note 24 (h).
Fair value of the following assets and liabilities approximate to their carrying amounts:
• Receivables
• Cash and cash equivalents
• Loans at amortised cost
• 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.
Fixed maturity securities
Equity securities
Loans
Receivables
Cash and cash equivalents
Accrued income and Interest
Other financial assets
Total
2019
Restated1 2018
SPPI – Fair
value
£m
Non-SPPI –
fair value2
£m
—
—
9,580
5,799
15,344
272
5
199,481
99,826
28,980
3,265
4,960
1,924
51,930
SPPI –
Fair value
£m
273
—
9,859
5,609
11,249
193
10
Non-SPPI –
fair value2
£m
191,799
88,437
26,271
3,041
5,365
2,505
46,557
31,000 390,366
27,193
363,975
1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The review identified amounts presented within cash and cash
equivalents and other investments that are now presented as loans, fixed maturity securities and equity securities in the table above. The restatement has had no impact on the profit for the year or equity. See note 1a for further
information.
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.
2
There has been a £24 million increase (2018: £7 million decrease) in the fair value of SPPI instruments, and a £20,090 million
increase (2018: £23,645 million decrease) in the fair value of non-SPPI instruments during the reporting period.
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Notes to the consolidated financial statements
Continued
24 – 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.
2019
Recurring fair value measurements
Investment property (note 22)
Loans (note 25(a))
Financial investments measured at fair value (note 28(a))
Fixed maturity securities
Equity securities
Other investments (including derivatives)
Financial assets classified as held for sale
Total
Financial liabilities measured at fair value
Non-participating investment contracts1 (note 45(a))
Net asset value attributable to unit holders
Borrowings (note 53(a))
Derivative liabilities (note 61(b))
Financial liabilities 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
—
—
—
—
11,203
28,319
11,203
28,319
—
10,260
11,203
38,579
67,638 113,599
—
98,850
6,878
32,465
50
5,788
17,595 198,832
99,570
45,016
7,824
720
5,673
1,986
— 198,832
99,570
—
45,016
—
7,825
1
204,741 120,527
65,496 390,764
10,261 401,025
129,323
16,498
—
418
5,259
151,498
42
—
—
5,444
20
5,506
—
112
1,233
655
3,045
129,365
16,610
1,233
6,517
8,324
— 129,365
16,610
—
9,039
7,806
6,517
—
8,352
28
5,045 162,049
7,834 169,883
1
In addition to the balances in this table, included within reinsurance assets in the statement of financial position and note 47 are £4,006 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.
2019
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
—
—
—
—
320
320
320
320
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 2019 was £320 million (2018: £352 million), stated at their revalued amounts in line with the requirements of IAS 16 Property,
Plant and Equipment.
The disclosure above relates to those owner-occupied properties which have been measured at fair value. Owner-occupied properties held
under lease arrangements are stated at amortised cost and are amortised on a straight-line basis over the lease term. For further information
on the Group’s lease arrangements see note 23.
Restated1 2018
Recurring fair value measurements
Investment property (note 22)
Loans (note 25(a))
Financial investments measured at fair value (note 28(a))
Fixed maturity securities2
Equity securities
Other investments (including derivatives)2
Financial assets classified as held for sale
Total
Financial liabilities measured at fair value
Non-participating investment contracts3 (note 45(a))
Net asset value attributable to unit holders
Borrowings (note 53(a))
Derivative liabilities (note 61(b))
Financial liabilities 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
—
10,658
11,482
36,184
65,996
87,813
29,971
5,240
109,176
—
4,770
19
16,503
414
5,182
1,992
191,675
88,227
39,923
7,251
—
—
—
—
191,675
88,227
39,923
7,251
189,020
114,483
60,581
364,084
10,658
374,742
111,966
16,313
—
466
5,241
133,986
47
—
—
5,478
—
5,525
—
25
1,225
534
3,100
112,013
16,338
1,225
6,478
8,341
—
—
8,195
—
—
112,013
16,338
9,420
6,478
8,341
4,884
144,395
8,195
152,590
1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The review identified amounts presented within cash and cash
equivalents and other investments that are now presented as loans, fixed maturity securities and equity securities in the table above. The restatement has had no impact on the profit for the year or equity. See note 1a for further
information.
2 Following a review of the classification of financial assets, comparative amounts have been restated from those previously reported. The effect of this change is to reclassify £2,201 million of assets from fixed maturity securities
3
to other investments and £3,734 million of assets from fair value hierarchy level 2 to level 1.
In addition to the balances in this table, included within reinsurance assets in the statement of financial position and note 47 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
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Notes to the consolidated financial statements
Continued
24 – Fair value methodology continued
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
(e) Valuation approach for fair value assets and liabilities classified as Level 2
Please see note 24(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 2 during the year.
Transfers to/from Level 3
£1.5 billion of assets transferred into Level 3 and £1.2 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.
2019
Opening balance at 1 January 2019
Total net gains/(losses) recognised in
the income statement1
Purchases
Issuances
Disposals
Settlements
Transfers into Level 3
Transfers out of Level 3
Foreign exchange rate movements
Investment
Property
£m
Loans
£m
Fixed
maturity
securities
£m
Equity
securities
£m
Other
investments
(including
derivatives)
£m
Financial
assets
classified as
held for sale
£m
Non
participating
investment
contracts
£m
Assets
Net asset
value
attributable
to
unitholders
£m
Derivative
liabilities
£m
Borrowings
£m
Liabilities
Financial
liabilities
classified as
held for sale
£m
11,482 25,008
16,503
414
5,182
1,992
—
(25)
(534)
(1,225)
(3,100)
151
1,131
—
(1,294)
—
—
—
(267)
844
3,461
190
(1,170)
—
—
—
(14)
505
2,090
12
(1,454)
(50)
1,449
(919)
(541)
(66)
427
—
(39)
—
1
—
(17)
720
6
1,350
—
(532)
—
—
(142)
(191)
134
185
—
(262)
—
49
(112)
—
—
(100)
—
100
—
—
—
—
—
(56)
—
(31)
—
—
—
—
(86)
(128)
—
88
—
—
—
5
(52)
—
—
44
—
—
—
—
(134)
(134)
—
261
—
(49)
111
—
5,673
1,986
—
(112)
(655)
(1,233)
(3,045)
Balance at 31 December 2019
11,203 28,319
17,595
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
24 – Fair value methodology continued
2018
Opening balance at 1 January 2018
Total net gains/(losses) recognised in
the income statement1
Purchases
Issuances
Disposals
Settlements2
Transfers into Level 3
Transfers out of Level 3
Foreign exchange rate movements
Investment
Property
£m
Fixed maturity
securities
£m
Loans
£m
Equity
securities
£m
Other
investments
(including
derivatives)
£m
Assets
Financial
assets
classified as
held for sale
£m
Non
participating
investment
contracts
£m
Net asset
value
attributable to
unitholders
£m
Liabilities
Financial
liabilities
classified as
held for sale
£m
Derivative
liabilities
£m
Borrowings
£m
10,797
23,949
14,100
776
3,900
2,093
—
(13)
(358)
(1,180)
(3,306)
376
1,185
—
(927)
—
—
—
51
(530)
3,451
200
(2,065)
—
—
—
3
(363)
3,137
—
(1,221)
—
1,242
(503)
111
(102)
189
—
(544)
—
95
(2)
2
414
(69)
1,799
—
(554)
—
77
—
29
5,182
(73)
201
—
(191)
—
20
(58)
—
1,992
—
(108)
—
108
—
—
—
—
—
—
—
—
(12)
—
—
—
—
(25)
(136)
(59)
—
20
—
—
—
(1)
(534)
(81)
—
—
36
—
—
—
—
74
(95)
—
189
—
(20)
58
—
(1,225)
(3,100)
Balance at 31 December 2018
11,482
25,008
16,503
1 Total net gains/(losses) recognised in the income statement includes realised gains/(losses) on disposals.
2 Following a review of the classification of financial assets, comparative amounts have been restated from those previously reported. The effect of the change is to classify £2,201 million of assetsfrom fixed maturity securities to
other investments.
Total net gains recognised in the income statement in the year ended 31 December 2019 in respect of Level 3 assets measured at fair value
amounted to £1,574 million (2018: net losses of £761 million) with net losses in respect of liabilities of £272 million (2018: net losses of
£143 million). Net gains of £1,427 million (2018: net losses of £529 million) attributable to assets and net losses of £271 million (2018: net losses
of £178 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 80 bps (2018: 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 2019 the illiquidity premium used in the discount rate was 160 bps (2018: 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 4.0% pa at 31 December 2019 (2018: 4.3%). After applying the cost of capital charge,
dilapidations and the stochastic distribution, the effective net long-term growth rate equates to 0.5% pa (2018: 0.6%).
• 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.
(iii) Fixed maturity securities
• Structured bond-type and non-standard debt products held by our business in France 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 include 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.
• Non-standard debt products and privately placed bonds held by our businesses in the UK do not trade in an active market. These debt
securities are valued using discounted cash flow models, designed to appropriately reflect the credit and illiquidity risk of the instrument.
These bonds have been classified as Level 3 because the valuation approach includes significant unobservable inputs and an element of
subjectivity in determining appropriate credit and illiquidity spreads.
• Debt securities held by our French and Asian 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.
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Notes to the consolidated financial statements
Continued
24 – Fair value methodology continued
(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 £1,404 million (2018: £1,398 million) and debt securities which are not traded in an active market and have been valued using third party
or counterparty valuations of £401 million (2018: £360 million). These assets are included within the relevant asset category within the
sensitivity table below.
(vii) Liabilities
The principal liabilities classified as Level 3, and the valuation techniques applied to them, are:
• £3,045 million (2018: £3,100 million) 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 tables below show the sensitivity of the fair value of Level 3 assets and liabilities to changes in unobservable inputs to a reasonable
alternative:
Investment property
Loans
Commercial mortgage loans and Primary Healthcare loans
Equity release mortgage loans
Infrastructure and Private Finance Initiative (PFI) loans
Other
Fixed maturity 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.
Sensitivities
Positive
Impact
£bn
Negative
Impact
£bn
Reasonable alternative
+/- 5-10%
0.9
(0.9)
+/- 20 bps
+/- 10%
+/- 10%
+/- 25 bps1
+/- 25 bps1
Most significant unobservable input
Equivalent rental yields
Illiquidity premium
Base property growth rate
Current property market values
Illiquidity premium
Illiquidity premium
2019
Fair value
£bn
11.2
12.9
11.0
4.0
0.4
6.4
1.7
9.9
0.8
Market spread (credit, liquidity and other)
Credit spreads
Credit and liquidity spreads
+/- 25 bps
+/- 25 bps1
+/- 20-25 bps
Market spread (credit, liquidity and other)
+/- 25 bps
0.8
6.4
Market multiples applied to net asset values
Market multiples applied to net asset values
+/- 15-20%
+/- 10-40%2
(3.0) Fair value of the underlying unit funds
(1.2) Illiquidity premium
(0.8) Independent valuation vs counterparty
+/- 20-25%
+/- 50 bps
N/A
60.5
0.2
0.3
0.2
0.2
—
0.1
0.1
0.5
—
0.1
0.8
0.4
—
—
3.8
(0.2)
(0.4)
(0.2)
(0.2)
—
(0.1)
(0.1)
(0.5)
(0.1)
(0.1)
(0.6)
(0.4)
—
—
(3.8)
Aviva plc Annual report and accounts 2019
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
24 – Fair value methodology continued
Investment property
Loans
Commercial mortgage loans and Primary Healthcare loans
Equity release mortgage loans
Infrastructure and Private Finance Initiative (PFI) loans
Other
Fixed maturity securities
Structured bond-type and non-standard debt products
Privately placed notes
Other debt securities4
Equity securities
Other investments
Property Funds
Other investments (including derivatives)4
Liabilities
Non-participating investment contract liabilities
Borrowings
Other liabilities (including derivatives)
2018
Fair value
£bn
11.6
Most significant unobservable input
Equivalent rental yields
Reasonable alternative
Sensitivities
Positive
Impact
£bn
Negative
Impact
£bn
+/- 5-10%
0.9
(0.9)
11.5
9.7
3.4
0.4
Illiquidity premium
Base property growth rate3
Current property market values
Illiquidity premium
Illiquidity premium
+/- 20 bps
+/- 10%
+/- 10%
+/- 25 bps1
+/- 25 bps1
6.6
1.6
8.7
Market spread (credit, liquidity and other)
Credit spreads
Credit and liquidity spreads
+/- 25 bps
+/- 25 bps1
+/- 20-25 bps
0.3
Market spread (credit, liquidity and other)
+/- 25 bps
0.8
6.0
Market multiples applied to net asset values
Market multiples applied to net asset values
+/- 15-20%
+/- 10-40%2
(3.1) Fair value of the underlying unit funds
(1.2) Illiquidity premium
(0.6) Independent valuation vs counterparty
+/- 20-25%
+/- 50 bps
N/A
0.2
0.3
0.3
0.1
—
0.1
0.1
0.4
—
0.1
0.7
0.4
—
—
3.6
(0.2)
(0.3)
(0.4)
(0.1)
—
(0.1)
—
(0.4)
—
(0.1)
(0.6)
(0.4)
—
—
(3.5)
Total Level 3 investments
55.7
1 On discount spreads.
2 Dependent on investment category.
3 Following a review of the sensitivities of equity release mortgage loans to base property growth rates, the 2018 comparative amounts have been restated from those previously reported.
4 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The restatement has had no impact on the profit for the year or equity.
See note 1(a) for further information.
The above tables demonstrate 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.
(h) 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 liabilities not carried at fair value.
2019
Liabilities not carried at fair value
Borrowings
2018
Liabilities not carried at fair value
Borrowings
As recognised
in the
consolidated
statement of
financial
position line
item
£m
Notes
Fair value hierarchy
Level 1
£m
Level 2
£m
Level 3
£m
Total fair
value
£m
53(a)
7,834
8,583
235
217
9,035
Fair value hierarchy
As recognised
in the
consolidated
statement of
financial
position line
item
£m
Notes
Level 1
£m
Level 2
£m
Level 3
£m
Total fair value
£m
53(a)
8,195
7,979
213
409
8,601
Aviva plc Annual report and accounts 2019
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Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
25 – 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 2019 and 2018 were as follows:
Policy loans
Loans to banks
Healthcare, infrastructure and PFI other loans
UK securitised mortgage loans (see note 26)
Non-securitised mortgage loans
Other loans
Total
Less: Assets classified as held for sale
At fair value
through profit
or loss other
than trading
£m
At amortised
cost
£m
1
302
6,467
2,432
19,117
—
684
8,528
—
—
—
1,049
2019
Total
£m
685
8,830
6,467
2,432
19,117
1,049
At fair value
through profit
or loss other
than trading
£m
At amortised
cost
£m
1
303
5,358
2,437
17,427
—
769
9,019
—
—
—
870
Restated1
2018
Total
£m
770
9,322
5,358
2,437
17,427
870
28,319
10,261
38,580
25,526
10,658
36,184
—
(1)
(1)
—
—
—
28,319
10,260
38,579
25,526
10,658
36,184
1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The review identified amounts presented within cash and cash
equivalents that are now presented as loans to banks carried at amortised cost in the table above. The restatement has had no impact on the profit for the year or equity. See note 1(a) for further information.
Of the above total loans, £28,938 million (2018: £26,696 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 24(g).
The cumulative change in fair value of loans attributable to changes in credit risk to 31 December 2019 was a £1,224 million loss
(2018: £1,304 million loss).
Non-securitised mortgage loans include £8,558 million (2018: £7,315 million) of residential equity release mortgages, £7,681 million
(2018: £7,283 million) of commercial mortgages and £2,878 million (2018: £2,829 million) 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 £6,467 million (2018: £5,358 million) are secured against the income from healthcare and
educational premises.
Loans at amortised cost
The carrying amount of these loans at both 31 December 2019 and 31 December 2018 was a reasonable approximation for their fair value.
(b) Analysis of loans carried at amortised cost
Policy loans
Loans to banks
Non-securitised mortgage loans
Other loans
Total
Amortised
Cost
£m
684
8,528
12
1,050
10,274
Impairment
£m
—
—
(12)
(1)
(13)
2019
Carrying
Value
£m
684
8,528
—
1,049
Amortised
Cost
£m
769
9,019
9
871
Impairment
£m
—
—
(9)
(1)
Restated1
2018
Carrying
Value
£m
769
9,019
—
870
10,261
10,668
(10)
10,658
1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The review identified amounts presented within cash and cash
equivalents that are now presented as loans to banks carried at amortised cost in the table above. The restatement has had no impact on the profit for the year or equity. See note 1(a) for further information.
The movements in the impairment provisions on these loans for the years ended 31 December 2019 and 2018 were as follows:
At 1 January
Increase during the year
Foreign exchange rate movements
At 31 December
2019
£m
(10)
(4)
1
(13)
2018
£m
(9)
(1)
—
(10)
Aviva plc Annual report and accounts 2019
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Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
25 – Loans continued
(c) Collateral
Loans to banks include cash collateral received under stock lending arrangements (see note 62 for further discussion regarding these
collateral positions). The obligation to repay this collateral is included in payables and other financial liabilities (see note 54).
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.
26 – 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 £224 million (2018: £239 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 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 25) 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 53(c)(i))
2019
Securitised
assets
£m
Securitised
liabilities
£m
Securitised
assets
£m
2,432
282
2,714
(1,457)
(1,257)
(2,714)
2,437
266
2,703
2018
Securitised
liabilities
£m
(1,464)
(1,239)
(2,703)
2019
£m
1,457
(224)
1,233
2018
£m
1,464
(239)
1,225
Aviva plc Annual report and accounts 2019
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Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
27 – 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 2019 the Group has granted loans to consolidated PLPs for a total of £64 million (2018: £84 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 £57 million (2018: £51 million). The Group has no
commitments to provide funding to consolidated structured entities (2018: £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 26, 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 26 for details of
securitised mortgages and related assets as at 31 December 2019.
As at the reporting date, the Group has no intentions to provide financial or other support in relation to any other investment vehicles.
(b) Interests in unconsolidated structured entities
As part of its investment activities, the Group invests in unconsolidated structured entities. As at 31 December 2019, the Group’s total interest
in unconsolidated structured entities was £58,519 million (2018 restated: £53,617 million) 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 2019, a summary of the Group’s interest in unconsolidated structured entities is as follows:
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
2019
£m
Restated1
2018
£m
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
—
792
—
792
—
—
792
—
4,746
209 44,669
—
4,746
— 45,670
— 41,836
2,395
438
—
209
—
—
— 41,836
3,396
—
438
—
8,103
8,103
209 49,415
8,103 58,519
—
797
—
797
—
—
797
—
217
—
217
—
—
217
Financial
investments
4,662
41,055
38,604
1,975
476
—
45,717
Loans
Total
assets
—
—
4,662
42,069
—
—
—
6,886
38,604
2,989
476
6,886
6,886
53,617
1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The review identified amounts presented as unit trusts and other
investment vehicles that are either now presented as structured debt securities or which are no longer presented as unconsolidated structured entities in the table above. The restatement has had no impact on the profit for the
year or equity. See note 1(a) for further information.
2 Primarily reported within ‘other debt securities’ in note 28(a).
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 £58,519 million (2018 restated:
£53,617 million).
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.
Aviva plc Annual report and accounts 2019
179
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
27 – Interests in structured entities continued
In relation to risk management, disclosures on debt securities and investment vehicles are given in note 60(b)(ii) ‘Risk management’. In
relation to other guarantees and commitments that the Group provides in the course of its business, please see note 56(f) ‘Contingent
liabilities and other risk factors’.
Aviva’s interest in unconsolidated structured entities that it also manages at 31 December 2019 is £1,919 million (2018: £2,146 million) and the
total funds under management relating to these investments at 31 December 2019 is £15,454 million (2018: £16,794 million).
(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
Total
1 Investment funds relate primarily to the Group’s Polish pension funds.
2019
Investment
Management
Fees
£m
Assets Under
Management
£m
6,885
3,108
33
3,075
9,993
32
10
—
10
42
2018
Investment
Management
Fees
£m
38
6
1
5
44
Assets Under
Management
£m
7,473
3,541
944
2,597
11,014
Aviva plc Annual report and accounts 2019
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Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
28 – 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 securities2
Debt securities
UK government
UK local authorities
Non-UK government (note 28(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 companies
Industrial miscellaneous and all other
Non-redeemable preference shares
At fair value through
profit or loss
2019
At fair value through
profit or loss
Restated1
2018
Trading
£m
Other than
trading
£m
Available
for sale
£m
Total
£m
Trading
£m
Other than
trading
£m
Available
for sale
£m
Total
£m
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
27,044
202
60,569
10,252
77,999
35
7,378
—
—
1,133
14
308
6
—
27,044
202
61,702
10,266
78,307
41
7,378
183,479
14,541
1,461 184,940
14,541
—
198,020
1,461 199,481
2,883
20,635
76,082
99,600
211
99,811
41,835
—
169
2,395
437
—
—
1
14
15
—
15
1
—
—
—
—
1
2
2,883
20,636
76,096
99,615
211
99,826
41,836
7,097
169
2,395
437
1
51,935
7,097
44,836
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5,357
—
—
—
—
5,357
29,203
191
55,168
10,573
74,110
270
6,710
176,225
14,167
190,392
2,369
19,742
66,129
88,240
196
88,436
38,603
—
155
1,975
475
1
41,209
—
—
1,287
17
291
—
—
29,203
191
56,455
10,590
74,401
270
6,710
1,595
85
177,820
14,252
1,680
192,072
—
1
—
1
—
1
1
—
—
—
—
—
1
2,369
19,743
66,129
88,241
196
88,437
38,604
5,357
155
1,975
475
1
46,567
Other investments2
Unit trusts and other investment vehicles
Derivative financial instruments (note 61)
Deposits with credit institutions
Minority holdings in property management undertakings
Other investments – long-term
Other investments – short-term
—
7,097
—
—
—
—
Total financial investments
Less: Assets classified as held for sale
Fixed maturity securities
Equity securities
Other investments
7,097 342,667
1,478 351,242
5,357
320,037
1,682
327,076
—
—
—
—
(649)
(256)
(6,919)
(7,824)
—
—
—
—
(649)
(256)
(6,919)
(7,824)
—
—
—
—
(397)
(210)
(6,644)
(7,251)
—
—
—
—
(397)
(210)
(6,644)
(7,251)
7,097 334,843
1,478 343,418
5,357
312,786
1,682
319,825
1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The review identified amounts presented within cash and cash
equivalents and other investments that are now presented as fixed maturity securities and equity securities in the table above. The restatement has had no impact on the profit for the year or equity. See note 1(a) for further
information.
2 Following a review of the classification of financial assets, comparative amounts have been amended from those previously reported. The effect of this change is to reclassify £2,201 million of assets from fixed maturity securities
to other investments.
Of the above total, £172,649 million (2018 restated: £154,746 million) is due to be recovered in more than one year after the statement of
financial position date.
Other debt securities of £7,378 million (2018 restated: £6,710 million) include residential and commercial mortgage-backed securities, as well
as other structured credit securities.
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
28 – 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 securities2
Equity securities
Other investments2
2019
Cost/
amortised cost
£m
186,753
87,436
Unrealised
gains
£m
20,040
16,835
Unrealised
losses and
impairments
£m
Fair value
£m
Cost/
amortised cost
£m
(7,312) 199,481
99,826
(4,445)
184,934
87,007
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
34,872
3,413
169
2,226
404
1
7,648
4,517
—
259
63
—
(684)
(833)
—
(90)
(30)
—
41,836
7,097
169
2,395
437
1
33,093
1,547
155
1,784
473
1
Restated1
2018
Fair value
£m
Unrealised
losses and
impairments
£m
(8,595)
(7,909)
192,072
88,437
(4,692)
(1,132)
—
(50)
(31)
—
38,604
5,357
155
1,975
475
1
Unrealised
gains
£m
15,733
9,339
10,203
4,942
—
241
33
—
These are further analysed as follows:
At fair value through profit or loss
Available for sale
315,274
49,362
(13,394) 351,242
308,994
40,491
(22,409)
327,076
313,893
1,381
49,264
98
(13,393) 349,764
1,478
(1)
307,392
1,602
40,406
85
(22,404)
(5)
325,394
1,682
315,274
49,362
(13,394) 351,242
308,994
40,491
(22,409)
327,076
1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The review identified amounts presented within cash and cash
equivalents and other investments that are now presented as fixed maturity securities and equity securities in the table above. The restatement has had no impact on the profit for the year or equity. See note 1(a) for further
information.
2 Following a review of the classification of financial assets, comparative amounts have been amended from those previously reported. The effect of this change is to reclassify £2,201 million of assets from fixed maturity securities
to other investments.
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 gain of £18,398 million (2018 restated: £29,885 million net loss). Of this net gain, £17,920 million net gain (2018 restated:
£28,801 million net loss) related to investments designated as other than trading and £478 million net gain (2018 restated: £1,084 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 62 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 2019, £2,472 million (2018: £2,313 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 2019
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
28 – 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 2019, analysed by policyholder, participating and
shareholder funds.
Policyholder
Participating
Shareholder
Non-UK Government debt securities
Austria
Belgium
France
Germany
Greece
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
2019
£m
66
166
698
305
1
75
801
53
674
71
627
512
553
4,602
93
1,672
1,765
12
2,932
2,944
9,311
Restated1
2018
£m
21
53
426
212
1
55
379
53
727
73
251
226
444
2,921
27
688
715
5
2,072
2,077
5,713
2019
£m
434
877
14,537
1,795
—
774
10,849
562
655
175
688
1,837
944
34,127
111
524
635
784
3,862
4,646
Restated1
2018
£m
590
905
14,464
1,831
1
920
9,848
637
715
215
776
1,770
1,595
34,267
120
250
370
658
3,331
3,989
2019
£m
215
336
1,878
455
—
389
194
318
581
160
229
1,968
1,051
7,774
3,143
1,021
4,164
374
671
Restated1
2018
£m
167
268
2,036
490
—
138
772
340
541
—
94
1,763
652
7,261
2,947
737
3,684
342
829
1,045
1,171
2019
£m
715
1,379
17,113
2,555
1
1,238
11,844
933
1,910
406
1,544
4,317
2,548
46,503
3,347
3,217
6,564
1,170
7,465
8,635
Total
Restated1
2018
£m
778
1,226
16,926
2,533
2
1,113
10,999
1,030
1,983
288
1,121
3,759
2,691
44,449
3,094
1,675
4,769
1,005
6,232
7,237
39,408
38,626
12,983
12,116
61,702
56,455
Less: Assets classified as held for sale
(23)
(9)
—
—
(93)
(1)
(116)
(10)
Total
9,288
5,704
39,408
38,626
12,890
12,115
61,586
56,445
1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The review identified amounts presented within cash and cash
equivalents and other investments that are now presented as Non-UK Government debt securities in the table above. The restatement has had no impact on the profit for the year or equity. See note 1(a) for further information.
At 31 December 2019, the Group’s total government (non-UK) debt securities stood at £61,702 million (2018 restated: £56,455 million). 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 £12,983 million (2018 restated: £12,116 million).
The primary exposures, relative to total shareholder (non-UK) government debt exposure, are to Canadian (24%), French (14%), US (8%),
Polish (4%), German (4%) and Irish (3%) government debt securities.
The participating funds exposure to (non-UK) government debt amounts to £39,408 million (2018 restated: £38,626 million). 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 (37%), Italy (28%), Germany (5%), Belgium (2%), Singapore (2%) and Ireland (2%).
Aviva plc Annual report and accounts 2019
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
29 – 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: Assets classified as held for sale
Expected to be recovered in less than one year
Expected to be recovered in more than one year
2019
£m
2,187
1,379
68
347
274
2,786
812
1,211
9,064
(69)
8,995
9,032
32
9,064
Restated1
2018
£m
2,142
1,318
93
311
181
2,752
741
1,112
8,650
(11)
8,639
8,615
35
8,650
1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The restatement has had no impact on the profit for the year or equity.
See note 1(a) for further information.
Exposure to significant concentrations of credit risk is limited due to the regulations applicable in most markets and the Group credit policy
and limits framework, which limits investments in individual assets and asset classes.
Aviva plc Annual report and accounts 2019
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
30 – 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
Total
Less: Classified as held for sale
2019
£m
2018
£m
993
1,141
116
1,108
3,358
(202)
3,156
931
1,088
101
1,036
3,156
(191)
2,965
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, £1,751 million (2018: £1,879 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:
2019
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: Classified as held for sale
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: 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
931
248
(149)
(16)
—
(20)
(1)
993
—
993
101
13
2
4
—
(4)
—
116
—
116
1,036
174
(90)
—
—
(9)
(3)
1,108
(202)
906
1,088
2,543
(2,482)
—
—
(8)
—
1,141
—
1,141
—
—
—
—
—
—
—
—
—
—
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
3,156
2,978
(2,719)
(12)
—
(41)
(4)
3,358
(202)
3,156
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 was analysed resulting in a transfer of £62 million from insurance contracts to participating investment contracts.
DAC for long-term business increased over 2019 mainly due to new business sales across the UK and European markets. DAC for general
insurance and health business increased over 2019 mainly due to business growth in the UK and Canada.
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 £29 million
(2018: £40 million) if market yields on fixed income investments were to increase by 1% and increase profit by £36 million (2018: £39 million) if
yields were to reduce by 1%.
At both 31 December 2019 and 31 December 2018 the DAC balance has been restricted by the value of projected future profits.
Aviva plc Annual report and accounts 2019
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Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
31 – 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 52(a))
Other assets
Total
2019
£m
2,746
53
2,799
2018
£m
3,256
85
3,341
Surpluses in the staff pension schemes and £1 million (2018: £1 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 £3,151 million (2018 restated: £3,153 million) include assets classified as held for sale of £8 million
(2018: £4 million) and £30 million (2018: £9 million) that is expected to be recovered more than one year after the statement of financial position
date.
32 – Assets held to cover linked liabilities
The assets which back unit-linked liabilities are included within the relevant balances in the 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
Fixed maturity securities2
Equity securities
Reinsurance assets
Cash and cash equivalents
Units trusts and other investment vehicles2
Other
Total
Less: Assets classified as held for sale
2019
£m
2,111
42,350
83,035
4,003
8,353
37,822
8,508
Restated1
2018
£m
2,008
37,181
73,229
4,099
7,571
32,392
8,378
186,182
164,858
(8,170)
(7,784)
178,012
157,074
1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The review identified amounts presented within cash and cash
equivalents and other investments that are now presented as loans, fixed maturity securities and equity securities in the table above. The restatement has had no impact on the profit for the year or equity. See note 1(a) for
further information.
2 Following a review of the classification of financial assets, comparative amounts have been amended from those previously reported. The effect of this change is to reclassify £1,444 million of assets from other investments to
fixed maturity securities.
The reinsurance assets balance in the table above includes £4,006 million (2018: £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.
Aviva plc Annual report and accounts 2019
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Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
33 – 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 2019 was: 3,921,129,145 (2018: 3,902,352,211)
ordinary shares of 25 pence each
At the 2019 Annual General Meeting, the Company was authorised to allot up to a further maximum nominal amount of:
• £652,537,894 of which £326,268,947 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 2019, a total of 18,776,934 were allotted and issued by the Company as follows:
2019
£m
2018
£m
980
975
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
3,902,352,211
18,776,934
—
3,921,129,145
Capital
redemption
reserve
£m
2019
Share
premium
£m
Number of shares
Share
capital
£m
Capital
redemption
reserve
£m
44
—
—
44
1,214
4,012,682,691
1,003
25
—
9,160,708
(119,491,188)
1,239
3,902,352,211
2
(30)
975
14
—
30
44
Share
capital
£m
975
5
—
980
2018
Share
premium
£m
1,207
7
—
1,214
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 40).
Aviva plc Annual report and accounts 2019
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
34 – 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
The following table summarises information about options outstanding at 31 December 2019:
Range of exercise prices
£2.66 – £3.16
£3.17 – £3.67
£3.68 – £4.19
The comparative figures as at 31 December 2018 were:
Range of exercise prices
£2.66 – £3.16
£3.17 – £3.67
£3.68 – £4.19
Outstanding
options
Number
26,589,056
5,066,836
7,634,402
Outstanding
options
Number
420,791
10,944,996
17,292,239
Weighted average
remaining
contractual life
Years
3
1
1
Weighted average
remaining
contractual life
Years
1
2
2
Weighted average
exercise price
p
284.00
351.00
395.52
Weighted average
exercise price
p
296.80
351.00
392.43
Aviva plc Annual report and accounts 2019
188
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Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
34 – Group’s share plans continued
(c) Movements in the year
A summary of the status of the option and share plans as at 31 December 2018 and 2019, and changes during the years ended on those dates,
is shown below.
Outstanding at 1 January
Granted during the year
Exercised/ released during the year
Forfeited during the year
Cancelled during the year
Expired during the year
Outstanding at 31 December
Exercisable at 31 December
2019
2018
Number of options
28,658,026
26,798,392
(7,340,420)
(8,112,308)
(240,979)
(472,417)
39,290,294
7,100,956
Weighted average
exercise price
p
375.13
284.00
359.44
382.94
372.02
379.66
314.31
370.06
Number of awards
Number of options
40,574,481
17,713,898
(12,308,712)
(10,557,632)
—
—
25,096,578
8,139,367
(2,111,514)
(1,855,638)
(495,646)
(115,121)
35,442,035
28,658,026
—
3,457,732
Weighted average
exercise price
p
370.81
387.00
361.96
385.00
364.93
381.97
375.20
369.88
Number of awards
39,524,150
16,213,056
(7,653,460)
(7,509,266)
—
—
40,574,481
—
(d) Expense charged to the income statement
The total expense recognised for the year arising from equity compensation plans was as follows:
Equity-settled expense
Total (note 11(b))
2019
£m
62
62
2018
£m
64
64
(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 £0.50 and £3.86 (2018: £0.78 and £4.84) 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
2019
2018
394p
284p
20.22%
480p
387p
24.85%
3.80 years 3.67 years
5.88%
1.05%
7.68%
0.23%
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. 7,340,420 options granted after
7 November 2002 were exercised during the year (2018: 2,111,514).
(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 yield
Risk-free interest rate1
1 For awards with market-based performance conditions only.
2019
2018
405p
23%
23%
53%
500p
25%
25%
64%
2.77 years 2.64 years
0.00%
0.80%
0.00%
0.63%
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.
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
35 – Treasury shares
The following table summarises information about treasury shares at 31 December 2019:
Shares held by employee trusts
Shares held by subsidiary companies
Number
1,714,288
—
1,714,288
2019
£m
Number
455,986
7
— 2,435,983
7 2,891,969
2018
£m
2
13
15
(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
2019
£m
Number
455,986
2,165,032
(906,730)
1,714,288
2
9
(4)
7
295,906
765,582
(605,502)
455,986
2018
£m
1
4
(3)
2
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 34.
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 2019, they had an aggregate nominal value of £428,572 (2018: £113,997) and a market value of £7,177,724 (2018: £1,712,227).
The trustees have waived their rights to dividends on the shares held in the trusts.
(b) Shares held by subsidiary companies
At 31 December 2019, the balance of shares held by subsidiary companies of nil (2018: 2,435,983 shares) had an aggregate nominal value of
£nil (2018: £608,996) and a market value of £nil (2018: £9,148,336).
36 – 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
2019
£m
100
100
200
2018
£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 2019, the fair value of Aviva plc’s preference share capital was £299 million (2018: £264 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 were non-
recurrent and were 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.
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
37 – 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
2019
£m
500
—
500
2018
£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. These had no fixed redemption date, however, on 17 October 2019 notification was given that the
Group would redeem the tier one notes at the first call date on 21 November 2019. On the notification date the instruments were reclassified
as a financial liability of £210 million, representing the fair value and redemption cost at that date. The resulting difference of £21 million
between the carrying amount of £231 million and fair value of £210 million has been charged to retained earnings. The instruments were
cancelled on 25 November 2019.
The Company has the option to defer coupon payments on the DCI on any relevant payment date. Deferred coupons shall only be satisfied
should the Company exercise its sole option to redeem the instruments.
No interest will accrue on any deferred coupon on the DCI. Deferred coupons on the DCI 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 2019 the fair value of the DCI was £514 million (2018 DCI: £506 million, STICS: £216 million).
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
38 – 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 2019 is £8,974 million (2018: £8,974 million).
39 – 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:
Other reserves
Balance at 1 January 2018
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
Balance at 31 December 2018
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
Transfers to non-controlling interests
Changes in non-controlling interests in subsidiaries
Reserves credit for equity compensation plans
Shares issued under equity compensation plans
Balance at 31 December 2019
Currency
translation
reserve (see
accounting
policy E)
£m
Owner
occupied
properties
reserve (see
accounting
policy P)
£m
1,141
26
—
—
—
27
1
28
—
(40)
(7)
—
—
1
—
—
—
—
1
—
—
—
—
—
1,122
27
—
—
—
(318)
10
(308)
—
—
—
—
—
—
814
3
—
—
—
(1)
2
—
—
—
—
—
—
29
Investment
valuation
reserve (see
accounting
policy T)
£m
Hedging
instruments
reserve (see
accounting
policy U)
£m
Equity
compensation
reserve (see
accounting
policy AB)
£m
(476)
111
—
—
—
(27)
—
(27)
—
37
—
—
—
—
—
—
—
—
—
—
—
—
64
(55)
Total
£m
(274)
58
(78)
(10)
(27)
7
(50)
—
36
—
64
(55)
(466)
120
(279)
—
—
—
138
—
138
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
62
(62)
42
(19)
22
138
(5)
178
—
—
—
—
62
(62)
(328)
120
(101)
65
57
(78)
(10)
—
7
(24)
—
(1)
—
—
—
40
39
(19)
22
—
(4)
38
—
—
—
—
—
—
78
1 Foreign exchange rate movements recorded in the consolidated statement of comprehensive income of £(219) million (2018: £5 million) relate to the currency translation reserve of £(318) million (2018: £27 million), the hedging
instrument reserve of £138 million (2018: £(27) million) and non-controlling interests (see note 41) of £(39) million (2018: £5 million).
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
40 – Retained earnings
This note analyses the movements in the consolidated retained earnings during the year.
Balance at 1 January
Adjustment at 1 January for adoption of IFRS 16
Balance at 1 January restated
Profit for the year attributable to equity shareholders
Remeasurements of pension schemes1 (note 52)
Dividends and appropriations (note 16)
Shares purchased in buy-back (note 33)
Net shares issued under equity compensation plans
Effect of changes in non-controlling interests in existing subsidiaries
Forfeited dividend income2
Change in equity accounted option
Reclassification of tier 1 notes to financial liabilities3 (note 37)
Aggregate tax effect
Balance at 31 December
2019
£m
4,523
(110)
4,413
2,548
(867)
(1,244)
—
55
—
4
22
21
113
5,065
2018
£m
4,918
—
4,918
1,568
(279)
(1,189)
(600)
49
1
4
—
—
51
4,523
1 Net remeasurements of pension schemes recorded in the consolidated statement of comprehensive income of £867 million loss (2018: £279 million loss) includes £867 million of remeasurement losses (2018: £280 million losses)
on the main pension schemes (see note 52) 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.
3 On 17 October 2019, notification was given that the Group would redeem the 6.875% £210 million tier 1 notes. At that date, the instrument was reclassified as a financial liability of £210 million, representing its fair value at that
date. On 21 November 2019 the instrument was redeemed in full at a cost of £210 million. The difference of £21 million between its carrying amount of £231 million and fair value of £210 million has been charged to retained
earnings. See note 37 for further details.
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.
41 – 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
2019
£m
273
441
13
727
250
977
2019
£m
966
115
(39)
76
—
(63)
(2)
977
2018
£m
288
415
13
716
250
966
2018
£m
1,235
119
5
124
3
(90)
(306)
966
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.
The Group has no subsidiaries whose non-controlling interest is material on the basis of their share of profit or loss.
42 – 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 43 covers insurance liabilities;
• Note 44 covers the methodology and assumptions used in calculating the insurance liabilities;
• Note 45 covers liabilities for investment contracts;
• Note 46 details the financial guarantees and options on certain contracts;
• Note 47 details the associated reinsurance assets on these liabilities; and
• Note 48 shows the effects of changes in the assumptions on the liabilities.
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
42 – Contract liabilities and associated reinsurance continued
(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: Liabilities classified as held for sale
Gross
provisions
£m
Reinsurance
assets
£m
2019
£m
Net
£m
Gross
provisions
£m
Reinsurance
assets
£m
2018
£m
Net
£m
(131,182)
(92,762)
(137,689)
(361,633)
(2,187)
6,369 (124,813)
(92,761)
4,006 (133,683)
1
(125,829)
(90,455)
(120,354)
10,376 (351,257)
(2,094)
93
(336,638)
(2,001)
5,836
1
4,009
9,846
89
(119,993)
(90,454)
(116,345)
(326,792)
(1,912)
(363,820)
10,469 (353,351)
(338,639)
9,935
(328,704)
(8,831)
(2,672)
(11,503)
(5,138)
(15)
683
1,004
1,687
275
—
(8,148)
(1,668)
(9,816)
(4,863)
(15)
(9,046)
(2,360)
(11,406)
(4,946)
(16)
789
822
1,611
254
—
(8,257)
(1,538)
(9,795)
(4,692)
(16)
(16,656)
1,962
(14,694)
(16,368)
1,865
(14,503)
(380,476)
12,431 (368,045)
(355,007)
11,800
(343,207)
9,011
(75)
8,936
8,462
(45)
8,417
(371,465)
12,356 (359,109)
(346,545)
11,755
(334,790)
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 2019 this provision
is £nil (2018: £nil) for the life operations.
(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.
2019
Long-term business
Change in insurance liabilities (note 43(b)(iii))
Change in provision for outstanding claims
General insurance and health
Change in insurance liabilities (note 43(c)(iv) and 47(c)(ii))1
Less: Unwind of discount
Total change in insurance liabilities (note 7)
Gross
£m
Reinsurance
£m
Net
£m
6,600
4
6,604
(1,030)
(8)
(1,038)
5,570
(4)
5,566
234
(14)
220
(94)
10
(84)
140
(4)
136
6,824
(1,122)
5,702
1
Includes £45 million in the UK General Insurance and Health business relating to a change in the discount rate used for estimating lump sum payments of bodily injury claims from 0.00% to -0.25%.
2018
Long-term business
Change in insurance liabilities(note 43(b)(iii))
Change in provision for outstanding claims
General insurance and health
Change in insurance liabilities (note 43(c)(iv) and 47(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 of bodily injury claims from -0.75% to 0.00%.
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
43 – 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 liabilities1
Unit-linked non-participating insurance liabilities
Other non-participating insurance liabilities1
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 tests2
Total
Less: Liabilities classified as held for sale
2019
£m
Restated1
2018
£m
47,344
14,707
69,131
46,768
14,480
64,581
131,182
2,187
125,829
2,001
133,369
127,830
8,831
2,672
11,503
5,138
15
16,656
9,046
2,360
11,406
4,946
16
16,368
150,025
144,198
(687)
(121)
149,338
144,077
1 Comparative amounts at full year 2018 have been revised. In the UK, £5,928 million has been reclassified from other non-participating insurance liabilities to participating insurance liabilities.
2 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 2019 this provision
is £nil (2018: £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; and
• 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 has been provided (see note 44).
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
43 – Insurance liabilities continued
(iii) Movements in long-term business liabilities
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 42(b))
Effect of portfolio transfers, acquisitions and disposals2
Foreign exchange rate movements
Other movements3
Carrying amount at 31 December
2019
£m
2018
£m
125,829
6,988
(6,452)
3,212
(961)
3,766
47
6,600
—
(1,775)
528
130,972
6,190
(7,952)
(1,844)
(1,456)
(959)
(263)
(6,284)
788
413
(60)
131,182
125,829
1 Other movements recognised as an expense during 2019 relate primarily to: a special bonus distribution to with-profits policyholders and model changes in UK Life; the reclassification of health liabilities in Singapore; and
methodology changes in Ireland. The movement in 2018 relates to a special bonus distribution to with-profits policyholders in UK Life.
2 The movement during 2018 includes the acquisition of Friends First in Ireland offset by the disposal of Spain and Avipop in Italy.
3 Other movements during 2019 mainly relate to the reclassification in UK from participating investment contracts to insurance contracts (£972 million) and following a review of the presentation of negative reinsurance assets in
the UK, £(427) million of negative reinsurance assets have been reclassified from insurance liabilities to reinsurance assets. 2018 includes 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 increased by £5.4 billion during
2019 (2018: £5.1 billion decrease) mainly driven by:
• Variance between actual and expected experience of £3.2 billion, which was mainly due to higher than expected equity returns in the UK
and France;
• Impact of non-economic assumption changes of £(1.0) 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
• Economic assumption changes of £3.8 billion, which reflects a reduction in valuation interest rates in response to decreasing interest rates
and narrowing of credit spreads, primarily in respect of annuity 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 (see note 48), 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; and
• 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.
(iii) Provisions for Outstanding Claims
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 2019
As at 31 December 2018
Outstanding
claim
provisions
£m
IBNR
provisions
£m
Total claim
provisions
£m
Outstanding
claim
provisions
£m
IBNR
provisions
£m
Total claim
provisions
£m
4,836
1,823
1,864
5
303
8,831
1,115
155
1,277
6
119
5,951
1,978
3,141
11
422
2,672
11,503
5,019
1,833
1,856
4
334
9,046
963
104
1,164
7
122
2,360
5,982
1,937
3,020
11
456
11,406
Aviva plc Annual report and accounts 2019
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Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
43 – Insurance liabilities continued
The gross outstanding claims provision before discounting was £11,205 million (2018: £10,955 million). Details of the range of discount rates
used along with other material assumptions are available (see note 44(b)).
(iv) 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 assumptions
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 42(b))
Effect of portfolio transfers, acquisitions and disposals1
Foreign exchange rate movements
Other movements
Carrying amount at 31 December
1 The movement during 2018 relates to the disposal of Avipop in Italy.
(v) 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
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.
2019
£m
11,406
126
7,045
(186)
2018
£m
11,801
(22)
7,158
(544)
6,985
6,592
(3,834)
(3,327)
396
(6,765)
14
234
—
(138)
1
(3,927)
(3,343)
357
(6,913)
8
(313)
(29)
(53)
—
11,503
11,406
2019
£m
2018
£m
4,946
10,908
(10,677)
4,980
10,519
(10,421)
231
—
(39)
98
(103)
(29)
5,138
4,946
Aviva plc Annual report and accounts 2019
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
43 – Insurance liabilities continued
(vi) 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 2010 to
2019. 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 2019 were:
• £134 million release from the UK due to favourable claims experience in personal and commercial motor partly offset by a strengthening
in commercial property and a change in the discount rate used for estimating lump sum payments in settlement of bodily injury claims (for
further details see note 44);
• £58 million release from Canada primarily due to favourable claims experience on personal and commercial motor and large reinsurance
recoverable on two catastrophe events from August 2018 in personal and commercial property lines; and
• £83 million release from Europe mainly due to favourable claims development in France.
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 44) 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; and
• £127 million release from Europe mainly due to continued favourable development in France.
Gross of reinsurance
Before the effect of reinsurance, the loss development table is:
All prior years
£m
2010
£m
2011
£m
2012
£m
2013
£m
2014
£m
2015
£m
2016
£m
2017
£m
2018
£m
2019
£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
2,341
(280)
2,061
—
8
(3,502)
(5,466)
(5,875)
(6,163)
(6,405)
(6,564)
(6,649)
(6,690)
(6,718)
(6,740)
6,911
7,006
6,950
6,914
6,912
6,906
6,926
6,913
6,877
6,861
6,861
(6,740)
121
(18)
103
(3)
1
(3,420)
(4,765)
(5,150)
(5,457)
(5,712)
(5,864)
(5,978)
(6,032)
(6,078)
6,428
6,330
6,315
6,292
6,262
6,265
6,265
6,223
6,205
(3,055)
(4,373)
(4,812)
(5,118)
(5,376)
(5,556)
(5,635)
(5,718)
(3,068)
(4,476)
(4,916)
(5,221)
(5,467)
(5,645)
(5,739)
(3,102)
(4,295)
(4,681)
(4,974)
(5,244)
(5,406)
(2,991)
(4,285)
(4,710)
(4,997)
(5,198)
6,201
6,028
6,002
5,952
6,002
5,979
5,910
5,902
6,122
6,039
6,029
6,067
6,034
5,996
5,956
5,896
5,833
5,865
5,842
5,772
5,756
5,851
5,930
5,912
5,814
5,785
(3,534)
(4,972)
(5,435)
(5,781)
(3,517)
(4,952)
(5,388)
(3,769)
(5,239)
(3,617)
6,947
6,931
6,864
6,817
6,894
6,796
6,756
7,185
7,175
6,979
6,205
(6,078)
5,902
(5,718)
5,956
(5,739)
5,756
(5,406)
5,785
(5,198)
6,817
(5,781)
6,756
(5,388)
7,175
(5,239)
6,979
(3,617)
127
(1)
126
(2)
7
184
—
184
1
9
217
1
218
4
12
350
—
350
19
23
587
—
587
71
42
1,036
—
1,036
1,368
—
1,368
1,936
—
1,936
3,362 11,629
(298)
—
3,362 11,331
(16)
38
(23)
—
(19)
—
—
—
32
140
statement of financial position
2,069
101
131
194
234
392
700
1,058
1,345
1,917
3,362 11,503
Aviva plc Annual report and accounts 2019
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Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
43 – Insurance liabilities continued
Net of reinsurance
After the effect of reinsurance, the loss development table is:
All prior years
£m
2010
£m
2011
£m
2012
£m
2013
£m
2014
£m
2015
£m
2016
£m
2017
£m
2018
£m
2019
£m
Total
£m
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
922
(121)
801
—
10
(3,386)
(5,242)
(5,637)
(5,905)
(6,137)
(6,278)
(6,361)
(6,411)
(6,440)
(6,458)
6,650
6,751
6,685
6,644
6,634
6,614
6,624
6,615
6,590
6,569
6,569
(6,458)
111
(15)
96
(3)
1
(3,300)
(4,578)
(4,963)
(5,263)
(5,485)
(5,626)
(5,740)
(5,798)
(5,842)
6,202
6,103
6,095
6,077
6,034
6,005
6,003
5,967
5,952
(2,925)
(4,166)
(4,575)
(4,870)
(5,110)
(5,289)
(5,371)
(5,439)
(2,905)
(4,240)
(4,649)
(4,918)
(5,159)
(5,324)
(5,417)
(2,972)
(4,079)
(4,432)
(4,720)
(4,973)
(5,132)
(2,867)
(4,061)
(4,452)
(4,725)
(4,919)
5,941
5,765
5,728
5,683
5,717
5,680
5,631
5,600
5,838
5,745
5,752
5,733
5,689
5,653
5,612
5,613
5,575
5,591
5,559
5,490
5,472
5,548
5,635
5,608
5,517
5,495
(3,309)
(4,591)
(5,012)
(5,329)
(3,483)
(4,843)
(5,255)
(3,718)
(5,117)
(3,565)
6,489
6,458
6,377
6,334
6,714
6,591
6,569
6,997
6,944
6,774
5,952
(5,842)
5,600
(5,439)
5,612
(5,417)
5,472
(5,132)
5,495
(4,919)
6,334
(5,329)
6,569
(5,255)
6,944
(5,117)
6,774
(3,565)
110
3
113
(2)
7
161
(1)
160
1
9
195
5
200
4
12
340
—
340
18
23
576
—
576
70
42
1,005
—
1,005
1,314
—
1,314
1,827
—
1,827
3,209
—
3,209
9,770
(129)
9,641
(15)
38
(23)
—
(17)
—
—
—
33
142
statement of financial position
811
94
118
170
216
381
688
1,028
1,291
1,810
3,209
9,816
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
more than 10 years ago. The undiscounted claim provisions, net of reinsurance, in respect of this business at 31 December 2019 were
£88 million (2018: £94 million). The movement in the year reflects a reduction of £7 million due to favourable claims development, claim
payments net of reinsurance recoveries and foreign exchange movements.
Aviva plc Annual report and accounts 2019
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IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
44 – 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 a 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 (see note 24). 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)
2019
2018
0.5% to 2.1%
0.6% to 1.6%
0.9% to 2.6%
1.1% to 2.1%
0.9% to 2.3%
1.2% to 3.0%
0.9%
1.1%
0.9% to 1.3%
0.9% to 1.6%
0.6% to 2.1%
1.1%
1.1% to 2.6%
1.3% to 1.6%
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 (including overseas government bonds and structured finance assets), mortgages (including
healthcare mortgages, commercial mortgages and infrastructure assets), and equity release equated to 45-47 bps, 31-35 bps, and 124 bps
respectively at 31 December 2019 (2018: 50 bps, 39-41 bps, and 112 bps respectively).
The total valuation allowance in respect of corporate bonds and mortgages, including healthcare mortgages but excluding equity release,
was £1.8 billion (2018: £1.9 billion) over the remaining term of the portfolio at 31 December 2019. The total valuation allowance in respect of
equity release assets was £1.5 billion at 31 December 2019 (2018: £1.3 billion). Total liabilities for the annuity business were £57.6 billion at
31 December 2019 (2018: £53.7 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 2019
200
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
44 – 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
2019
2018
AM00/AF00 or TM08/TF08 adjusted for
smoker status and age/sex specific
factors
AM00/AF00 or TM08/TF08 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
CV3
PMA08 HAMWP /PFA08 HAMWP
adjusted plus allowance for future
mortality improvement
CV2
For the largest portfolio of pensions annuity business, the underlying mortality assumptions for males are 105.4% of PMA08 HAMWP adjusted
(2018: 105.8% of PMA08 HAMWP adjusted) with base year 2008; for females the underlying mortality assumptions are 99.5% of PFA08 HAMWP
adjusted (2018: 99.0% of PFA08 HAMWP adjusted) with base year 2008.
Improvements are based on ‘CMI_2018 (S=7.25) Advanced with adjustments’ (2018: ‘CMI_2017 (S=7.5) Advanced with adjustments’) with a
long-term improvement rate of 1.75% (2018: 1.75%) for males and 1.5% (2018: 1.5%) for females, both with an additional improvement for
prudence of 0.5% (2018: 0.5%) to all future annual improvement adjustments. The CMI_2018 tables have been adjusted by adding 0.25%
(2018: 0.25%) and 0.35% (2018: 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_2018 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). The tapering approach is unchanged from that used at 2018. 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 2019 of 1.02% (2018: 1.44%) 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
2019
2018
16.2%
15.8%
18.0%
15.8%
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 2019
201
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Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
44 – Insurance liabilities methodology and assumptions continued
Future regular bonuses
Annual bonus assumptions for 2020 have been set consistently with the year-end 2019 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
Assurances, pure endowments and deferred annuities before vesting
Pensions business after vesting and pensions annuities in payment
2019
2018
Nil or Axx00 adjusted
PMA08 HAMWP/PFA08 HAMWP
adjusted plus allowance for future
mortality improvement
Nil or Axx00 adjusted
PMA08 HAMWP/PFA08 HAMWP
adjusted plus allowance for future
mortality improvement
Allowance for future mortality improvement is in line with the rates for non-profit business.
Expenses
Maintenance fee assumptions for with-profits business are generally expressed as a fixed per policy charge in line with a memorandum of
understanding between the with-profits funds and the non-profit fund within the company. The memorandum of understanding specifies
the charges for a five-year period ending in 2023, and specifies a level of charge inflation during that period of CPI+2% or CPI+3% depending
on the product type. After the end of the period covered by the memorandum of understanding we assume that the charges will remain
unchanged, and a level of charge inflation of RPI+1% for all products will apply. Any excess of expenses charged by Aviva Life Services UK
Limited (UKLS) to Aviva Life & Pensions UK Limited (AVLAP) over the charges specified by the memorandum of understanding is borne by the
non-profit fund.
As at 31 December 2018 maintenance expense assumptions for with-profits business were generally expressed as a fixed per policy charge in
line with agreements between UKLS and AVLAP. The assumptions increased by a future inflation charge over the lifetime of each contract,
which was 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 was 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 46.
(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
2019
2018
2019 and 2018
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 1.5%
(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:
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Notes to the consolidated financial statements
Continued
44 – Insurance liabilities methodology and assumptions continued
Discounting
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
2019
0.8% to 2.2%
0.8% to 2.2%
-0.2% to 2.7%
Discount rate
2018
1.0% to 2.9%
1.0% to 2.6%
1.0% to 3.0%
Mean term of liabilities
2019
2018
9 years
10 to 12 years
11 to 35 years
10 years
11 to 18 years
9 to 37 years
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, structured settlements and reinsured London Market business is based on
the swap curve in the relevant currency at the reporting date, having regard to the duration of 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 9 and 12 years depending on the geographical region.
At 31 December 2019, it is estimated that a 1% fall in the discount rates used would increase net claim reserves by approximately £120 million
(2018: £100 million), excluding the offsetting effect on asset values as assets are not hypothecated across classes of business.
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 £25 million (2018: £20 million) greater than the best
estimate, or £35 million (2018: £30 million) lower than the best estimate. These scenarios do not, however, constitute an upper or lower bound
on these liabilities.
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 Lord Chancellor on 15 July 2019 to
increase the Ogden discount rate from the -0.75% set in 2017 to -0.25% (rate retained at -0.75% in Scotland), balance sheet reserves in the
UK have been calculated using a discount rate of -0.25% at 31 December 2019. This has resulted in a strengthening of claims reserves in the
UK of £45 million. At December 2018, balance sheet reserves were calculated using a rate of 0.00%. The Ogden discount rate is expected to
be reviewed by the Lord Chancellor within five years.
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Notes to the consolidated financial statements
Continued
45 – 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: Liabilities classified as held for sale
2019
£m
2018
£m
92,762
137,689
90,455
120,354
230,451
210,809
(8,324)
(8,341)
222,127
202,468
(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 (see note 44). 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 apply to annual reporting periods beginning on or after 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 46.
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, £137,040 million at 31 December 2019 (2018: £119,402 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 30 and the deferred income liability
is shown in note 55.
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
2019
£m
90,455
6,991
(4,857)
4,751
173
204
103
7,365
—
(4,054)
(1,004)
2018
£m
87,654
6,301
(4,491)
(1,441)
59
(40)
152
540
427
774
1,060
92,762
90,455
1 Other movements recognised as an expense during 2019 relate primarily to a special bonus distribution to with-profits policyholders and the recognition of unitised with-profits annual management charges in UK Life.
The movement in 2018 primarily relates 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 £5,269 million (2018: £(419) million).
3 The movement during 2018 relates to the acquisition of Friends First in Ireland.
4 Other movements during 2019 include the reclassification in UK from participating investment to insurance contracts (£(972) million) and from participating investment to outstanding claims reserves (£(32) million).
The movement during 2018 relates to the reclassification in France from non-participating investment contracts to participating investment contracts (£151 million) and from insurance to participating investment contracts
(£56 million) and to a reclassification from non-participating investment contracts to participating investment contracts in the UK (£853 million).
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Notes to the consolidated financial statements
Continued
45 – 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 2019 of £4.8 billion is primarily the result of the impact of strong global equity
performance.
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 48, 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
2019
£m
2018
£m
120,354
5,520
(3,742)
16,345
(22)
(1)
2
18,102
—
(575)
(192)
124,995
4,869
(5,509)
(5,539)
(10)
(81)
6
(6,264)
2,494
133
(1,004)
137,689
120,354
1 The movement during 2018 relates to the acquisition of Friends First in Ireland.
2 Other movements during 2019 mainly relate to the reclassification in UK from non-participating investment to outstanding claims reserves (£(180) million). Other movements during 2018 relates to the reclassification in
France from non-participating investment contracts to participating investment contracts (£(151) million) and to a reclassification from non-participating investment contracts to participating investment contracts in the UK
(£(853) million).
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 2019 of £16.3 billion is primarily the result of the impact of strong global
equity performance.
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 48, which combines participating and non-participating investment contracts together with the impact of movements
in related non-financial assets.
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Notes to the consolidated financial statements
Continued
46 – 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 £82 million at 31 December 2019
(2018: £87 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 £178 million at 31 December 2019 (2018: £153 million).
(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, 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.
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. 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 retail price index (RPI) or consumer price index (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 £1,628 million at 31 December 2019 (2018: £1,644 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 £129 million at 31 December 2019 (2018: £155 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.
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Notes to the consolidated financial statements
Continued
46 – Financial guarantees and options continued
(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 2019 (2018: no PAF was established).
The most significant of these contracts is the AFER Eurofund which has total liabilities of £37 billion at 31 December 2019 (2018: £39 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 1.85% for 2019 (2018: 2.25%) compared with an accounting income from the fund of 2.34% (2018: 2.74%).
Non-AFER contracts with guaranteed surrender values had liabilities of £11 billion at 31 December 2019 (2018: £11 billion) and all guaranteed
annual bonus rates are between 0% and 4.5% (2018: 0% to 4.5%). For non-AFER business the accounting income return exceeded guaranteed
bonus rates in 2019 (2018: 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.
(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.
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Notes to the consolidated financial statements
Continued
47 – 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: Assets classified as held for sale
Total
2019
£m
2018
£m
6,369
1
4,006
10,376
93
10,469
683
1,004
1,687
275
1,962
5,836
1
4,009
9,846
89
9,935
789
822
1,611
254
1,865
12,431
(75)
11,800
(45)
12,356
11,755
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.
Of the above total, £10,943 million (2018: £10,800 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.
(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 movements recognised as an expense1
Change in assets2
Effect of portfolio transfers, acquisitions and disposals3
Foreign exchange rate movements
Other movements4
Carrying amount at 31 December
2019
£m
9,846
954
(185)
274
(175)
193
(37)
1,024
—
(73)
(421)
10,376
2018
£m
11,565
1,766
(22)
431
(460)
21
(3,877)
(2,141)
399
23
—
9,846
1 Other movements recognised as an expense during 2019 primarily relate to the ceding of reinsurance for annuity business offset by basis methodology changes in Ireland, the reclassification of health reinsurance assets in
Singapore and collective investments in unit-linked funds in the UK following a restructure of a reinsurance treaty. The latter part is a continuation of activity undertaken in 2018.
2 Change in assets does not reconcile with values in note 42(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.
4 Following a review of the presentation of negative reinsurance assets in the UK, £(427) million of negative reinsurance assets have been reclassified from insurance liabilities to reinsurance assets.
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 (see note 48), together with the impact of
movements in related liabilities and other non-financial assets.
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Notes to the consolidated financial statements
Continued
47 – 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 42(b))
Effect of portfolio transfers, acquisitions and disposals1
Foreign exchange rate movements
Other movements
Carrying amount at 31 December
1 The movement during 2018 relates to the proportion of reinsurance assets held by Avipop which was sold by Italy in 2018.
(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 in 2018 that was ceded to reinsurers.
2019
£m
1,611
73
195
96
291
(53)
(227)
(280)
10
94
—
(15)
(3)
2018
£m
1,729
(22)
176
40
216
(54)
(259)
(313)
8
(111)
(9)
2
—
1,687
1,611
2019
£m
254
683
(661)
22
—
(1)
275
2018
£m
257
392
(375)
17
(21)
1
254
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Notes to the consolidated financial statements
Continued
48 – Effect of changes in assumptions and estimates during the year
This note analyses the impact of changes in estimates and assumptions from 2018 to 2019, 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
2019
£m
Effect on profit
2018
£m
(2,978)
(47)
(124)
(38)
830
9
—
(54)
1,061
9
23
24
780
18
(1)
1
(2,402)
1,915
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 a reduction in the discount rate, in response to decreasing interest rates and narrowing credit spreads,
has increased liabilities.
The impact of expenses on long-term business relates primarily to the UK and Ireland, where reserves have increased by £55 million following
a review of recent experience including the margin for prudence. This has been offset slightly by £8 million due to favourable expense
experience in Singapore.
The impact of persistency on long-term business relates primarily to the UK. Reserves have increased by £127 million following a review of
recent experience, driven by the introduction of age-dependent retirement rates for pension business and unfavourable lapse experience.
The impact of mortality for annuitant contracts on long-term business relates primarily to the UK. In 2019, there has been a reduction in
reserves due to longevity assumptions and modelling which include:
• Updates to base mortality to reflect recent experience for individual annuities of £81 million;
• Updates to the rate of mortality improvements for individual annuities, including CMI 2018 and a change in smoothing parameter, of
£410 million;
• Refinements to modelling of bulk purchase annuities together with a change to base mortality, improvements and a change in smoothing
parameter, of £231 million;
• Refinements to modelling of enhanced annuities of £58 million; and
• Other less significant movements of £19 million.
In Ireland there was a slight reduction in the reserves of £31 million following a review of recent experience.
In 2018 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 longevity assumptions and modelling which included:
• Updates to base 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 the general insurance and health business, a negative impact of £(54) million (2018: £1 million positive) has arisen primarily as a result of a
decrease in the interest rates used to discount claim reserve for both periodic payment orders and latent claims.
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Notes to the consolidated financial statements
Continued
49 – 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
Change in liability recognised as an expense
Effect of portfolio transfers, acquisition and disposals1
Foreign exchange rate movements
Carrying amount at 31 December
2019
£m
5,949
9,411
(5,426)
3,985
—
(337)
9,597
2018
£m
9,101
(4,139)
902
(3,237)
48
37
5,949
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 amount of UDS at 31 December 2019 has increased to £9.6 billion (2018: £5.9 billion). The increase is mainly due to market movements in
Europe as a result of decreasing interest rates, narrowing credit spreads and increasing equity returns.
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. There are no material negative UDS
balances at the participating fund-level within each life entity in the current period (2018: £355 million negative UDS within five funds in Italy).
Aviva plc Annual report and accounts 2019
211
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Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
50 – 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 £104 million and £9 million (2018: £24 million and £9 million),
respectively.
The Group is party to the CFC & Dividend Group Litigation Order, which challenged the tax treatment of dividends received from non-UK
entities before 2009. The Group is attempting to recover claims from HMRC covered by this judgement. The uncertainty in respect of the
claims resulted in no recoverable amounts being recognised at 31 December 2018. As a result of recent progress made with the claims a
recoverable balance of £99 million is included within current tax assets at 31 December 2019.
(b) Deferred tax
(i) The balances at 31 December comprise:
Deferred tax assets
Deferred tax liabilities
Net deferred tax liability
Less: Classified as held for sale
Amounts classified as held for sale include £11 million of deferred tax assets. (2018: £nil).
(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: Classified as held for sale
(iii) The movement in the net deferred tax liability was as follows:
Net liability at 1 January
Adjustment at 1 January for adoption of IFRS 16
Net liability at 1 January restated
Acquisition and disposal of subsidiaries1
Amounts (charged)/credited to income statement (note 14(a))
Amounts credited/(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.
2019
£m
162
(2,155)
(1,993)
(11)
2018
£m
185
(1,885)
(1,700)
—
(2,004)
(1,700)
2019
£m
1,752
(198)
(2,875)
(425)
103
(13)
(413)
76
(1,993)
(11)
2018
£m
663
(199)
(1,430)
(499)
147
(9)
(475)
102
(1,700)
—
(2,004)
(1,700)
2019
£m
(1,700)
24
(1,676)
—
(387)
50
23
(3)
(1,993)
2018
£m
(2,416)
—
(2,416)
184
545
(9)
(10)
6
(1,700)
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 entities 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 £1,270 million (2018: £798 million)
to carry forward against future taxable income of the necessary category in the companies concerned. Of these, trading losses of £38 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 £612 million (restated 2018: £604 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 2019 (2018: £nil).
Aviva plc Annual report and accounts 2019
212
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
51 – 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 52(a))
Deficits in other staff pension schemes
Total IAS 19 obligations to staff pension schemes
Restructuring provisions
Other provisions
Total provisions
2019
£m
770
66
836
29
700
2018
£m
693
65
758
64
577
1,565
1,399
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
Charge to income statement
Utilised during the year
Acquisition of subsidiaries
Foreign exchange rate movements
At 31 December
Restructuring
provisions
£m
Other
provisions
£m
64
2
—
2
(37)
—
—
29
577
302
(57)
245
(118)
—
(4)
700
2019
Total
£m
641
304
(57)
247
(155)
—
(4)
729
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
Of the total restructuring and other provisions, £569 million (2018: £402 million) is expected to be settled more than one year after the
statement of financial position date.
Other provisions include a £229 million provision (2018: £250 million) in respect of a product governance issue in our UK Life business. 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 have
completed a thorough and detailed review of the suitability of the advice given, and we will ensure that no affected customers are financially
disadvantaged. There has been no significant change to the provision estimate or estimation methodology since 31 December 2018. The
most significant assumption in relation to the calculation of the provision is the estimated average redress per customer. Each 10%
reduction/increase in the average redress per customer would reduce/increase the estimate of the provision by £23 million. The valuation of
this provision involves a high degree of judgement due to the time that has elapsed since the advice was given (in particular the assumptions
used to calculate how external defined benefit pension arrangements specific to each impacted policyholder would have performed over
time), and therefore the possible range of outcomes is significant. The reduction in the value of the provision during 2019 of £21 million is
due to utilisation in the period. 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.
Other provisions have increased during the year mainly due to the recognition of a new product governance provision in our UK Life business
of £175 million. This provision relates to past communications to a specific sub-set of pension policyholders, that may not have adequately
informed them of switching options into with-profit funds that were available to them. This issue is restricted to a product originally sold
between 1985 and 1989 and acquired by Aviva through the purchase of Friends Life. It does not affect any other part of our business. We are
completing a review to identify and contact affected customers to ensure they are not disadvantaged. The most significant assumption in
relation to the calculation of the provision is the estimated rates of customer switching. Each 10% reduction/increase in the rates of switching
would reduce/increase the estimate of the provision by £40 million. The valuation of the provision involves a high degree of judgement and
estimation uncertainty due to the dependence on decisions made by customers, and therefore the possible range of outcomes is significant.
The remainder of the increase in other provisions of £127 million largely relates to a number of relatively small new provisions including
provisions relating to product governance rectification, warranty claims and litigation. This increase is offset by utilisation in the year of
£118 million.
Aviva plc Annual report and accounts 2019
213
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
52 – 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 2019 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
UK
£m
17,671
(15,416)
2,255
Ireland
£m
833
(1,035)
(202)
Canada
£m
264
(341)
(77)
2019
Total
£m
UK
£m
18,768
(16,792)
17,059
(14,246)
1,976
2,813
Surpluses included in other assets (note 31)
Deficits included in provisions (note 51)
Net IAS 19 surpluses/(deficits) in the schemes
2,746
(491)
2,255
—
(202)
(202)
—
(77)
(77)
2,746
(770)
1,976
3,256
(443)
2,813
Ireland
£m
775
(950)
(175)
—
(175)
(175)
Canada
£m
249
(324)
(75)
2018
Total
£m
18,083
(15,520)
2,563
—
(75)
(75)
3,256
(693)
2,563
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 51). 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
2019
Number
45,748
39,038
84,786
2018
Number
47,977
38,433
86,410
2019
Number
2,479
895
3,374
Ireland
2018
Number
2,544
897
3,441
2019
Number
467
1,313
1,780
Canada
2018
Number
519
1,318
1,837
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 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 sections 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. 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 accruals 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 Regulatory Authority of Ontario and is
required to comply with the Income Tax Act of Canada and the various provincial Pension Acts within Canada.
Aviva plc Annual report and accounts 2019
214
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
52 – 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:
2019
Net IAS 19 surplus in the schemes at 1 January
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
Gains from change in demographic assumptions
Experience gains
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
Fair Value of
scheme assets
£m
Present Value
of defined
benefit
obligation
£m
IAS 19
Pensions net
surplus/
(deficits)
£m
18,083
—
(15,520)
(19)
2,563
(19)
—
479
479
(19)
(406)
(425)
(19)
73
54
1,141
(479)
662
—
—
—
662
215
4
(612)
(19)
(44)
—
—
—
(1,824)
165
130
(1,529)
—
(4)
612
19
55
1,141
(479)
662
(1,824)
165
130
(867)
215
—
—
—
11
18,768
(16,792)
1,976
1 Administrative expenses are expensed as incurred.
2 Net interest income of £96 million has been credited to investment income and net interest expense of £23 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 £118 million at 31 December 2019
(2018: £115 million). During the period the ASPS completed a bulk annuity buy-in transaction with Aviva Life & Pensions UK Limited, a Group
Company. Due to different measurement bases applying for accounting purposes, the premium paid by the scheme exceeded the valuation
of the plan asset recognised. This is the primary reason for the reduction in the scheme surplus over the year and has been recognised as an
actuarial loss in the actual return on assets within other comprehensive income. The plan asset recognised is transferable and so has not
been subject to consolidation within the Group’s financial statements.
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 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).
Aviva plc Annual report and accounts 2019
215
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
52 – Pension obligations continued
(ii) Scheme assets
Scheme assets are stated at their fair values at 31 December 2019.
Total scheme assets are comprised by country as follows:
UK
£m
Ireland
£m
Canada
£m
Bonds
Fixed interest
Index-linked
Property
Pooled investment vehicles
Derivatives
Insurance Policies
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
6,745
10,598
392
4,497
60
1,977
(5,952)
18,317
(646)
17,671
439
284
—
283
4
—
(177)
833
—
833
UK
£m
Ireland
£m
Canada
£m
2019
Total
£m
7,325
10,882
392
4,902
64
1,977
(6,128)
6,121
10,409
353
4,738
(65)
776
(4,653)
141
—
—
122
—
—
1
264
19,414
17,679
—
(646)
(620)
264
18,768
17,059
2018
Total
£m
6,762
10,702
353
5,393
(61)
776
(5,222)
18,703
(620)
18,083
493
293
—
555
4
—
(570)
775
—
775
148
—
—
100
—
—
1
249
—
249
1 Cash and other assets comprise cash at bank, receivables, payables and repurchase agreements. At 31 December 2019, cash and other assets primarily consist of repurchase agreements of £3,078 million (2018: £3,741 million).
2 As at 31 December 2019, the FPPS asset includes an insurance policy of £646 million (2018: £620 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. Insurance policies issued by other Group companies of £1,331 million as at 31 December 2019 (2018: £156 million) included in the ASPS asset are transferable and so are not subject to consolidation.
IAS 19 plan assets include investments in Group-managed funds in the consolidated statement of financial position of £2,575 million
(2018: £2,730 million) and transferable insurance policies with other Group companies of £1,331 million (2018: £156 million) in the ASPS. Where
the investments 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. Insurance policies are
valued on the same basis as the pension scheme liabilities, as required by IAS19.
(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 2019.
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 2019
216
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
52 – Pension obligations continued
Financial assumptions
The main financial assumptions used to calculate scheme liabilities under IAS 19 are:
2019
UK
2018
Inflation rate1
General salary increases2
Pension increases3
Deferred pension increases3
Discount rate4, 5
Basis of discount rate
3.0%/2.2%
4.8%
3.0%/2.2%
3.0%/2.2%
1.9% (non-insured members)
1.9% (insured members – ASPS)
1.8% (insured members – FPPS)
3.3%/2.2%
5.1%
3.3%/2.2%
3.3%/2.2%
2.7%/
2.6%(pensioners)/
2.7%(deferred)
AA-rated corporate bonds
2019
1.5%
3.0%
0.35%
1.5%
1.1%/1.2%
Ireland
2018
1.6%
3.1%
0.4%
1.6%
1.8%/1.9%
2019
2.0%
2.5%
1.25%
—
3.00%
Canada
2018
2.0%
2.5%
1.25%
—
3.75%
AA-rated corporate bonds
AA-rated corporate bonds
1 For the UK schemes, assumptions are provided for RPI/CPI. In the UK, relevant RPI/CPI swap curves are used, which are equivalent to the single rates shown. In 2019, CPI is now derived as RPI less 100bps pre 2030 and RPI less
60bps post 2030 (2018: RPI less 110bps at all terms).
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 are provided for RPI/CPI. In the UK, relevant RPI/CPI swap curves are used, which are equivalent to the single rates shown. 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 the RAC scheme, whereas for ASPS and FPPS, separate discount rates are used for the defined benefit obligation for members included / not included in
annuity policies held by the scheme.
5 For the Irish schemes, a discount rate of 1.1% and 1.2% 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 2019 for scheme members are as follows:
Mortality table
UK – ASPS
SAPS tables as a proxy for 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 73%/81% 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
65
65
88.2
(28.2)
86.9
(21.9)
87.6
(27.6)
89.7
(28.7)
86.6
(21.6)
87.0
(22.0)
90.0
(30.0)
88.9
(23.9)
90.0
(30.0)
92.7
(31.7)
89.0
(24.0)
88.5
(23.5)
89.6
(29.6)
89.5
(24.5)
90.1
(30.1)
91.4
(30.4)
89.0
(24.0)
89.5
(24.5)
91.9
(31.9)
91.4
(26.4)
92.2
(32.2)
94.3
(33.3)
91.1
(26.1)
90.9
(25.9)
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_2018 (S=7.25) Advanced with adjustments’ model (2018: ‘CMI_2017 (S=7.5) Advanced with adjustments’), with a
long-term improvement rate of 1.75% per annum (2018: 1.75% per annum) for males and 1.5% per annum (2018: 1.5% per annum) for females.
The CMI_2018 tables have been adjusted by adding 0.25% per annum (2018: 0.25% per annum) and 0.35% per annum (2018: 0.35% per annum)
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_2018 is based), and uses the advanced parameters to taper the long-
term improvement rates to zero between ages 90 and 115 (2018: long-term improvement rates taper to zero between ages 90 and 115) (the
‘core’ parameters taper the long-term improvement rates to zero between ages 85 and 110).
Aviva plc Annual report and accounts 2019
217
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
52 – Pension obligations continued
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 while 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 2019
Impact on present value of defined benefit obligation at 31 December 2018
1 The effect of assuming all members in the schemes were one year younger.
Increase in
discount rate
+1%
£m
Decrease in
discount rate
-1%
£m
Increase in
inflation rate
+1%
£m
Decrease in
inflation rate
-1%
£m
(2,786)
(2,502)
3,713
3,317
2,627
2,275
(2,037)
(1,788)
1 year
younger1
£m
613
536
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, as well as the longevity sensitivity impact due to the insurance policy and longevity
swap assets held by the UK schemes.
Maturity profile of the defined benefit obligation
The discounted scheme liabilities have an average duration of 19 years in ASPS, 21 years in FPPS, 19 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)
Deferred member cash flows
Pensioner cash flows
500
400
300
200
100
0
2020
2048
2078
2118
(iv) Risk management and asset allocation strategy
As noted above, the 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.
In October 2019 the ASPS completed a bulk annuity buy-in transaction with Aviva Life & Pensions UK Limited, a Group Company. This covered
approximately £1.1 billion of liabilities related to deferred pensioners and current pensioners, removing the investment and longevity risk for
these members from the scheme.
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 £0.6 billion of pensioner in payment scheme liabilities.
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Other information
Notes to the consolidated financial statements
Continued
52 – Pension obligations continued
(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 2018) 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.
Total employer contributions for all defined benefit schemes in 2020 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 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.
(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
2019
£m
21
1
22
143
21
164
186
2018
£m
22
1
23
143
20
163
186
There were no significant contributions payable or prepaid in the consolidated statement of financial position as at either 31 December 2019
or 2018.
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Notes to the consolidated financial statements
Continued
53 – 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
Less: Liabilities classified as held for sale
(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
12.000% £162 million subordinated notes 2021
8.250% £500 million subordinated notes 2022
6.625% £450 million subordinated notes 2041
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
0.625% €500 million senior notes 2023
1.875% €750 million senior notes 2027
Commercial paper
Less: Amount held by Group companies
Total
2019
£m
7,496
338
1,233
1,571
9,067
(28)
9,039
2018
£m
7,699
496
1,225
1,721
9,420
—
9,420
2019
£m
695
797
594
179
545
449
549
591
395
756
261
395
2018
£m
694
797
594
191
563
449
582
625
395
799
257
394
6,206
6,340
422
630
1,052
238
7,496
—
446
667
1,113
251
7,704
(5)
7,496
7,699
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Notes to the consolidated financial statements
Continued
53 – Borrowings continued
(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
2019
£m
Total
£m
610
2,602
2,087
1,417
7,893
Interest
£m
372
1,255
1,451
1,417
2,636
7,131
14,609
Principal
£m
238
1,347
636
—
5,257
7,478
Principal
£m
251
1,370
673
—
5,365
7,659
Interest
£m
376
1,353
1,490
1,441
2,923
7,583
2018
£m
Total
£m
627
2,723
2,163
1,441
8,288
15,242
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 (2018: £49 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 26(b))
Total
2019
£m
2018
£m
338
496
1,233
1,571
1,225
1,721
All the above borrowings are stated at amortised cost, except for the loan notes issued in connection with the UK lifetime mortgage business
of £1,233 million (2018: £1,225 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 24. 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 26.
(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
294
392
559
59
212
1,516
46
173
148
116
109
592
2019
£m
Total
£m
340
565
707
175
321
Principal
£m
Interest
£m
257
535
555
180
136
49
185
163
142
154
693
2,108
1,663
2018
£m
Total
£m
306
720
718
322
290
2,356
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.
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Other information
Notes to the consolidated financial statements
Continued
53 – 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
Redemption date
Callable at par at option of the
Company from
In the event the Company does not call the notes, the
coupon will reset at each applicable reset date to
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
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
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
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 LIBOR + 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 2019 was £7,211 million
(2018: £6,610 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 2019 was £1,134 million (2018: £1,113 million).
(iii) Commercial paper
The commercial paper consists of £238 million issued by the Company (2018: £251 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
2019
£m
64
—
52
116
222
338
2018
£m
61
177
52
290
206
496
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 £64 million
(2018: £61 million) included in the table above relate to Property Funds.
At 31 December 2019 the obligations to repay third parties arising out of financial reinsurance operations were nil (2018: £177 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
2019 was £52 million (2018: £52 million).
Other loans of £222 million (2018: £206 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 26.
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Notes to the consolidated financial statements
Continued
53 – 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 consideration1
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
2019
£m
Core
Structural
£m
—
(210)
19
(191)
(204)
210
—
(23)
5
(203)
7,699
7,496
Operational
£m
Total
£m
Core Structural
£m
Operational
£m
75
(231)
—
(156)
(28)
(4)
38
—
—
(150)
1,721
1,571
75
(441)
19
(347)
(232)
206
38
(23)
5
(353)
9,420
9,067
649
(1,178)
(419)
(948)
42
—
—
(35)
—
(941)
8,640
7,699
126
(211)
—
(85)
6
65
89
—
—
75
1,646
1,721
2018
£m
Total
£m
775
(1,389)
(419)
(1,033)
48
65
89
(35)
—
(866)
10,286
9,420
1 On 17 October 2019, notification was given that the Group would redeem the 6.875% £210 million tier 1 notes. At that date, the instruments were reclassified as a financial liability of £210 million, representing the fair value at
that date. On 21 November 2019 the instruments were redeemed in full at a cost of £210 million. The difference of £21 million between the carrying amount of £231 million and fair value of £210 million has been charged to
retained earnings. See note 37 for further details.
2 Gross issuances of commercial paper were £505 million in 2019 (2018: £2,372 million), offset by repayments of £486 million (2018: £2,791 million).
3 Certain subsidiary companies have purchased subordinated notes and securitised loan notes issued by Group companies 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 2018 and 2019 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
54 – 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 61)
Amounts due to brokers for investment purchases
Obligations for repayment of cash collateral received
Lease liabilities (note 23(iii))
Other financial liabilities
Total
Less: Liabilities classified as held for sale
Expected to be settled within one year
Expected to be settled in more than one year
2019
£m
—
1,650
1,650
2018
£m
—
1,650
1,650
2019
£m
1,503
348
78
870
6,517
314
6,329
572
1,634
Restated1
2018
£m
1,374
464
129
563
6,478
240
6,714
—
1,745
18,165
17,707
(27)
(26)
18,138
13,856
4,309
18,165
17,681
11,599
6,108
17,707
1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The restatement has had no impact on the profit for the year or equity.
See note 1(a) for further information.
Bank overdrafts amount to £536 million (2018: £153 million) in life business operations and £334 million (2018: £410 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 and lease liabilities which are carried at the present value of the outstanding lease payments.
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Notes to the consolidated financial statements
Continued
55 – 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: Liabilities as held for sale
Expected to be settled within one year
Expected to be settled in more than one year
2019
£m
135
23
1,197
1,799
3,154
(60)
3,094
2,399
755
3,154
Restated1
2018
£m
138
19
1,265
1,685
3,107
(33)
3,074
2,482
625
3,107
1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The restatement has had no impact on the profit for the year or equity.
See note 1(a) for further information.
56 – 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 44 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 46 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.
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Notes to the consolidated financial statements
Continued
56 – Contingent liabilities and other risk factors continued
(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 £707 million as at 31 December 2019 (2018: £710 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 2019, 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.
(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.
57 – Capital commitments
This note gives details of our commitments to capital expenditure. See note 23 for further information on lease 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
2019
£m
853
115
62
241
2018
£m
898
42
77
266
1,271
1,283
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.
Notes 19 and 20 set out the commitments the Group has to its joint ventures and associates.
58 – Group capital management
(a) Group capital
The Group is required to measure and monitor its capital resources on a regulatory basis and to comply with the minimum capital
requirements of regulators in each territory in which it operates. At a Group level, we have to comply with the requirements established by
the Solvency II Framework Directive, as adopted by the PRA at the balance sheet date.
The Group Solvency II capital requirements are calculated using a Partial Internal Model (PIM) which assesses the risks the Group is exposed
to on an Internal Model basis approved by the PRA. The Solvency II 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. 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.
At our Capital Markets Day in November 2019, we announced robust financial targets focussed on economic value. However, Group capital
continues to be represented by Solvency II own funds. 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.
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Notes to the consolidated financial statements
Continued
58 – Group capital management continued
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 SCR and own funds of the most material fully ring fenced with-profits funds of £2,501 million at 31 December
2019 (2018: £2,634 million) and staff pension schemes in surplus of £1,181 million at 31 December 2019 (2018: £1,142 million) 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 31 December 2019 position is based on a formal reset of the TMTP, in line with the requirement to reset the TMTP at least every two
years and hence no adjustment is required. The 31 December 2018 Solvency II position includes a notional reset (£127 million reduction in
own funds). The TMTP is amortised on a straight-line basis over 16 years from 1 January 2016 in line with the Solvency II rules.
• The 31 December 2019 Solvency II position includes three pro forma adjustments. These relate to the disposal of FPI (£111 million reduction
in own funds), the disposal of Hong Kong (£6 million 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). The 31 December 2018 Solvency II position includes
the pro forma impact of the disposals of FPI (£113 million 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).
Estimated Solvency II regulatory own funds as at 31 December1
Adjustments for:
Fully ring-fenced with-profits funds
Staff pension schemes in surplus
Notional reset of TMTP
Pro forma adjustments
Estimated Solvency II shareholder own funds at 31 December
Own funds
2019
£m
Own funds
2018
£m
28,347
27,567
(2,501)
(1,181)
—
(117)
(2,634)
(1,142)
(127)
(113)
24,548
23,551
1 Regulation was introduced in France that allows French insurers to place the Provision pour Participation aux Excedents (PPE) into Solvency II own funds. The PPE has been included in the France local regulatory own funds in
2019 but it is not included in the Group regulatory own funds.
Solvency II own funds are comprised of a combination of shareholders’ funds, preference share capital, direct capital instruments, tier 1
notes, subordinated debt, and deferred tax assets measured on a Solvency II basis. During the year, the Group redeemed its £210 million
6.875% Step-Up Tier I Insurance Capital Securities subordinated debt instruments in full.
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 SCR at all times during 2019.
All regulated subsidiaries complied with their capital requirements throughout the year.
Further information on the Group’s Solvency II position (shareholder view), including a reconciliation between IFRS equity and own funds
can be found in the Other information section. This information is estimated and is therefore subject to change. It is also unaudited.
(b) Risks and capital management objectives
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.
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.
See note 60 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; and
• Declare dividends with reference to factors including growth in cash flow and earnings.
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Notes to the consolidated financial statements
Continued
59 – 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 losses/(gains)
Changes in working capital
(Increase)/decrease in reinsurance assets
Increase in deferred acquisition costs
Increase/(decrease) in insurance liabilities and investment contracts2
Increase in other assets2
Net purchases of operating assets
Net purchases of investment property
Net proceeds on sale of investment property
Net purchases of financial investments
Total cash generated from operating activities
2019
£m
3,933
(85)
81
(58)
2
22
(10,537)
(10,571)
(93)
(18,428)
38
(18,483)
98
62
6
14
13
22
55
109
(23)
226
23
392
727
3,985
553
(73)
345
Restated1
2018
£m
1,652
(112)
43
(69)
1
(102)
(7,319)
(7,489)
(307)
29,792
89
29,574
40
64
13
10
—
—
23
587
(35)
243
16
392
1,203
(3,237)
551
(67)
(164)
(1,141)
(244)
32,535
(435)
30,715
(1,131)
1,294
(4,988)
(4,825)
6,517
2,191
(98)
(12,031)
(2,884)
(12,822)
(791)
959
(3,579)
(3,411)
5,848
1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The review identified amounts presented within cash and cash
equivalents that are now presented as loans and financial investments. The restatement has had no impact on the profit for the year or equity. See note 1(a) for further information.
2 Comparative amounts have been reclassified from those previously reported to disclose the impact of the change in the Ogden discount rate from Increase in other assets to Increase/(decrease) in insurance liabilities and
investment contracts.
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
2019
£m
(20)
1
(19)
2018
£m
(165)
357
192
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Notes to the consolidated financial statements
Continued
59 – 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
2019
£m
12
—
12
2018
£m
441
(60)
381
2019
£m
6,722
13,582
20,304
(870)
Restated1
2018
£m
5,620
10,994
16,614
(563)
19,434
16,051
1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The restatement has had no impact on the profit for the year or equity.
See note 1(a) for further information.
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
2019
£m
20,304
(780)
Restated1
2018
£m
16,614
(688)
19,524
15,926
1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The restatement has had no impact on the profit for the year or equity.
See note 1(a) for further information.
60 – 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 SCR.
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Other information
Notes to the consolidated financial statements
Continued
60 – Risk management continued
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 Customer,
Conduct and Reputation 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.
Risk appetites, requiring management action if breached, are also set for interest rate and foreign exchange risk (calculated on the basis of
the SCR), 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 (h) 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 2019
Fixed maturity securities
Reinsurance assets
Other investments
Loans
Total
Restated1 as at 31 December 2018
Fixed maturity securities2
Reinsurance assets
Other investments2
Loans
Total
AAA
AA
A
BBB
Below BBB
Not rated
Carrying value
including held
for sale
£m
Less: Assets
classified as
held for sale
£m
Carrying value
£m
10.7%
3.3%
0.2%
18.3%
34.1%
75.8%
—
3.8%
19.7%
9.2%
0.3%
0.1%
23.0%
7.8%
0.1%
—
8.0%
—
—
—
4.5% 199,481
12,431
3.9%
51,935
99.4%
38,580
77.8%
(649) 198,832
12,356
45,016
38,579
(75)
(6,919)
(1)
AAA
AA
A
BBB
Below BBB
Not rated
10.0%
—
0.2%
17.4%
36.6%
83.1%
0.1%
7.5%
18.1%
10.0%
0.4%
—
23.9%
2.7%
0.1%
—
5.9%
—
—
—
5.5%
4.2%
99.2%
75.1%
302,427
(7,644) 294,783
Carrying value
including held
for sale
£m
Less: Assets
classified as
held for sale
£m
Carrying value
£m
192,072
11,800
46,567
36,184
286,623
(397)
(45)
(6,644)
—
191,675
11,755
39,923
36,184
(7,086)
279,537
1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The review identified amounts presented within cash and cash
equivalents and other investments that are now presented as loans and fixed maturity securities in the table above. The restatement has had no impact on the profit for the period or equity. See note 1(a) for further information.
2 Following a review of the classification of financial assets, comparative amounts have been amended from those previously reported. The effect of this change is to reclassify £2,201 million of assets from fixed maturity securities
to other investments.
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Other information
Notes to the consolidated financial statements
Continued
60 – Risk management continued
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 £4,095 million (2018: £3,640 million) 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.
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).
As at 31 December 2019
Loans
Receivables
Accrued income and interest
Other financial assets
Total
Restated1 as at 31 December 2018
Loans
Receivables
Accrued income and interest
Other financial assets
Total
AAA
£m
7,065
—
—
—
7,065
AAA
£m
6,299
6
—
—
6,305
AA
£m
1,443
144
—
—
1,587
AA
£m
2,720
213
—
—
2,933
A
£m
—
338
—
5
343
A
£m
—
294
18
10
322
BBB
£m
—
259
—
—
259
BBB
£m
—
214
—
—
214
Below BBB
£m
Not rated
£m
—
4
—
—
4
1,071
5,044
265
—
6,380
Below BBB
£m
Not rated
£m
—
—
—
—
—
894
4,882
175
—
5,951
1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The review identified amounts presented within cash and cash
equivalents that are now presented as loans in the table above. The restatement has had no impact on the profit for the period or equity. See note 1(a) for further information.
At the period end, the Group held cash and cash equivalents of £15,344 million (2018 restated: £11,249 million) that met the SPPI criteria, of
which £15,322 million (2018 restated: £11,234 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 28), reinsurance assets (note
47), loans (note 25) and receivables (note 29). The collateral in place for these credit exposures is disclosed in note 62 Financial assets and
liabilities subject to offsetting, enforceable master netting agreements 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 2.4% of the total shareholder assets.
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Notes to the consolidated financial statements
Continued
60 – Risk management continued
(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 2019, the
reinsurance asset recoverable, including debtor balances, from Swiss Reinsurance Company Ltd was £3,097 million (2018: £2,835 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.
(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 2019
Fixed maturity securities
Reinsurance assets
Other investments
Loans
Receivables and other financial assets
Restated1 as at 31 December 2018
Fixed maturity securities
Reinsurance assets
Other investments
Loans
Receivables and other financial assets
Financial assets that are past due but not impaired
Neither past
due nor
impaired
£m
1,455
8,361
2
10,260
8,911
Neither past
due nor
impaired
£m
1,675
7,791
1
10,658
8,536
0–3 months
£m
3–6 months
£m
6 months–
1 year
£m
Greater than
1 year
£m
—
—
—
—
51
—
—
—
—
14
6
—
—
—
10
—
—
—
—
9
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
have been
impaired
£m
—
—
—
—
—
Financial
assets that
have been
impaired
£m
—
—
—
—
—
Carrying
value
£m
1,461
8,361
2
10,260
8,995
Carrying
value
£m
1,680
7,791
1
10,658
8,639
1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The review identified amounts presented within cash and cash
equivalents that are now presented as loans in the table above. The restatement has had no impact on the profit for the period or equity. See note 1(a) for further information.
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: £198,020 million of debt securities (2018 restated: £190,392 million), £44,836 million of other investments
(2018 restated: £41,209 million), £28,319 million of loans (2018: £25,526 million) and £4,006 million of reinsurance assets (2018: £4,006 million).
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.
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Notes to the consolidated financial statements
Continued
60 – Risk management continued
(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.
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 2019 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 (i) 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 2019, 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 (i) 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 46.
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). Markets where Aviva is
primarily exposed to this risk are the UK, France, Italy and some other Asian business units.
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The low interest rate environment in a number of markets around the world has resulted in our current investment yields being lower than
the overall current portfolio yield, primarily in our investments in fixed income securities. We anticipate that interest rates may remain below
historical averages for an extended period of time and that financial markets may continue to have periods of high volatility. Investing activity
will continue to decrease the portfolio yield as long as market yields remain below the current portfolio level. We expect the decline in
portfolio yield will result in lower net investment income in future periods.
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.
Details of material guarantees and options are given in note 46. 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 2019 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
0.67%
0.29%
N/A
N/A
2.47%
3.50%
N/A
69,057
20,660
50,389
N/A
140,106
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. The portfolio investment yield and average total invested assets in our
general insurance and health business are set out in the table below.
2017
2018
2019
1
Before realised and unrealised gains and losses and investment expenses
Portfolio
investment
yield1
2.07%
2.28%
2.21%
Average
assets
£m
14,770
14,651
14,350
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 (i) 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.
(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.
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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 58% 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 (CAD$). 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 61(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 2019 and
2018, the Group’s total equity deployment by currency including assets ‘held for sale’ was:
Capital 31 December 2019
Capital 31 December 2018
Sterling
£m
16,036
15,720
Euro
£m
819
611
CAD$
£m
397
311
Other
£m
Total
£m
1,433
1,813
18,685
18,455
A 10% change in sterling to euro/CAD$ period-end foreign exchange rates would have had the following impact on total equity.
Net assets at 31 December 2019
Net assets at 31 December 2018
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
(82)
(61)
82
77
(40)
(31)
40
31
A 10% change in sterling to euro/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 2019
Impact on profit before tax 31 December 2018
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
(67)
(60)
82
85
(18)
8
22
(9)
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.
(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 53 and 61,
respectively. Contractual obligations under leases and capital commitments are given in note 23 and note 57.
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60 – Risk management continued
(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 2019 and 2018 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 2019
Long-term business
Insurance contracts – non-linked
Investment contracts – non-linked
Linked business
General insurance and health
Total contract liabilities
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
On demand or
within 1 year
£m
Total
£m
1-5 years
£m
5-15 years
£m
Over 15 years
£m
111,731
74,641
177,448
16,656
8,811
5,978
16,226
7,136
27,184
19,532
26,002
6,665
41,728
28,313
58,601
2,258
34,008
20,818
76,619
597
380,476
38,151
79,383 130,900 132,042
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
(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 2019
Fixed maturity securities
Equity securities
Other investments
Loans
Cash and cash equivalents
Total
Restated1 as at 31 December 2018
Fixed maturity securities2
Equity securities
Other investments2
Loans
Cash and cash equivalents
Total
On demand or
within 1 year
£m
Total
£m
198,832
99,570
45,016
38,579
19,524
42,644
—
38,817
9,641
19,524
1-5 years
£m
Over 5 years
£m
47,983 106,981
—
5,365
24,293
—
—
25
4,643
—
No fixed term
(perpetual)
£m
1,224
99,570
809
2
—
401,521 110,626
52,651 136,639 101,605
On demand or
within 1 year
£m
Total
£m
191,675
88,227
39,923
36,184
15,926
42,764
—
34,782
9,488
15,926
1-5 years
£m
Over 5 years
£m
47,936
—
77
4,236
—
99,670
—
4,301
22,457
—
No fixed term
(perpetual)
£m
1,305
88,227
763
3
—
371,935
102,960
52,249
126,428
90,298
1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The review identified amounts presented within cash and cash
equivalents and other investments that are now presented as loans, fixed maturity securities and equity securities in the table above. The restatement has had no impact on the profit for the period or equity. See note 1(a) for
further information.
2 Following a review of the classification of financial assets, comparative amounts have been amended from those previously reported. The effect of this change is to reclassify £2,201 million of assets from fixed maturity securities
to other investments.
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.
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(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 2019. 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. We purchased reinsurance for longevity risk for our annuity
business, including the bulk annuity buy-in transaction with the Aviva Staff Pension scheme (see note 52). 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.
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. While
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;and
• 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.
(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.
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 43.
The vast majority of the Group’s general insurance business is managed and priced in the same country as the domicile of the customer.
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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.
The importance 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 the Group has inherent risk exposure to
data theft, conduct regulatory breaches (including financial crime) and customer service interruption due to IT systems failure. During 2019
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 and
security.
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.
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60 – Risk management continued
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.
(i) 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. Each test allows for any consequential impact on the asset and liability valuations.
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)
Long-term business
Sensitivities as at 31 December 2019
31 December 2019 Impact on profit before tax £m
Insurance participating
Insurance non-participating
Investment participating
Investment non-participating
Assets backing life shareholders’ funds
Total
31 December 2019 Impact on shareholders’ equity before tax £m
Insurance participating
Insurance non-participating
Investment participating
Investment non-participating
Assets backing life shareholders’ funds
Total
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 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%.
Interest rates
+1%
Interest rates
-1%
Credit spreads
+0.5%
Equity/
property
+10%
Equity/
property
-10%
Expenses
+10%
Assurance
mortality
+5%
Annuitant
mortality
-5%
—
(985)
(85)
—
(150)
(1,220)
5
1,265
55
5
170
1,500
(10)
(800)
(5)
—
(35)
(850)
(65)
(120)
(5)
5
(35)
(220)
60
105
5
(5)
30
195
(50)
(240)
(25)
(5)
—
(320)
10
(145)
—
—
—
(135)
(5)
(955)
—
—
—
(960)
Interest rates
+1%
Interest rates
-1%
Credit spreads
+0.5%
Equity/
property
+10%
Equity/
property
-10%
Expenses
+10%
Assurance
mortality
+5%
Annuitant
mortality
-5%
—
(985)
(85)
—
(190)
(1,260)
5
1,265
55
5
205
1,535
(10)
(800)
(5)
—
(30)
(845)
(65)
(120)
(5)
5
(30)
(215)
60
105
5
(5)
30
195
(50)
(240)
(25)
(5)
—
(320)
10
(145)
—
—
—
(135)
(5)
(955)
—
—
—
(960)
Aviva plc Annual report and accounts 2019
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Notes to the consolidated financial statements
Continued
60 – Risk management continued
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
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)
Changes in sensitivities between 2019 and 2018 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.
General insurance and health business sensitivities as at 31 December 2019
31 December 2019 Impact on profit before tax £m
Gross of reinsurance
Net of reinsurance
31 December 2019 Impact on shareholders’ equity before tax £m
Gross of reinsurance
Net of reinsurance
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
Interest rates
+1%
Interest rates
-1%
Credit spreads
+0.5%
(210)
(270)
165
215
(115)
(115)
Interest rates
+1%
Interest rates
-1%
Credit spreads
+0.5%
(210)
(270)
165
215
(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%
(240)
(305)
235
295
(115)
(115)
Equity/
property
+10%
185
185
Equity/
property
+10%
185
185
Equity/
property
+10%
165
165
Equity/
property
+10%
170
170
Equity/
property
-10%
(175)
(175)
Equity/
property
-10%
(175)
(175)
Equity/
property
-10%
(165)
(165)
Equity/
property
-10%
(170)
(170)
Expenses
+10%
(140)
(140)
Expenses
+10%
(25)
(25)
Expenses
+10%
(120)
(120)
Expenses
+10%
(25)
(25)
Gross loss
ratios
+5%
(315)
(300)
Gross loss
ratios
+5%
(315)
(300)
Gross loss
ratios
+5%
(325)
(315)
Gross loss
ratios
+5%
(325)
(315)
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.
Aviva plc Annual report and accounts 2019
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Notes to the consolidated financial statements
Continued
60 – Risk management continued
Fund management and non-insurance business sensitivities as at 31 December 2019
31 December 2019 Impact on profit before tax £m
Total
31 December 2019 Impact on shareholders’ equity before tax £m
Total
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
Interest rates
+1%
Interest rates
-1%
Credit spreads
+0.5%
Equity/
property
+10%
Equity/
property
-10%
(20)
15
40
(10)
15
Interest rates
+1%
Interest rates
-1%
Credit spreads
+0.5%
Equity/
property
+10%
Equity/
property
-10%
(15)
15
40
(10)
15
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
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.
Aviva plc Annual report and accounts 2019
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Notes to the consolidated financial statements
Continued
61 – 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. 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. See note 62 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 for financial instruments designated as hedge instruments 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 2019
was £2,331 million (2018: £2,468 million) and its fair value at that date was £2,604 million (2018: £2,515 million).
Foreign exchange gains of £137 million (2018: losses of £27 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. The hedge has been
fully effective during the year. A gain of £4 million was recognised in the income statement in the prior year due to the termination of a net
investment hedge.
Aviva plc Annual report and accounts 2019
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Other information
Notes to the consolidated financial statements
Continued
61 – 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 2019 and 2018 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
2019
Restated1
2018
Contract/
notional
amount
£m
Fair value
asset
£m
Fair value
liability
£m
Contract/
notional
amount
£m
Fair value
asset
£m
Fair value
liability
£m
54,269
6,937
—
61,206
1,094
141
—
1,235
(438)
(316)
—
(754)
43,247
7,908
1,256
52,411
148
29
10
187
(256)
(708)
—
(964)
688
50,549
213
944
11,438
63,832
63
4,685
2
151
(35)
(2,727)
(8)
(2)
283
64,323
203
18,853
34
3,756
19
419
(23)
(2,266)
(20)
(64)
52
(85)
6,007
56
(39)
4,953
(2,857)
89,669
4,284
(2,412)
13,712
74
(30)
18,050
8,583
2,427
24,722
10,088
14,136
74
225
373
18
518
(73)
(4)
(107)
(324)
(2,475)
12,067
3,490
33,607
11,055
17,543
63
8
441
512
22
352
173,984
7,097
(6,517)
204,285
5,357
(36)
(594)
(14)
(644)
(288)
(2,170)
(6,478)
1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The restatement has had no impact on the profit for the year or equity.
See note 1(a) for further information.
Fair value assets of £7,097 million (2018 restated: £5,357 million) are recognised as ‘Derivative financial instruments’ in note 28(a), while fair
value liabilities of £6,517 million (2018 restated: £6,478 million) are recognised as ‘Derivative liabilities’ in note 54.
The Group’s derivative risk management policies are outlined in note 60.
(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
2019
£m
1,098
593
448
434
358
3,996
6,927
Restated1
2018
£m
2,132
512
445
384
301
3,359
7,133
1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The restatement has had no impact on the profit for the year or equity.
See note 1(a) for further information.
(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 29 and 54 respectively. Collateral received and pledged by the Group
is detailed in note 62.
Aviva plc Annual report and accounts 2019
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Other information
Notes to the consolidated financial statements
Continued
62 – 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 61.
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 25. 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 54.
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.
31 December 2019
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
Amounts subject to enforceable netting arrangements
Amounts under a master netting agreement
but not offset under IAS 32
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
761
5,550
6,311
6,570
8,830
(4,646)
—
(999)
(300)
(164)
(2,980)
15,400
(4,646)
(1,299)
(3,144)
(5,682)
(2,671)
(8,353)
3,961
—
3,961
40
—
40
1,130
2,671
3,801
(551)
—
(551)
6,570
8,830
15,400
(5,682)
(2,671)
(8,353)
—
—
—
—
—
—
Aviva plc Annual report and accounts 2019
243
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Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
62 – Financial assets and liabilities subject to offsetting, enforceable master netting agreements and
similar arrangements continued
Restated1 31 December 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
Amounts subject to enforceable netting arrangements
Amounts under a master netting agreement
but not offset under IAS 32
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
4,447
9,322
13,769
(5,609)
(3,314)
(8,923)
—
—
—
—
—
—
4,447
9,322
13,769
(2,934)
—
(2,934)
(1,023)
(300)
(1,323)
(186)
(1,614)
(1,800)
(5,609)
(3,314)
(8,923)
3,435
—
3,435
376
—
376
1,288
3,314
4,602
(510)
—
(510)
Net
amount
£m
304
7,408
7,712
1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The review identified amounts presented within cash and cash
equivalents that are now presented as loans to banks and repurchase arrangements in the table above. The restatement has had no impact on the profit for the year or equity. See note 1(a) for further information.
Derivative assets are recognised as ‘Derivative financial instruments’ in note 28(a), while fair value liabilities are recognised as ‘Derivative
liabilities’ in note 54. £527 million (2018 restated: £910 million) of derivative assets and £835 million (2018 restated: £869 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 £8,830 million (2018 restated: £9,322 million)
are recognised within ‘Loans to banks’ in note 25.
Other financial liabilities presented above represent liabilities related to repurchase arrangements recognised within ‘Obligations for
repayment of cash collateral received’ in note 54.
(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 25, was £20,984 million (2018 restated: £19,870 million), all of which other
than £7,567 million (2018 restated: £5,650 million) is related to securities lending arrangements. Collateral of £1,547 million
(2018: £1,914 million) has been received related to balances recognised within ‘Loans to banks’ in note 25. The value of collateral that was
actually sold or repledged in the absence of default was £nil (2018: £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.
Aviva plc Annual report and accounts 2019
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Other information
Notes to the consolidated financial statements
Continued
63 – 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
2019
2018
1
54
9
64
—
—
—
—
—
—
—
—
4
4
6
14
1
49
10
60
—
—
—
—
—
(1)
—
(1)
2
2
7
11
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 2019, 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 52(b)(ii). As at 31 December 2019, the Friends Provident Pension Scheme (‘FPPS’), acquired
in 2015 as part of the acquisition of the Friends Life business, held an insurance policy of £646 million (2018: £620 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.
During the period, the ASPS completed a bulk annuity buy-in transaction with Aviva Life & Pensions UK Limited (AVLAP), a Group company.
At inception, the buy-in insured approximately 4,300 deferred and 1,500 current pensioner liabilities. A premium of £1,665 million was paid
by the scheme to AVLAP, with AVLAP recognising gross insurance liabilities of £1,334 million. The difference between the premium and the
gross liabilities implies a profit of £331 million, which does not include costs incurred by the Group associated with the transaction, and is
driven primarily by differences between the measurement bases used to calculate the premium and the accounting value of the associated
gross liabilities. The ASPS recognised a plan asset of £1,126 million, with the difference between the plan asset recognised and the premium
paid being recognised as an actuarial loss through Other Comprehensive Income. As at 31 December 2019, AVLAP recognised technical
provisions of £1,243 million in relation to the buy-in which have been included within the Group’s gross insurance liabilities, and the ASPS
held a transferable plan asset of £1,144 million which does not eliminate on consolidation.
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
2019
£m
12.3
3.2
1.3
12.7
1.0
30.5
2018
£m
7.9
8.6
1.5
10.5
—
28.5
Information concerning individual directors’ emoluments, interests and transactions is given in the Directors’ Remuneration Report.
Aviva plc Annual report and accounts 2019
245
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
64 – Organisational structure
The following chart shows, in simplified form, the organisational structure of the Group as at 31 December 2019. Aviva plc is the holding
company of the Group.
Parent company
Aviva plc
Subsidiaries
The principal subsidiaries of the Company at 31 December 2019 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 65.
Aviva plc*
Aviva – COFCO Life
Insurance Company
Limited**
Aviva Group
Holdings Limited*
General
Accident plc***
Friends Life
Holdings plc*
Aviva Life
Holdings UK
Limited*
Aviva Investors
Holdings
Limited*
Aviva Central
Services UK
Limited*
Aviva
International
Holdings Limited*
Aviva Insurance
Limited***
Aviva
International
Insurance Limited*
Overseas
and other
Subsidiaries
UK Life
Subsidiaries
Investment
Management
Subsidiaries
Aviva
Employment
Services Limited*
Overseas
and other
Subsidiaries
UK & Ireland General
Insurance
Subsidiaries
Canada General
Insurance
Subsidaries
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 Investors Real Estate France SA (99.9%)
Aviva Solutions (99.9%)
Aviva Vie SA (99.9%)
Locamat SAS (99.9%)
NEWCO (99.9%)
Ireland
Aviva Life and Pensions Ireland Designated Activity Company
Aviva Insurance Ireland Designated Activity Company
1 See note 4(b) for further details in respect of operations classified as held for sale
Aviva plc Annual report and accounts 2019
246
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
64 – 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 PowsBlackbirdzechne 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 2019 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 27 to the financial
statements.
China
Aviva-COFCO Life Insurance Company Limited (50%)
Hong Kong
Aviva Life Insurance Company Limited (40%) 1
India
Aviva Life Insurance Company India Limited (49%)
Indonesia
PT Astra Aviva Life (50%)
Turkey
AvivaSA Emeklilik ve HayatA.S (40%)
1 See note 4(b) for further details in respect of operations classified as held for sale
Aviva plc Annual report and accounts 2019
247
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
65 – 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 2019 are disclosed below.
The direct related undertakings of the Company as at 31 December 2019 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 2019 are listed below:
Company name
Australia
c/o TMF Corporate Services
(Aust) Pty Ltd, 201 Elizabeth
Street, Australia 2000
Aviva Investors Pacific Pty Ltd
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
Cumberland House, 7th Floor
1 Victoria Street, Bermuda
Aviva Re Limited
The Vallis Building, No 58
Par-la-Ville Road, Hamilton
HM11 Bermuda
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.
Bay-Mill Specialty Insurance
Adjusters Inc.
Elite Insurance Company
Insurance Agent Service Inc.
National Home Warranty
Group Inc.
Nautimax Ltd
OIS Ontario Insurance Service
Limited
Share Class1
% held
Ordinary
100
Common Shares
100
Ordinary Shares
99
Ordinary
100
Ordinary
22
Common
Voting Interest
Common
100
100
100
Common
100
Common
Common
Common
Common
Common
Ordinary
Common
100
100
100
100
100
100
100
Company name
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.
480 University Avenue, Suite
800, Toronto On M5G 1V2
Prolink Limited
555 Chabanel Ouest, Bureau
900, Montreal QC H2N 2H8
Aviva Agency Services Inc.
Cayman Islands
Victory Arcadia Fund
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
12F, 15F Block A, 27F Block B
Landgent Centre, 20 East
Third Ring Middle Road,
Beijing, China
Aviva-Cofco Life Insurance Co.
Ltd
Czech Republic
5/482 Ve Svahu, Prague 4,
14700, Czech Republic
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)
Aviva plc Annual report and accounts 2019
248
Share Class1
Common
Common
Common Preference
% held
100
100
100
Common
100
Common
100
Common
100
Common A
34
Common A
100
OEIC
46
Ordinary Shares
21
Ordinary
50
Ordinary
100
FCP
98
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
Company name
UFF Oblicontext 2023 A
(UFFo23A)
UFF Obligations 3-5 A
UFF Allocation Strategies A
13 Rue du Moulin Bailly,
92270, Bois Colombes
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
Global Allocation M
Aviva Investors Euro Credit
Bonds ISR
Aviva Investors Euro Credit
Bonds 1-3
Aviva Investors Euro Crédit
Bonds 1-3 HDR
Afer Actions Amerique
Afer Actions Monde
Afer Diversifie Durable
Afer Marches Emergents Fcp
Afer Multi Foncier
Afer Oblig Monde Entreprisese
Afer Patrimoine
Afer-Flore
Afer Actions Euro ISR
AFer Actions Monde
Afer Avenir Senior
After Convertibles
Aviva Actions Convex
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 Croissance Durable ISR
Aviva Developpement
Aviva Diversifié
Aviva Europe
Aviva Flexible (AVIFLEX)
Aviva Flexible Emergents A FCP
Aviva France Opportunites
Aviva Grandes Marques ISR
Aviva Interoblig
Aviva Investors Actions Euro
Aviva Investors Alpha Taux A
Aviva Investors Alpha Yield
Aviva Investors Britannia
Aviva Investors Conviction
Aviva Investors Euro Aggregate
Faraday
Aviva Investors Euro Crédit
Bonds 1-3
Aviva Investors France S.A
Aviva Investors Japon ISR
Aviva Investors Portefeuille
Aviva Investors Reference
Diversifie
Aviva Investors Repo (avirepo)
Share Class1
FCP
% held
98
FCP
FCP
86
73
Ordinary
Ordinary
50
100
Ordinary
74
Ordinary
FCP
FCP
100
85
100
FCP
95
FCP
100
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
SICAV
FCP
FPS
FCP
FCP
FCP
FCP
FCP
FCP
Ordinary
FCP
FCP
FCP
SICAV
SICAV
SICAV
FPS
FCP
FCP
FCP
FCP
FCP
FCP
FCP
SICAV
FCP
FCP
FCP
FCP
Ordinary
FCP
FCP
FCP
100
100
100
100
100
100
100
97
100
100
100
100
100
100
100
100
79
100
100
97
100
100
100
99
94
96
100
100
91
99
100
93
100
96
98
98
75
100
96
100
95
100
100
FCP
100
Company name
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.
Aviva Structure Index 2
Aviva Structure Index 4.
Aviva Structure Index5
Aviva Small & Mid Caps Euro
ISR
Aviva Valeurs Francaises
Aviva Valeurs Immobilieres
Aviva Valorisation Opportunite
Aviva Valorisation Patrimoine
FPE Aviva Investors Euro
Corporate Senior Debts
FPE Aviva Small & Midcap
ASAM
UFF Cap Defensif
UFF Euro-Valeur 0-100 A
UFF Obligations 5-7 A
Obligations 5-7M
Rendement Diversifie M
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 lle de France SCI
Aviva Investors Experimmo
Propco 1
Aviva Investors Experimmo
Propco 2
153, Boulevard Haussmann,
75008, Paris
Selectus
159 rue Montmartre, France
75002
Mamann Invest
SACAF
20 Place Vendome, 75001
Paris
Aviva plc Annual report and accounts 2019
249
Share Class1
FCP
FCP
FCP
FCP
% held
100
100
80
100
FCP
FCP
SICAV
Ordinary
SICAV
FCP
FCP
Ordinary
FCP
FCP
FCP
FCP
FCP
FIPS
FCP
FCP
Ordinary
Ordinary
FCP
FCP
FPE
98
98
89
97
96
100
82
82
99
98
100
99
100
100
100
100
96
83
97
97
24
FCP
100
FCP
FCP
FCP
FCP
FCP
FCP
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100
98
99
81
96
100
100
100
100
100
100
100
Ordinary
100
Ordinary
Ordinary
Ordinary/Preference
Ordinary
Ordinary
Ordinary
100
100
99
100
100
50
Ordinary
50
SPV
Ordinary
100
100
Ordinary
100
FCP
97
Ordinary
Ordinary
100
100
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
Company name
AXA Lbo Fund IV Feeder
AXA UK Infrastructure
Investment SAS
Croissance Pme A C.
29 Avenue de Messine, 75008,
Paris
Afer Premium
32, Avenue d’Iéna, 75116
Paris
CGP Entrepreneurs
Aviva Capital Planete
UFF Grandes Marques A
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 Selection Premium A
(Uavfran)
Ufifrance Gestion
Ufifrance Patrimoine
UFF Privilège A
Union Financière de France
Banque
36 Rue De Naples 75008 Paris
Ufifrance Immobilier
37 Avenue des Champs
Elysées, 75008, Paris
Bellatrix
Betelgeuse
Europe Israel Croissance
Société Française de Gestion et
d’Investissement
Sirius
41 Rue Capitaine Guynemer,
92400, Courbevoie
Logipierre 1
47 Rue du Faubourg Saint-
Honoré, 75008, Paris
CGU Equilibre
Aviva Selection
Diapason 1
UFF Global Convertibles A
UFF Oblicontext Moyen Terme
A
53 Avenue d'Iéna
UFF Valeurs Pme-A (Fintrma)
59 Avenue Pierre Mendes,
France 75013, Paris
Aviva La Fabrique Impact ISR
7 Rue Auber, 75009, Paris
Vip Conseils
Share Class1
Private Equity Fund
Ordinary Shares
% held
38
100
FCP
100
Company name
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 5
Newco 6
SCI Pesaro
Carpe Diem Société Civile
Immobilière
Societe Civile Immobiliere
Charles Hermite
Societe Civile Immobiliere
Montaigne
Zelmis
Aviva Developpement Vie
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
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 Couventure Actions
91-93 Boulevard Pasteur,
75015, Paris
SCI Campus Medicis St Denis
SCI Campus Rimbaud St Denis
9 Rue Newton, 75116 Paris
Pretons Ensemble
Pretons Ensemble 2
1 Boulevard Haussman,
75009 Paris
Afer Actions PME
Aviva Investors Euro
Commercial Real Estate Debt II
Aviva Perspective 2021-2025
Aviva Perspective 2026-2030
Aviva Perspective 2031-2035
Aviva Perspective 2036-2040
Germany
c/o Wswp Weinert GmbH,
Theatinerstr. 31, 80333,
Munich
FPB Holdings GmbH
SICAV
100
Ordinary
FCP
FCP
Ordinary
FCP
74
100
99
74
98
FCP
99
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
Ordinary
Ordinary
FCP
Ordinary
98
50
98
100
99
99
100
100
98
99
95
95
98
74
74
69
74
SCI
20
SICAV
SICAV
SICAV
Ordinary
SICAV
99
92
85
67
99
Ordinary
44
FCP
FCP
FCP
FCP
FCP
100
100
84
98
94
FCP
98
FCP
100
Ordinary
34
Speditionstrasse 23,
Germany 40221
Projekttgesellschaft
Hafenspitze
Max-Planck-Strasse, 3,85609
Ascheim-Dornach, Germany
Aviva plc Annual report and accounts 2019
250
Share Class1
% held
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100
100
100
100
100
100
100
100
79
50
Ordinary
100
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100
100
100
100
100
100
100
100
100
100
100
100
100
100
FCP
FPS
100
100
Ordinary
Ordinary
FPS
FPS
FCP
FCT
FCP
FCP
FCP
FCP
30
30
30
30
100
34
100
100
100
100
Series A Shares,
Series B Shares
100
Ordinary
94
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
Company name
ASF German Retail GmbH & Co
KG
German Retail I GmbH
German Retail II GmbH
German Retail III GmbH
German Retail Investment
Properties Sarl
German Retail IV GmbH
German Retail IX GmbH
German Retail V GmbH
German Retail VII GmbH
German Retail VIII GmbH
Sachsenfonds GmbH
Eschenheimer Anlage 1,
60315 Frankfurt
Reschop Carre Hattingen
GmbH
Reschop Carre Marketing
GmbH
Guernsey
PO Box 255, Trafalgar Court,
Les Banques, St. Peter Port,
GY1 3QL
AXA Property Trust Ltd
BMO Commercial Property
Trust Ltd
PO Box 34, St Martin’s House,
Le Bordage, Guernsey CY1
4AU
Paragon Insurance Company
Guernsey Limited
Marlborough International
Management Limited, First
Floor, Tudor House, Le
Bordage, St Peter Port,
Guernsey, Channel Islands
GY1 1 DB
Marlborough International
Fund PCC Limited re:
Marlborough Balanced Cell
PO Box 287, 4th Floor, West
Wing, Trafalgar Court,
Admiral Park
WSF Asian Pacific Fund
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
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
Share Class1
% held
Ordinary
50
Liquidity Fund
Liquidity Fund
Liquidity Fund
Liquidity Fund
Shares Of No Par Value Shares, 1
Subscriber Euro €1 Shares
OEIC
OEIC
95
94
77
78
100
23
23
Unit Trust
60
Unit Trust
Unit Trust
100
100
A Shares, B Shares
100
Ordinary
100
Ordinary
100
Ordinary
Ordinary
100
100
Ordinary
100
Ordinary
100
Ordinary
100
Ordinary
100
Ordinary
100
OEIC
OEIC
OEIC
OEIC
OEIC
26
37
33
24
46
Share Class1
Ordinary
% held
98
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
98
98
98
98
98
98
98
98
98
98
Ordinary
95
Ordinary
100
Ordinary
Ordinary
28
47
Ordinary
46
OEIC
27
OEIC
33
Unit Trust
37
Ordinary
40
Ordinary
49
Ordinary
100
Ordinary
100
Company name
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
Aviva Investors Euro Liquidity
Fund
Aviva Investors Sterling
Government Liquidity Fund
Aviva Investors Sterling
Liquidity Fund
Aviva Investors Sterling
Liquidity Plus Fund
Georges Court, 54-62
Townsend Street, Dublin 2
FPPE Fund Public Limited
Company
EM LC Gov Bond Index Fund
(B14)
GAM Fund Management
Limited, “George Court, 54-62
Townsend Street
Guild House, Guild Street,
IFRS, Dublin 1
Aviva Irl Merrion Exempt Trust -
Managed Fund
Aviva Irl Merrion Multi Asset 30
Aviva Irl Merrion Multi Asset 50
One Park Place, Hatch Street,
Dublin 2
Area Life International
Assurance dac
Aviva DB Trustee Company
Ireland Designated Activity
Company
Aviva DC Trustee Company
Ireland Designated Activity
Company
Aviva Direct Ireland Limited
Aviva Driving School Ireland
Limited
Aviva Group Services Ireland
Limited
Aviva Insurance Ireland
Designated Activity Company
Aviva Life & Pensions Ireland
Designated Activity Company
Aviva Life Services Ireland
Limited
Peak Re Designated Activity
Company
Charlotte House,
Charlemount Street
Mercer Diversified Retirement
Fund
Mercer Multi Asset Defensive
Fund
Mercer Multi Asset Growth
Fund
Mercer Multi High Growth Fund
Mercer Multi Asset Moderate
Growth Fund
3rd Floor, 2 Harbourmaster
Place, IFSC
Aviva plc Annual report and accounts 2019
251
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
Company name
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
Russell Investment Company
Plc – Acadian Multi-Asset
Absolute Return UCITS
SSgA GRU Euro Index Equity
Fund
One Coleman Street, London
EC2R 5AA
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
Friends First US Property
Company Limited
1211 Avenue of the Americas
(Proxy)
Annaly Credit Opportunities
Ireland ICAV
2nd Floor, IFSC House, Int’l
Financial Services Centre,
Custom House Docks
Barings International Umbrella
Fund – Barings International
Bond Fund
1 Custom House Plaza, IFSC
Blackrock Emerging markets
Bond Hard Currency Fam Fund
Eurizon Flexible Equity
Strategy FAM Fd
JP Morgan European Equity
FAM Fund
Nordea Stable Performance
FAM Fd
Vontobel Global Equity FAM Fd
JP Morgan House,
International Financial
Services Centre
BlackRock Index Selection
Fund Market Advantage
Strategy
Trafalgar Court, Admiral Park
CGWM Affinity Fund
CGWM Diversity Fund
CGWM Opportunity Fund
13-18 City Quay, Ireland
Share Class1
OEIC
% held
37
OEIC
OEIC
Unit Trust
OEIC
99
95
31
28
Unit Trust
46
OEIC
64
OEIC
100
OEIC
100
OEIC
100
Ordinary
50
Ordinary
100
Alternative Investment
100
Unit Trust
26
OEIC
OEIC
OEIC
OEIC
OEIC
23
26
28
21
22
Unit Trust
27
OEIC
OEIC
OEIC
36
25
45
Company name
Friends First Managed
Pensions Funds Designated
Activity Company
25 Cabot Square, Canary
Wharf
FundLogic Alternatives plc
MDO Management Company
SA, 19 rue de Bitbourg
Kensington Diversified
Balanced Fund
Kensington Diversified Growth
Fund
One Iron Street
SPDR FTSE EPRA Europe ex UK
Real Estate UCITS ETF
3rd Floor, 2 Harbourmaster,
IFSC
KBI Institutional Fund ICAV –
KBI Institutional Eurozone
Equity Fund
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
Aviva Vita 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
30-31 Golden Square UT2
Barratt House UT2
Chancery House Unit Trust
Irongate House UT
New Broad Street House UT
Pegasus House and Nuffield
House UT2
W Nine Unit Trust
3rd Floor Walker House,
28-34 Hill Street, St Helier,
JE4 8PN
1 Fitzroy Place Jersey Unit
Trust2
2 Fitzroy Place Jersey Unit
Trust2
Lime Grove House , Green
Street, St Helier, JE1 2ST
20 Gracechurch Unit Trust
Designer Retail Outlet Centres
Unit Trust
Aviva plc Annual report and accounts 2019
252
Share Class1
Ordinary
% held
100
OEIC
30
OEIC
OEIC
20
27
OIEC
24
OEIC
36
Ordinary B Shares, Ordinary Shares
100
Ordinary Shares
100
Ordinary
25
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100
100
92
100
51
80
Real Estate Fund
100
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
50
50
50
50
50
50
50
50
50
50
50
Unit Trust
Unit Trust
100
97
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
Company name
COW Real Estate Investment
Unit Trust
Quantum Unit Trust
Southgate Unit Trust
The Designer Outlet Centres
(Mansfield) Unit Trust
The Designer Outlet Centres
(York) Unit Trust
The Designer Retail Outlet
Centres 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
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.a.r.l
AFRP Sarl
Aviva Investors European
Renewable Energy SA
Victor Hugo 1 Sarl
Aviva Investors Polish Retail S.à
r.l.
MPS L14 Sarl
2 rue Edward Steichen,
L – 2540, Luxembourg, LU
VAM Managed Funds (Lux) –
VAM Balanced Fund
VAM Managed Funds (Lux) –
International Real Estate
Equity Fund
1c Rue Gabriel Lippmann,
L -5365, Munsbach, LU
Patriarch Classic B&W Global
Freestyle
2 Rue de Bitbourg, L-1273
Janus Henderson Horizon –
European Growth Fund
2 Rue du Fort Bourbon, L-
1249 Luxembourg, Grand
Duchy of Luxembourg
AFRP Sarl
AIEREF Holdings 1 Sarl
AIEREF Holdings 2 Sarl
Aviva Investors Alternative
Income Solutions General
Partner Sarl
Aviva Investors Alternative
Income Solutions Investment
SA
Centaurus CER (Aviva
Investors) Sarl
EP Megaron GmbH & Co KG
EP Megaron GP GmbH
Share Class1
Unit Trust
% held
100
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
50
50
97
97
97
Ordinary
Ordinary
100
100
Ordinary
90
Ordinary
67
Ordinary
100
Ordinary
Ordinary
Ordinary
Ordinary
100
100
100
100
Unit Trust
100
SICAV
SICAV
53
34
FCP
31
SICAV
32
Ordinary
Equity Shares
Ordinary
Ordinary
100
44
100
100
Ordinary
100
Sarl
100
KG
GP
100
100
Company name
EP Megaron Holding Sarl
European Properties Sarl
Sapphire Ile de France 1 Sarl
Sapphire Ile de France 2 Sarl
Aviva Investors Perpetual
Capital
Aviva Investors Alternative
Income Solutions SCSp
Aviva Investors Alternative,
FCP-RAIF
Aviva Investors Asian Equity
Income Fund
Aviva Investors Cells Fund
Aviva Investors CELLs Danone
Sarl
Aviva Investors CELLs Holdings
Aviva Investors CELLS Stern
Sarl
Aviva Investors CELLS SCSp
Aviva Investors EBC Sarl
Aviva Investors Climate
Transition Equity Fund
Aviva Investors European
Corporate Bond Fund
Aviva Investors Emerging
Markets Equity Small Cap Fund
Aviva Investors Emerging
Markets Bond Fund
Aviva Investors Emerging
Corporate Bond Fund
Aviva Investors Emerging
Equity Income Fund
Aviva Investors Emerging
Markets Local Currency Bond
Fund
Aviva Investors European
Equity Fund
Aviva Investors Equity Income
Fund
Aviva Investors European Real
Estate Securities Fund
Aviva Investors Global
Aggregate Bond Fund
Aviva Investors Global
Convertibles Absolute Return
Fund
Aviva Investors Global
Convertibles Fund
Aviva Investors Global
Emerging Markets Equity
Unconstrained Fund
Aviva Investors Global
Emerging Markets Index Fund
Aviva Investors Global Equity
Endurance Fund
Aviva Investors Global Equality
Unconstrained Fund
Aviva Investors Global High
Yield Bond Fund
Aviva Investors Global
Investment Grade Corporate
Bond Fund
Aviva Investors Investment
Solutions Emerging Markets
Debt Fund
Aviva Investors Luxembourg
Aviva Investors Multi-Strategy
Fixed Income Fund
Aviva plc Annual report and accounts 2019
253
Share Class1
Ordinary
Ordinary
Ordinary
% held
100
98
100
Ordinary
Alternative Investment Fund
100
50
Ordinary
FCP
SICAV
Alternative Investment
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
SICAV
SICAV
SICAV
SICAV
SICAV
SICAV
SICAV
55
57
99
100
100
100
100
100
100
99
64
85
82
84
99
90
SICAV
67
SICAV
100
SICAV
SICAV
SICAV
66
96
77
SICAV
76
SICAV
100
SICAV
SICAV
89
99
SICAV
100
SICAV
SICAV
68
88
SICAV
100
Ordinary
SICAV
100
29
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
Company name
Aviva Investors Multi-strategy
Target Income Fund
Aviva Investors Multi-strategy
Target Return Fund
Aviva Investors Short Duration
Global High Yield Bond Fund
Aviva Investors Sustainable
Income & Growth Fund
Aviva Investors UK Equity
Focus Fund
Aviva Investors US Equity
Income Fund
German Retail Investment
Property Fund
Hexagone.S.a.r.l
3 Rue des Labours, L-1912
Haspa Trendkonzept
42 Rue de la Vallée, L-2661,
Luxembourg LU
World Investment
Opportunities Funds – China
Performance Fund
World Investment Funds –
India Performance Fund
46a Avenue John F Kennedy,
L-1855, Luxembourg, Grand
Duchy of Luxembourg
Centaurus CER (Aviva
Investors) Sarl
EPI NU Sarl
47 Avenue John F Kennedy,
L-1855 Luxembourg
Goodman European Business
Park Fund (Lux) S.àr.l.
49 Avenue J-F Kennedy,
L-1855, Luxembourg LU
BMO European Growth &
Income Fund
BMO Diversified Growth Fund
BMO Global Total Return Bond
Fund
2 Boulevard Konrad
Adenauer, L-1115,
Luxembourg
Aviva Infrastructure Debt
Europe SA
DWS Global Aribusiness
Xtrackers II Eurozone
Government Bond 15-30 UCITS
ETF
5, Allée Scheffer, L-2520
Pramerica Pan-European Real
Estate Fund
Pramerica Pan-European
Estate Fund II
Tikehau Italy Retail Fund II
Scsp-Area12
Tikehau Senior Loans III
5 rue Heienhaff, L-1736
Senningerberg, Grand Duchy
of Luxembourg
The Jupiter Global Fund -
Jupiter Financial Innovation
2C rue Albert Borschette,
L-1246, Luxembourg
AQR Systematic Total Return
Fund II
4 Rue Albert Borschette, 1246
Luxembourg
Share Class1
SICAV
% held
75
SICAV
SICAV
SICAV
SICAV
SICAV
FCP
48
41
98
94
68
98
SICAV
100
FCP
55
SICAV
35
SICAV
34
Ordinary
100
Ordinary
100
Ordinary
50
SICAV
100
SICAV
SICAV
90
63
Fund
100
FCP
SICAV
20
27
Alternative Investment Fund
Alternative Investment Fund
Alternative Investment Fund
Alternative Investment Fund
59
25
20
20
SICAV
26
SICAV
62
Company name
Negentrophy – Debt Select
Fund
14 Porte de France
Aviva Investors Cells Fund
15 rue du Bourbon, L-1249
Luxembourg, Grand Duchy of
Luxembourg
Aviva Investors European
Secondary Infrastructure Credit
SV S.A
2-4 Rue, Eugene Ruppert –
2453, Luxembourg LU
Invesco Funds – Invesco
Emerging Markets Equity Fund
Invesco Funds – Invesco Global
Care Fund
Invesco Funds – Invesco Global
Opportunities Fund
Invesco Funds – Invesco UK
Equity Fund
Invesco Funds – Invesco US
Fund
562 rue de Neudorf, L – 2220
Luxembourg LU
Nordea 1 – Swedish Bond Fund
Nordea 1 – Swedish Short-
Term Bond Fund
11 rue Aldringen, L1118,
Luxwmbourg LU
KMG Sicav – SIF Devere Global
Frontier Markets Fund
KMG Sicav – SIF Devere Medical
Opportunities Fund
6 H route de Treves, L – 2633,
Senningerberg, LUK
Momentum Global Funds
Harmony Portfolios Asian
Growth Fund
Momentum Global Funds
Harmony Portfolios Euro
Diversifed Fund
6 Route de Treves, L – 2633,
Senningerberg, LU
JPMorgan Funds – USD Money
Market VNAV Fund
Malta
Central North Business
Centre, Level 1, Sqaq il-
Fawwara, Sliema (Proxy)
Herakles
Herakles II
Mauritius
4th Floor, Raffles Tower, 19
Cybercity, Ebene
Reliance Emergent India Fund
Norway
Tollbugate 27,0157 Oslo
Norway
Aviva Investors CELLs Norway
AS
Aviva CELLS Norway Holding
AS
Kongsgard Alle 20 AS
Poland
Inflancka 4b, 00-189
Warszawa
AdRate Sp z.o.o
Share Class1
Alternative Investment Funde
% held
32
Alternative Investment Fund
64
Fund
68
SICAV
SICAV
SICAV
SICAV
SICAV
28
35
30
36
42
SICAV
SICAV
32
32
SICAV
SICAV
22
20
SICAV
20
SICAV
24
SICAV
24
Alternative Investment Fund
Alternative Investment Fund
47
100
OEIC
88
Cells Fund
100
Cells Fund
100
Cells Fund
100
Ordinary
90
Aviva plc Annual report and accounts 2019
254
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
Company name
Aviva Investors FIO Aktywnej
Alokacji
Aviva Investors Fio Depozyt
Plus
Aviva Investors Fio Malych
Spolek
Aviva Investors Fio
Nowoczesnych Technologii
Aviva Investors Fio Obligacji
Aviva Investors Fio Polskich
Akcji
Aviva Investors Sfio Akcyjny
Aviva Investors Sfio Aviva
Lokacyjny
Aviva Investors Sfio Dluzny
Aviva Investors Sfio Dluzny
Spotek
Aviva Investors Sfio Pap
Nieskarbowych
Aviva Investors Sfio Pieniezny
Aviva Investors Sfio Spolek
Dywidend
Aviva Services Spolka z
organisczona
odpowiedzialnoscia
Expander Advisors Sp z.o.o
Life Plus Sp z.o.o
Aviva Poland Towarzystwo
Funduszy Investycyjnych SA
Aviva Powszenchne
Towarzystwo Emerytaine Aviva
Santander SA
Aviva Towarzystwo
Ubezpieczen NA Zycie SA
Aviva Towarzystwo
Ubezpieczen Ogolnych SA
Santander Aviva Towarzystwo
Ubezpieczen na Zycie Spolka
Akcyjna
Santander Aviva Towarzystwo
Ubezpieczen Spolka Akcyjna
Porowneo pl Sp z.o.o
Aviva Sfio Subfundusz Aviva
Oszczednosciowy
Aviva Spolka z ograniczona
odpowiedzialnoscia
Prosta 69 Poland 00-383
Proowneo.pl Sp zoo
AI Jana Powla
Wroclaw BC Sp Zoo
Saudi Arabia
Riyad Capital, 6775
Takhassusi Street – Olaya,
Riyadh 12331 – 3712
Riyad AI Jarei Fund (SAR)
Riyad AI Jarei Sharia Fund
(SAR)
Riyad AI Mutahafedh Sharia
Fund (SAR)
Riyad AI Mutawazen Sharia
Fund (SAR)
Riyad AI Shujia’a Fund (SAR
Riyad AI Shujia’a Sharia Fund
Singapore
12 Marina View, #18-02 Asia
Square Tower 2, 018961
Nikko AM Shenton Asia Pacific
Fund
Share Class1
UCITS
% held
23
UCITS
UCITS
UCITS
UCITS
UCITS
Non UCITS
Non UCITS
Non UCITS
Non UCITS
42
68
79
79
57
100
71
100
100
Non UCITS
99
Non UCITS
Non UCITS
100
100
Non UCITS
90
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
90
90
95
81
90
95
51
Ordinary
51
Ordinary
Non UCITS (AIF)
90
100
Ordinary
90
Ordinary
90
Ordinary
100
Mutual Fund
Mutual Fund
Mutual Fund
Mutual Fund
Mutual Fund
Mutual Fund
28
67
89
80
22
90
Unit Trust
66
Company name
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
1 Raffles Quay #27-13 South
Tower 4, Singapore 048583
Aviva Investors Asia Pte Limited
6 Temasek Boulevard, #29-
00, Suntec Tower 4, 038986
Aviva Asia Digital Pte. Ltd.
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,
Puerto d, Alcobendas 28-
Madrid
Eolica Almatret SL
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
United Kingdom
No 1 Dorset Street,
Southampton, Hampshire
SO15 2DP
Mill NU Properties Limited
Building a Future (Newham
Schools) 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
Aviva plc Annual report and accounts 2019
255
Share Class1
Unit Trust
% held
53
Unit Trust
45
Ordinary
Ordinary
100
100
Ordinary A
92
Ordinary A
92
Ordinary
100
Ordinary
Ordinary
Ordinary
100
100
100
Ordinary
100
Ordinary
50
Ordinary
45
Ordinary
Ordinary
100
100
Interest
100
Ordinary
40
Ordinary A
Ordinary
100
100
Ordinary
100
Ordinary
100
Ordinary
100
Ordinary
100
Ordinary
100
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
Company name
NU Local Care Centres
(Chichester No.5) Limited
NU Local Care Centres
(Chichester No.6) Limited
Argyll House, All Saints
Passage, London SW18
Freetricity Southeast 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
LF Bentley Global Growth
LF Bentley Sterling Balanced
Fund
30 Finsbury Square, London,
EC2P 2YU
The Designer Retail Outlet
Centres (General Partners)
Limited
42 Dingwall Road, Croydon,
Surrey, CR0 2NE
Health & Case Management
Limited
Ballard Investment Company
Limited
4th Floor, New London
House, 6 London Street,
London, EC3R 7LP
Polaris U.K. Limited
The Green Easter Park,
Benyon Road, Reading RG7
2PQ
Homesun 2 Limited
Homesun 3 Limited
Homesun 4 Limited
Homesun 5 Limited
Homesun Limited
Anesco Mid Devon Limited
Anesco South West Limited
Free Solar (Stage 1) Limited
New Energy Residential Solar
Limited
Norton Energy SLS Limited
TGHC Limited
5 Lister Hill, Horsforth,
Leeds, LS18 5AZ
Aspire Financial Management
Limited
Living in Retirement 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
Share Class1
Ordinary
% held
100
Ordinary
100
Ordinary
100
Ordinary
Ordinary
28
28
Ordinary
28
Ordinary
28
OEIC
OEIC
58
33
GP
50
Ordinary Preference
25
Ordinary
25
Ordinary
39
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100
100
100
100
100
100
100
100
100
100
100
Ordinary
47
Ordinary
Ordinary
Ordinary
A Ordinary
Redeemable Ordinary
Ordinary B
Ordinary
Ordinary A
Ordinary
Ordinary
Ordinary
47
47
47
37
47
47
47
47
47
47
Company name
TenetLime Limited
TenetSelect Limited
5 Old Broad Street, London
EC2N 1A
Architas Multi-Manager
Diversified Protector 70
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 Fund
AXA Rosenberg Asia Pacific Ex
Japan Fund
AXA Rosenberg Global Fund
AXA Rosenberg Japan Fund
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
East Farmhouse, Cams Hall
Estate, Fareham, PO16 8UT
IQUO Limited
Exchange House, Primrose
Street, EC2A 2HS
BMO Emerging Markets Equity
Fund
BMO MM Navigator Balanced
Fund
BMO Global Total Return Bond
(GBP Hdg) Fund
Calton Square, 1 Greenside
Row
Baillie Gifford Investment
Funds II ICVC-Baillie Gifford UK
Equity Core Fund
12 Throgmorton Avenue
BlackRock Market Advantage
Fund
Pitheavlis, Perth, Perthshire,
PH2 0NH
Aviva Investors Private Equity
Programme 2008 Partnership
Aviva (Peak No.1) UK Limited
Aviva Insurance Limited
Aviva Investors (FP) Limited
Aviva Investors (FP) LP
General Accident plc
Aviva plc Annual report and accounts 2019
256
Share Class1
Ordinary
Ordinary
% held
47
47
OEIC
OEIC
50
37
OEIC
50
Ordinary
22
OEIC
OEIC
OEIC
OEIC
OEIC
32
89
97
88
95
Ordinary
100
Ordinary
100
Ordinary
Ordinary
Ordinary
100
100
100
Ordinary
100
Ordinary A
50
Ordinary
100
Ordinary
Ordinary
Ordinary
100
100
100
Ordinary A Shares
67
OEIC
OEIC
Private Equity
35
20
30
OEIC
20
Unit Trust
32
LP
40
Ordinary
Ordinary
Ordinary
LP
Ordinary
100
100
100
100
100
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
Company name
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
Friends AEL Trustees Limited
Friends AELLAS Limited
Friends AELRIS Limited
Friends Life and Pensions
Limited
Friends Life Assurance Society
Limited
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
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
1 Liverpool Street General
Partner Limited
1 Liverpool Street Nominee 1
Limited
1 Liverpool Street Nominee 2
Limited
Share Class1
GP
% held
100
Ordinary
Ordinary
100
100
Ordinary
100
Ordinary
100
Ordinary
Ordinary
£1 Stock
Ordinary
100
100
100
100
Ordinary
100
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100
100
100
100
100
100
100
100
100
Ordinary A
100
Ordinary
100
Ordinary
100
Ordinary
Ordinary
Ordinary
100
100
100
Ordinary
100
Ordinary
100
Ordinary
100
Ordinary
100
Ordinary A
75
Ordinary
100
Ordinary
Ordinary
Ordinary A
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100
100
100
100
100
100
100
100
Ordinary
Ordinary
50
100
Ordinary
100
Ordinary
100
Company name
10-11 GNS Limited (Great
Newport Street)
11-12 Hanover Square LP
11-12 Hanover Square
Nominee 1 Limited
11-12 Hanover Square
Nominee 2 Limited
130 Fenchurch Street General
Partner Limited
130 Fenchurch Street Nominee
1 Limited
130 Fenchurch Street LP
130 Fenchurch Street Nominee
2 Limited
1-5 Lowndes Square
Management Company
Limited
2 Fitzroy Place Limited
Partnership
20 Lowndes Square
Management Company
Limited
20 Gracechurch (General
Partner) Limited
20 Gracechurch Limited
Partnership
2-10 Mortimer Street (GP No1)
Limited
2-10 Mortimer Street GP
Limited
2-10 Mortimer Street Limited
Partnership
30 Station Road Nominee 1
Limited
30 Station Road Nominee 2
Limited
30 Station Road Unit Trust –
Closed Ended Fund
30 Warwick Street LP
30 Warwick Street Nominee 1
Limited
30 Warwick Street Nominee 2
Limited
30-31 Golden Square Nominee
LP
30-31 Golden Square Nominee
1 Ltd
30-31 Golden Square Nominee
2 Ltd
41-42 Lowndes Square
Management Company
Limited
43 Lowndes Square
Management Company
Limited
44-49 Lowndes Square
Management Company
Limited
50-60 Station Road Nominee 1
Limited
50-60 Station Road Nominee 2
Limited
6-10 Lowndes Square
Management Company
Limited
AI Special PFI SPV Limited
Atlas Park Management
Company Limited
AEP Feeder Fund V
Asl Infrastructure Equity Npv
Aviva plc Annual report and accounts 2019
257
Share Class1
Ordinary
% held
100
LP
Ordinary
Ordinary
GP
Ordinary
Limited Partnership
Ordinary
50
50
50
50
50
50
50
Ordinary
100
Limited Partnership
100
Ordinary
50
GP
100
Limited Partnership
100
GP
Ordinary
Limited Partnership
Ordinary
Ordinary
Unit Trust
Limited Partnership
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
50
50
50
50
50
50
50
50
50
50
50
50
Ordinary
100
Ordinary
100
Ordinary
100
Ordinary
Ordinary
50
50
Ordinary
100
Ordinary
Limited by Guarantee
Unit Trust
Ordinary
100
100
100
100
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
Company name
Aviva Plc
Aviva Investors 40 Spring
Gardens (General Partner)
Limited
Aviva Investors Commercial
Asset GP Limited
Aviva Investors Pensions
Limited
Aviva Investors Energy Centres
No 1 Limited Partnership
Aviva Investors Ground Rent
Holdco Limited
Aviva Investors Infrastructure
GP Limited
Aviva Investors Infrastructure
Income No 1 Limited
Aviva Investors Infrastructure
Income No 2 Limited
Aviva Investors Infrastructure
Income No 3 Limited
Aviva Investors Infrastructure
Income No 4A Limited
Aviva Investors Infrastructure
Income No 4B Limited
Aviva Investors Polish Retail GP
Limited
Aviva Investors Polish Retail
Limited Partnership
Aviva Investors Property Fund
Management Limited
Ascot Real Estate Investments
LP2
Ascot Real Estate Investments
GP LLP2
Aviva Group Holdings Limited
Aviva Staff Pension Trustee
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 Global Services
Limited
Aviva Investors Ground Rent GP
Limited
Aviva Investors Holdings
Limited
Aviva Investors EBC Limited
Partnership
Aviva Investors EBC GP Limited
Aviva Investors UK Fund
Services Limited
Aviva Investors UK Funds
Limited
Aviva Overseas Holdings
Limited
Aviva Public Private Finance
Limited
Share Class1
Ordinary
GP
% held
100
100
GP
100
Ordinary
100
GP
100
Ordinary
100
GP
100
Ordinary
100
Ordinary
100
Ordinary
100
Ordinary
100
Ordinary
100
GP
100
Limited Partnership
100
Ordinary
100
Limited Partnership
Limited Partnership
Ordinary
Ordinary
Ordinary
Ordinary
50
50
100
100
100
100
Ordinary
100
Ordinary
100
Ordinary
100
Ordinary
Ordinary
100
100
Ordinary
100
Ordinary
100
Ordinary
100
Ordinary
100
Ordinary
100
LP
100
GP
Ordinary
100
100
Ordinary
100
Ordinary
100
Ordinary
100
Company name
Aviva UK Digital Limited
Aviva UKLAP De-risking Limited
Aviva Investors Real Estate
Limited
Aviva Investors Realm Energy
Centres GP Limited
Aviva Investors Social Housing
Limited
Aviva Investors Social Housing
GP Limited
Aviva Investors UK CRESD GP
Limited
Aviva Investors UK Equity Ex
Tobacco
Aviva Investors 30 70 Global
Equ 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 Investors Asia Pacific ex
Japan Fund
Aviva Investors Asia Pacific
Property Fund
Aviva Investors Balanced Life
Fund
Aviva Investors Balanced
Pension Fund
Aviva Investors Cautious
Pension Fund
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 Fd
Aviva Investors Distribution Life
Fund
Aviva Investors Europe Equity
ex UK Fund
Aviva Investors European
Property Fund
Aviva Investors Global Equity
Alpha Fund
Aviva Investors Global Equity
Endurance Fund
Aviva Investors Global Equity
Fund
Aviva Investors Equity Income
Fund
Aviva Investors High Yield Bond
Fund
Aviva Investors Index Linked
Gilt Fund
Aviva Investors Idx-Lkd Gilts
Ovr 5 Yrs Idx Fund
Aviva Investors International
Index Tracking Fund
Aviva Investors Japan Equity
Alpha Fund
Aviva plc Annual report and accounts 2019
258
Share Class1
Ordinary
Ordinary
Ordinary
% held
100
100
100
GP
100
Ordinary
100
Ordinary
100
GP
100
Collective Investment Scheme
100
Collective Investment Scheme
100
Collective Investment Scheme
100
Collective Investment Scheme
100
Collective Investment Scheme
Collective Investment Scheme
Collective Investment Scheme
Collective
OEIC
Collective Investment Scheme
Collective
Collective Investment Scheme
Collective
Collective Investment Scheme
Collective
Collective Investment Scheme
Collective
Collective Investment Scheme
Collective
OEIC
Collective Investment Scheme
Collective
Collective Investment Scheme
Collective
Collective Investment Scheme
Collective
Collective Investment Scheme
Collective
Collective Investment Scheme
Collective
Collective Investment Scheme
Collective
OEIC
Collective Investment Scheme
Collective
OEIC
Collective Investment Scheme
Collective
OEIC
OEIC
100
100
80
100
100
100
100
100
93
100
100
100
100
100
100
77
100
100
100
78
40
Collective Investment Scheme
100
Collective Investment Scheme
100
Collective Investment Scheme
70
Collective Investment Scheme
100
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
Company name
Aviva Investors Japan Equity
Fund
Aviva Investors Japan Equity
MoM 1 Fund
Aviva Investors Japanese
Equity Index Fund
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 V
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 – OEIC
Aviva Investors Multi-Strategy
Target Return Fund - OEIC
Aviva Investors Non-Gilt Bond
AII Stocks Index Fund
Aviva Investors Non-Gilt Bond
Over 15 Yrs Index Fund
Aviva Investors Non-Gilt Bond
up to 15 Yrs Index Fund
Aviva North American Equity
Fund
Aviva Investors North American
Equity Index Fund
Aviva Investors Pacific Ex
Japan Equity Index Fund
Aviva Investors Pre-Annuity
Fixed Interest Fund
Aviva Investors Sterling
Corporate Bond Fund
Aviva Investors Sterling Gilt
Fund
Aviva Investors Stewardship
Fixed Interest Fund
Aviva Stewardship
International Equity Fund
Aviva Investors Stewardship UK
Equity Fund
Aviva Investors Strategic Bond
Fund
Aviva Investors Strategic Global
Equity Fund
Aviva Investors UK Eq Ex Aviva
Inv Trusts Index Fund
Aviva Investors UK Equity Alpha
Fund
Aviva Investors UK Equity
Dividend Fund
Aviva Investors UK Equity Fund
Aviva Investors UK Equity Index
Fund
Aviva Investors UK Gilts All
Stocks Index Fund
Aviva Investors UK Gilts Over 15
Years Index Fund
Aviva Investors UK Gilts Up to 5
Yrs Index Fund
Share Class1
Collective Investment Scheme
% held
100
Collective Investment Scheme
100
OEIC
100
OEIC
62
Collective Investment Scheme
100
Collective Investment Scheme
100
OEIC
OEIC
OEIC
OEIC
OEIC
OEIC
OEIC
50
75
75
82
82
88
48
Collective Investment Scheme
100
Collective Investment Scheme
100
Collective Investment Scheme
100
Collective Investment Scheme
100
Collective Investment Scheme
100
Collective Investment Scheme
100
Collective Investment Scheme
100
Collective Investment Scheme
100
Collective Investment Scheme
100
Collective Investment Scheme
100
Collective Investment Scheme
100
Collective Investment Scheme
100
OEIC
43
Collective Investment Scheme
100
Collective Investment Scheme
100
Collective Investment Scheme
100
Collective Investment Scheme
100
Collective Investment Scheme
Collective Investment Scheme
100
100
Collective Investment Scheme
100
Collective Investment Scheme
100
Collective Investment Scheme
100
Company name
Aviva Investors UK Index
Tracking Fund
Aviva Investors UK Listed
Equity Income Fund
Aviva Investors UK Listed MoM
1 Fund
Aviva Investors UK Listed High
Alpha Fund
Aviva Investors US Equity Index
Fund
Aviva Investors US Large Cap
Equity Fund
Aviva Special PFI GP Limited
Aviva Special PFI Limited
Partnership
Axcess 10 Management Limited
Axa Sun Life Private
Barratt House LP
Barratt House Nominee 1
Limited
Barratt House Nominee 2
Limited
Barwell Business Park
Nominee Limited
Biomass UK No 2 Limited
Biomass UK No 3 Limited
Biomass UK No 1 Limited
Boston Biomass Limited
Boston Wood Recovery Limited
Cambridge Research +
Innovation
Cannock Designer Outlet (GP
Holdings) Limited
Cannock Designer Outlet (GP)
Limited
Cannock Designer Outlet
(Nominee 1) Limited
Cannock Designer Outlet
(Nominee 2) Limited
Capital Residential Fund
Cardiff Bay GP Limited
Chesterford Park (General
Partner) Limited
CGU International Holdings BV
Commercial Union Corporate
Member Limited
Commercial Union Life
Assurance Company Limited
Commercial Union Trustees
Limited
Cornerford Limited
Chesterford Park Limited
Partnership
Chesterford Park (Nominee)
Limited
COW Real Estate Investment
Nominee Limited
DIF Infrastructure III Off-Shore
Open Ended
EES Operations 1 Limited
EIF USPF IV Blocker Fund
Closed
Friends Life Funds Limited
Fitzroy Place GP 2 Limited
Fitzroy Place Management Co
Limited
Fitzroy Place Residential
Limited
Fppe Private Equity
Aviva plc Annual report and accounts 2019
259
Share Class1
OEIC
% held
60
OEIC
47
OEIC
100
OEIC
94
Collective Investment Scheme
100
Collective Investment Scheme
100
Ordinary
Limited Partnership
Ordinary
Unit Trust
Limited Partnership
Nominee
100
94
100
100
50
50
Ordinary
50
Ordinary
100
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100
100
100
100
100
100
Nominee
100
GP
100
Ordinary
100
Nominee
100
Ordinary
Ordinary
Limited Partnership
Ordinary
Ordinary
88
100
50
100
100
Ordinary
100
Ordinary
100
Ordinary
Ordinary
100
50
Ordinary
100
Ordinary
100
Unit Trust
100
Ordinary
Unit Trust
Ordinary
Ordinary
Ordinary
100
100
100
50
50
Ordinary
50
Unit Trust
100
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
Company name
General Accident Executor and
Trustee Company Limited
Gobafoss General Partner
Limited
Gobafoss Partnership Nominee
No 1 Limited
GS Mezzainine Partners V
Offshore LP
Hemel Hempstead Estate
Management Limited
Hillswood Management
Limited
Houlton Commercial
Management Company
Limited
Houlton Community
Management Company
Limited
Igloo Regeneration (Nominee)
Limited
Igloo Regeneration
Developments (General
Partner) Limited
Igloo Regeneration
Developments (Nominees)
Limited
Igloo Regeneration
Developments LP
Igloo Regeneration Partnership
LP
Igloo Regeneration Property
Unit Trust
Igloo Regeneration (Butcher
Street) Limited
Igloo Regeneration (General
Partner) Limited
Irongate House LP2
Irongate House Nominee 1
Limited2
Irongate House Nominee 2
Limited
Lime Property Fund (General
Partner) Limited
Lime Property Fund (Nominee)
Limited
Lombard (London) 1 Limited
Lombard (London) 2 Limited
Matthew Parker Street
(Nominee No1) Limited
Matthew Parker Street
(Nominee No 2) Limited
Medium Scale Wind No 1
Limited
Mortimer Street Associated Co
1 Limited
Mortimer Street Associated Co
2 Limited
Mortimer Street Nominee 1
Limited
Mortimer Street Nominee 2
Limited
Mortimer Street Nominee 3
Limited
New Broad Street House LP
New Broad Street House
Nominee 1 Limited
New Broad Street Nominee 2
Limited
Norwich Union (Shareholder
GP) Limited
Share Class1
Ordinary
% held
100
Ordinary
100
Ordinary
100
Unit Trust
100
Ordinary
100
Ordinary
Limited by Guarantee
24
50
Limited by Guarantee
50
Nominee
Ordinary
50
50
Ordinary
50
Ordinary
Ordinary
Ordinary
Ordinary
50
40
50
50
Ordinary
50
Limited Partnership
Ordinary
Ordinary
50
50
50
Ordinary
100
Ordinary
100
Ordinary
Ordinary
Ordinary
100
100
100
Ordinary
100
Ordinary
100
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
50
50
50
50
50
50
50
50
Ordinary
100
Company name
Norwich Union Public Private
Partnership Fund
NU 3PS Limited
NU Developments (Brighton)
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
Paddington Central III Limited
Partnership
Paddington Central III (GP)
Limited
Porth Teigr Management
Company Limited
Pegasus House and Nuffield
House LP
Pegasus House and Nuffield
House Nominee 1 Ltd
Pegasus House and Nuffield
House Nominee 2 Limited
Property Management
Company (Croydon) Limited
NU Local Care Centres
(Farnham) Limited
Quaryvale One Limited
Quaryvale Three Limited
Renewable Clean Energy
Limited
Rugby Radio Station (General
Partner) Limited
Rugby Radio Station Limited
Partnership2
Rugby Radio Station
(Nominee) Limited
Capital Residential Fund
Slas Axa Private Equity
Slas Venture Capital Ye Cash
Solar Clean Energy Limited
Southgate General Partner
Limited
Southgate Limited Partnership
Southgate LP (Nominee 1)
Limited
Southgate LP (Nominee 2)
Limited
Station Road Cambridge LP
NPV
Stonebridge Cross
Management Limited
Swan Valley Management
Limited
SUE Developments Limited
Partnership
SUE GP Nominee Limited
SUE GP LLP
Stonebridge Cross
Management Limited
Southgate LP (Nominee 2)
Limited
Aviva plc Annual report and accounts 2019
260
Share Class1
Ordinary
% held
100
Ordinary
Ordinary
100
100
Ordinary
100
Ordinary
Ordinary
100
100
Ordinary
100
Ordinary
100
Ordinary
Ordinary
Limited By Guarantee
100
100
100
Limited Partnership
100
Ordinary
100
Ordinary
Ordinary
Ordinary
Ordinary
50
50
50
50
Ordinary
100
Ordinary
100
Ordinary
Ordinary
Ordinary
100
100
100
Ordinary
Limited Partnership
Ordinary
Limited Partnership
Unit Trust
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Unit Trust
50
50
50
88
100
100
100
50
50
50
50
50
Limited by Guarantee
100
Ordinary
100
Limited Partnership
50
Nominee
GP
Limited by Guarantee
50
50
100
Ordinary
50
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
Company name
Stichting Aviva Infrastructure
Debt Europe 1
Stichting European Secondary
Infrastructure Credit
The Designer Retail Outlet
Centres (Mansfield) General
Partner Limited
The Designer Retail Outlet
Centres (Mansfield) Limited
Partnership
The Designer Retail Outlet
Centres (York) General Partner
Limited
The Designer Retail Outlet
Centres (York) Limited
Partnership
The Gobafoss Partnership
The Ocean Marine Insurance
Company Limited
The Square Brighton Limited
Tyne Assets (No2) Limited
Tyne Assets Limited
Undershaft Limited
W Nine LP
W Nine Nominee 1 Limited
W Nine Nominee 2 Limited
The Welsh Insurance
Corporation Limited
The Yorkshire Insurance
Company Limited
Swan Court Waterman’s
Business Park, Kingsbury
Crescent, Staines, Surrey,
TW18 3BA
Healthcode 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 International
(General Partner) 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
IFSL Tilney Bestinvest Global
Income Portfolio
The Lancashire and Yorkshire
Reversionary Interest Company
Limited
The Norwich Union Life
Insurance Company Limited
Synergy Sunrise (Sentinel
House) Limited
Share Class1
Ordinary
% held
100
Ordinary
100
Ordinary
100
Ordinary
97
Ordinary
100
Ordinary
97
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Limited Partnership
Ordinary
Ordinary
Ordinary
100
100
100
100
100
100
50
50
50
100
Ordinary
100
Ordinary C, Ordinary E
20
Ordinary
Ordinary
Ordinary
100
100
100
Ordinary
100
Ordinary
Ordinary
100
100
Ordinary
100
Ordinary
100
Ordinary
100
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100
100
100
100
100
100
OEIC
22
Ordinary
100
Ordinary
100
Ordinary
100
Company name
Undershaft (NULLA) Limited
Voyager Park South
Management Company
Limited
12 Throgmorton Avenue
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
Liontrust Sustainable Future
Global Growth Fund
Liontrust Sustainable Future
Absolute Growth Fund
Liontrust UK Ethical Fund
Liontrust Future European
Growth Fund
Liontrust Sustainable Furture
Managed Fund
47 Bermondsey Street,
London SE1 3XT
Neos Venures Limited
1020 Eskdale Road,
Winnersh, Wokingham RG41
5TS
Serviced Offices UK GP Limited
Norwich Union Life Insurance
Company Limited
Synergy Sunrise (Sentinel
House) Limited
1 London Wall Place, London,
UK
Schroder QEP US Core Fund
BlackRock Pensions, 33 King
William Street
Undrly Aquila Cnt CcyH Glb
Eq108010 2L
Samuel House , 6 St Albans
Street, 4th Floor, SW1Y 4SQ
Acre Platforms Limited
15 Canada Square, E14 5GL
LUC Holdings Limited
Tec Marina Terra Nova Way,
Penarth, Wales
United Kingdom
CF64 1SA
Wealthify Group Limited
Wealthify Limited
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.
Aviva plc Annual report and accounts 2019
261
Share Class1
Ordinary
Ordinary
% held
100
52
Unit Trust
52
Unit Trust
24
OEIC
OEIC
OEIC
OEIC
OEIC
OEIC
OEIC
36
47
45
53
68
56
68
Ordinary
91
GP
Ordinary
50
100
Ordinary
100
Unit Trust
40
OEIC
65
Ordinary
Ordinary
40
20
A Ordinary
B Ordinary
Ordinary
60
60
Sole Member
100
Common Stock Of No Par Value
Shares
100
Common Stock Shares
100
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
Company name
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
Share Class1
Limited Partnership
% held
100
Common Stock Wpv Shares
Common Stock Wpv Shares
95
100
Non-listed Shares
100
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.
Aviva plc Annual report and accounts 2019
262
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements
Continued
66 – Subsequent events
2020 has begun with the outbreak of a new strain of the Coronavirus (COVID-19) in China, with confirmed cases in more than 50 countries,
including all of those in which Aviva has material businesses. There is a risk of a significant global pandemic and economic disruption. We
have reviewed the exposure of our balance sheet and are taking actions to further reduce our sensitivity to economic shocks. Notwithstanding
our robust capital and liquidity position and the operational and financial actions that we are taking, a deterioration in the situation would
have adverse implications for our businesses arising from the potential impacts on financial markets, our insurance exposures and our
operations. As the situation is rapidly evolving it is not practicable to quantify the potential financial impact of the outbreak on the Group.
Aviva plc Annual report and accounts 2019
263
Strategic report
Governance
IFRS financial statements
Other information
Financial statements of the Company
Income statement
For the year ended 31 December 2019
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
2019
£m
2018
£m
A
B
C
D
1,688
1,688
(195)
—
(537)
(732)
956
92
1,048
2,874
2,874
(246)
(8)
(519)
(773)
2,101
96
2,197
1 Other expenses in 2018 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 36).
Statement of comprehensive income
For the year ended 31 December 2019
Profit for the year
Items that will not be reclassified to income statement
Remeasurements of pension schemes
Forfeited dividend income
Other comprehensive income, net of tax
Total comprehensive income for the year
Note
2019
£m
2018
£m
1,048
2,197
H
H
(1)
4
3
2
4
6
1,051
2,203
Where applicable, the accounting policies of the Company are the same as those of the Group on pages 117 to 131. The notes identified
alphabetically on pages 268 to 273 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 139 to 263.
Aviva plc Annual report and accounts 2019
264
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 2019
Ordinary
share capital
£m
Preference
share capital
£m
Share
premium
£m
Note
Capital
redemption
reserve
£m
Balance at 1 January
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
Reclassification of tier 1 notes to financial liabilities1
Aggregate tax effect
Balance at 31 December
16
34
33
33
37,L
D
975
—
—
—
—
—
5
—
—
—
980
200
—
—
—
—
—
—
—
—
—
200
1,214
—
—
—
—
—
25
—
—
—
1,239
44
—
—
—
—
—
—
—
—
—
44
Merger
reserve
£m
6,438
—
—
—
—
—
—
—
—
—
6,438
Equity
compensation
reserve
£m
Direct capital
instrument
and fixed rate
tier 1 notes
£m
Retained
earnings
£m
120
—
—
—
—
62
(62)
—
—
—
120
4,026
1,048
3
1,051
(1,244)
—
55
—
14
8
3,910
Total equity
£m
13,741
1,048
3
1,051
(1,244)
62
23
—
(210)
8
724
—
—
—
—
—
—
—
(224)
—
500
13,431
1 On 17 October 2019, notification was given that the Group would redeem the £210 million tier 1 notes. At that date, the instrument was reclassified as a financial liability of £210 million, representing its fair value at that date. On
21 November 2019 the instrument was redeemed in full at a cost of £210 million. See note 37 for further details.
For the year ended 31 December 2018
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-back1
Reclassification of tier 1 notes to financial liabilities
Aggregate tax effect
Balance at 31 December
Ordinary share
capital
£m
Preference
share capital
£m
Share
premium
£m
Note
Capital
redemption
reserve
£m
1,003
—
—
—
—
—
2
(30)
—
—
975
16
34
33
33
37,L
D
200
—
—
—
—
—
—
—
—
—
200
1,207
—
—
—
—
—
7
—
—
—
1,214
14
—
—
—
—
—
—
30
—
—
44
Merger
reserve
£m
6,438
—
—
—
—
—
—
—
—
—
6,438
Equity
compensation
reserve
£m
111
—
—
—
—
64
(55)
—
—
—
120
Direct capital
instrument
and fixed rate
tier 1 notes
£m
Total equity
£m
724 13,252
2,197
6
2,203
(1,189)
64
3
(600)
—
8
—
—
—
—
—
—
—
—
—
724 13,741
Retained
earnings
£m
3,555
2,197
6
2,203
(1,189)
—
49
(600)
—
8
4,026
1 On 1 May 2018, the Group announced a share buyback 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 33 for further details of the shares purchase in buy-back.
Where applicable, the accounting policies of the Company are the same as those of the Group on pages 117 to 131. The notes identified
alphabetically on pages 268 to 273 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 139 to 263.
Aviva plc Annual report and accounts 2019
265
Strategic report
Governance
IFRS financial statements
Other information
Financial statements of the Company
Continued
Statement of financial position
As at 31 December 2019
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
Pension deficits and other provisions
Current liabilities
Borrowings
Payables and other financial liabilities
Other liabilities
Total liabilities
Total equity and liabilities
Approved by the Board on 4 March 2020
Jason Windsor
Chief Financial Officer
Note
2019
£m
2018
£m
E
E
F
G
G
F
33
36
33(b)
33(b)
H
H
H
37,L
J
K
I
J
K
31,788
123
5,025
9
85
37,030
241
13
74
31,788
123
5,401
9
89
37,410
414
10
15
37,358
37,849
980
200
1,180
1,239
44
6,438
120
3,910
500
975
200
1,175
1,214
44
6,438
120
4,026
724
13,431
13,741
6,534
12,675
47
19,256
238
4,344
89
23,927
37,358
6,699
12,815
45
19,559
251
4,206
92
24,108
37,849
Where applicable, the accounting policies of the Company are the same as those of the Group on pages 117 to 131. The notes identified
alphabetically on pages 268 to 273 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 139 to 263.
Aviva plc Annual report and accounts 2019
266
Strategic report
Governance
IFRS financial statements
Other information
Financial statements of the Company
Continued
Statement of cash flows
For the year ended 31 December 2019
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 investing activities
Dividends received from subsidiaries
Net cash from 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 borrowings1
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
Funding provided from subsidiaries
Other2
Net cash generated from/(used in) financing activities
Net increase/(decrease) 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
2019
£m
5
5
27
—
(9)
505
(696)
(191)
(316)
(17)
(1,184)
4
(43)
1,807
(5)
73
78
15
(19)
74
2018
£m
—
—
8
(600)
(4)
3,023
(3,536)
(513)
(335)
(17)
(1,128)
4
(44)
2,564
(13)
(78)
(78)
87
6
15
1 2019 includes redemption of 6.875% £210 million tier 1 notes.
2 2019 includes a £5 million (2018: £3 million) donation of forfeited dividend income to a charitable foundation. 2018 also includes £10 million relating to goodwill payments to preference shareholders, which was announced on
30 April 2018, and associated administration costs (see note 36).
Where applicable, the accounting policies of the Company are the same as those of the Group on pages 117 to 131. The notes identified
alphabetically on pages 268 to 273 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 139 to 263.
Aviva plc Annual report and accounts 2019
267
Strategic report
Governance
IFRS financial statements
Other information
Notes to the financial statements of the Company
A – Net investment income
Dividends received from subsidiaries
Interest receivable from group company loans held at amortised cost
Other income
Total
B – 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:
Equity compensation plans (see (iii) below)
Total
Note
O(iii)
O(i)
2019
£m
1,595
92
1
1,688
2018
£m
2,780
92
2
2,874
2019
£m
19
175
1
195
2019
£m
19
19
2018
£m
19
227
—
246
2018
£m
19
19
The Company is no longer charged staff costs directly by the UK employing entity. Staff costs 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 34. 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.
C – Finance costs
Interest payable on borrowings
Interest payable to group companies
Total
D – Tax
(i) Tax credited to the income statement
The total tax credit comprises:
Current tax
For this year
Prior year adjustments
Total current tax
Total tax credited to income statement
Note
O(ii)
2019
£m
325
212
537
2019
£m
(90)
(2)
(92)
(92)
2018
£m
325
194
519
2018
£m
(94)
(2)
(96)
(96)
(ii) Tax credited to other comprehensive income
There was no tax credited or charged to other comprehensive income in either 2019 or 2018.
(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 (2018: £8 million).
Where applicable, the accounting policies of the Company are the same as those of the Group on pages 117 to 131. The notes identified
alphabetically on pages 268 to 273 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 139 to 263.
Aviva plc Annual report and accounts 2019
268
Strategic report
Governance
IFRS financial statements
Other information
Notes to the financial statements of the Company
Continued
D – Tax continued
(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% (2018: 19.00%)
Reconciling items
Adjustment to tax charge in respect of prior years
Non-assessable dividend income
Disallowable expenses
Losses surrendered intra-group for nil value
Total tax credited to income statement
2019
£m
956
182
(2)
(303)
—
31
(92)
2018
£m
2,101
399
(2)
(528)
7
28
(96)
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 2019.
During 2019, the UK Government indicated that it would reverse the reduction in the rate of corporation tax to 17% due from 1 April 2020. As
at 31 December 2019 this measure has not been substantively enacted and therefore no impact is reflected in the calculation of the
Company’s deferred tax assets and liabilities at 31 December 2019.
E – Investments in subsidiaries and joint venture
(i) Subsidiaries
At 31 December 2019, 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. At 31 December 2019, the Company’s investments in subsidiaries have a cost of £31,788 million
(2018: £31,788 million). The principal subsidiaries of the Aviva Group at 31 December 2019 are set out in note 64 to the Group consolidated
financial statements.
(ii) Joint venture
At 31 December 2019, the Company’s investment in the joint venture, Aviva-COFCO Life Insurance Co. Limited has a cost of £123 million
(2018: £123 million).
F – 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.
G – Tax assets and liabilities
(i) Current tax
Current tax assets recoverable in more than one year are £85 million (2018: £89 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
O(i)
O(iii)
2019
£m
5,025
241
5,266
241
5,025
5,266
2018
£m
5,401
414
5,815
414
5,401
5,815
2019
£m
9
9
2019
£m
9
9
2018
£m
9
9
2018
£m
9
9
Where applicable, the accounting policies of the Company are the same as those of the Group on pages 117 to 131. The notes identified
alphabetically on pages 268 to 273 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 139 to 263.
Aviva plc Annual report and accounts 2019
269
Strategic report
Governance
IFRS financial statements
Other information
Notes to the financial statements of the Company
Continued
H – Reserves
Balance at 1 January 2018
Arising in the year:
Profit for the year
Remeasurements of pension schemes
Forfeited dividend income2
Dividends and appropriations
Reserves credit for equity compensation plans
Issue of share capital under equity compensation scheme
Shares purchased in buy-back
Reclassification of tier 1 notes to financial liabilities (note L)
Aggregate tax effect
Balance at 31 December 2018
Arising in the year:
Profit for the year
Remeasurements of pension schemes
Forfeited dividend income2
Dividends and appropriations
Reserves credit for equity compensation plans
Issue of share capital under equity compensation scheme
Shares purchased in buy-back
Reclassification of tier 1 notes to financial liabilities3 (note L)
Aggregate tax effect
Balance at 31 December 2019
Merger reserve
£m
Equity
compensation
reserve1
£m
Retained
earnings
£m
6,438
111
3,555
—
—
—
—
—
—
—
—
—
—
—
—
—
64
(55)
—
—
—
6,438
120
—
—
—
—
—
—
—
—
—
—
—
—
—
62
(62)
—
—
—
2,197
2
4
(1,189)
—
49
(600)
—
8
4,026
1,048
(1)
4
(1,244)
—
55
—
14
8
6,438
120
3,910
1 See notes 34(d) and 39 for further details of balances included in the equity compensation reserve.
2 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.
3 On 17 October 2019, notification was given that the Group would redeem the 6.875% £210 million tier 1 notes. At that date, the instrument was reclassified as a financial liability of £210 million, representing its fair value at that
date. On 21 November 2019 the instrument was redeemed in full at a cost of £210 million. The difference of £14 million between its carrying amount of £224 million and fair value of £210 million has been charged to retained
earnings. See note L for further details.
The tax effect of £8 million (2018: £8 million) is recognised in respect of coupon payments of £43 million (2018: £44 million) on the direct capital
instrument and tier 1 notes.
I – Pension deficits and other provisions
(i) Carrying amounts
Total IAS 19 obligations to staff pension schemes
Total provisions
J – Borrowings
The Company’s borrowings comprise:
Subordinated debt
Senior notes
Commercial paper
Total
All the above borrowings are stated at amortised cost.
2019
£m
47
47
2018
£m
45
45
2019
£m
5,482
1,052
238
6,772
2018
£m
5,586
1,113
251
6,950
Aviva plc Annual report and accounts 2019
270
Strategic report
Governance
IFRS financial statements
Other information
Notes to the financial statements of the Company
Continued
J – 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
238
686
635
—
5,251
6,810
Interest
£m
311
1,194
1,451
1,417
2,636
2019
Total
£m
549
1,880
2,086
1,417
7,887
7,009
13,819
Principal
£m
251
708
673
—
5,365
6,997
Interest
£m
315
1,231
1,490
1,441
2,923
7,400
2018
Total
£m
566
1,939
2,163
1,441
8,288
14,397
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 (2018: £49 million).
The fair value of the subordinated debt at 31 December 2019 was £6,446 million (2018: £5,831 million), calculated with reference to quoted
prices. The fair value of the senior debt at 31 December 2019 was £1,134 million (2018: £1,113 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 53,
with details of the fair value hierarchy in relation to these borrowings in note 24.
K – 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
O(ii)
O(iii)
2019
£m
12,675
4,344
17,019
4,344
12,675
17,019
2018
£m
12,815
4,206
17,021
4,206
12,815
17,021
L – Direct capital instrument and tier 1 notes
The 6.875% £210 million tier 1 notes were redeemed on 21 November 2019 at a cost of £210 million, see details in note 37. These were
reflected in the Company financial statements at a value of £224 million following the transfer at fair value from Friends Life Holdings plc on
1 October 2015. The resulting difference of £14 million between their carrying amount of £224 million and fair value of £210 million has been
charged to the Company retained earnings. These were cancelled on 25 November 2019.
M – Contingent liabilities
Details of the Company’s contingent liabilities are given in the Group consolidated financial statements, note 56.
N – Risk management
Risk management in the context of the Group is considered in the Group consolidated financial statements, note 60.
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 60. 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 J and the Group consolidated financial statements, note 53) 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 J and the Group consolidated financial statements, note 53.
Aviva plc Annual report and accounts 2019
271
Strategic report
Governance
IFRS financial statements
Other information
Notes to the financial statements of the Company
Continued
N – 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 (2018: decrease/increase of
£104 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 60(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 61(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 J and F respectively.
O – 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
1 – 5 years
Over 5 years
Total
2019
£m
3,792
1,233
5,025
2018
£m
3,485
1,916
5,401
The interest received on these loans is £92 million (2018: £92 million). See note A.
On 1 January 2013, Aviva International Holdings Limited, an indirect subsidiary, transferred an unsecured loan with the Company of
€250 million to Aviva Group Holdings Limited, its direct subsidiary. The loan, originally entered into on 7 May 2003, accrues interest at a 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 £212 million (2018: £224 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 £1,563 million (2018: £1,752 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 £259 million (2018: £256 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
£661 million (2018: £700 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
£551 million (2018: £584 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
£593 million (2018: £628 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
£762 million (2018: £808 million).
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IFRS financial statements
Other information
Notes to the financial statements of the Company
Continued
O – 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 £424 million (2018: £449 million).
(ii) Loans owed to subsidiaries
Maturity analysis of contractual undiscounted cash flows:
Within 1 year
1 – 5 years
Total
Principal
£m
—
12,675
12,675
Interest
£m
182
395
577
2019
Total
£m
182
13,070
13,252
Principal
£m
—
12,815
12,815
Interest
£m
131
514
645
2018
Total
£m
131
13,329
13,460
The interest paid on these loans is £212 million (2018: £194 million). See note C.
On 3 September 2013 Aviva Group Holdings Limited, its subsidiary, provided an unsecured rolling credit facility of £5,000 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 2019 was £3,045 million
(2018: £3,045 million).
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 2019, the loan balance outstanding was £9,630 million
(2018: £9,770 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
1,595
2019
Receivable
at year end
£m
Income
earned
in year
£m
2018
Receivable
at year end
£m
241
2,780
414
Income earned relates to dividends. The Company incurred expenses in the year of £0.5 million (2018: £0.5 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
2019
Payable
at year end
£m
Expense
incurred
in year
£m
2018
Payable
at year end
£m
175
4,344
224
4,206
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 56(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 63.
P – 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
275
284
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274
Overview
Income & expenses
IFRS
Analysis of assets
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
amounts 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.
At our capital markets day in November 2019, we announced new
financial targets focussed on economic value, to measure our
progress in meeting our key strategic initiatives. Consequently, we
have introduced four APMs in 2019, that are based on Solvency II:
• Solvency II return on equity (ROE) ‡
• Operating own funds generation
• Solvency II net asset value (NAV) per share‡
• Solvency II debt leverage ratio
These capital measures provide useful information as they are based
on economic value which
is used by the Group to assess
performance and growth.
In addition, we have made certain changes to existing APMs to ensure
that they remain relevant and useful for stakeholders.
The Group adjusted operating profit APM has been amended and
now includes amortisation and impairment of internally generated
intangible assets to provide more relevant information by better
reflecting their operational nature. 2018 comparatives have been
restated. For consistency with the change in Group adjusted
operating profit, the combined operating ratio, operating earnings
per share, operating expenses and IFRS return on equity have also
been amended.
Furthermore, controllable costs is a new APM in 2019, based on
operating expenses adjusted to exclude premium related costs such
as premium based taxes, fees and levies that vary directly with
premium volumes.
Further details on APMs derived from IFRS measures and APMs
derived from Solvency II measures including changes that have been
made in 2019, are provided in the following sections. A further
section describes Other APMs.
APMs derived from IFRS measures
A number of APMs relating to IFRS are utilised to measure and
monitor the Group’s performance. Definitions and additional
information, including reconciliations to the relevant amounts in the
IFRS Financial Statements and, where appropriate, commentary on
the material reconciling items are included within this section.
Group adjusted operating profit‡#
Group adjusted operating profit is an APM that supports decision
making and 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 Group considers this measure meaningful to stakeholders as it
enhances the understanding of the Group’s operating performance
over time by separately identifying non-operating items. 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. 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
(including debt securities) is the actual income receivable for the
period. Actual income and long-term investment return both contain
the amortisation of the discounts/premium arising on the
acquisition of fixed income securities.
‡ denotes APMs which are key performance indicators.
# denotes key performance indicators used as a base to determine or modify remuneration.
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Other information
Alternative performance measures
Continued
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
in managing the
performance of our operating segments excludes the impact of
economic variances, to provide a comparable measure year on year.
is used
intangible assets acquired
Impairment, amortisation and profit or loss on disposal
Group adjusted operating profit also excludes impairment of
joint ventures; amortisation and
goodwill, associates and
impairment of other
in business
combinations; 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.
In 2019, the Group adjusted operating profit APM has been amended
and now includes amortisation and impairment of internally
generated intangible assets to provide more relevant information by
better reflecting their operational nature. These assets include
advisor platforms, digital distribution channels and claims and policy
administration systems which are used to support operational
activities. Comparative amounts have been restated resulting in a
reduction in the prior year Group adjusted operating profit of £112
million. Amortisation and impairment of intangible assets acquired
in business combinations will continue to be excluded from the
Group adjusted operating profit as these relate to merger and
acquisition activity.
In addition, integration and restructuring costs are now included in
Group adjusted operating profit. There is no impact on 2018
comparative figures.
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
2019 comprise:
• A charge of £45 million relating to a change in the discount rate
used for estimating lump sum payments in settlement of bodily
injury claims (see note 44(b)). Consistent with the presentation of
the change in the Ogden discount rate in 2016 and 2018, this is
disclosed outside of Group adjusted operating profit; and
• A charge of £2 million relating to the negative goodwill which arose
on the acquisition of Friends First in 2018, which is excluded from
Group adjusted operating profit for consistency with the treatment
of impairment of goodwill.
Other items at 2018 comprised:
• 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 44 (b)). Consistent with the
presentation of the change in the Ogden discount rate in 2016, this
was disclosed 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
52(b)). This was disclosed 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; and
• A gain of £36 million relating to negative goodwill on the
acquisition of Friends First (see note 3), which was excluded from
Group adjusted operating profit for consistency with the treatment
of impairment of goodwill.
The Group adjusted operating profit APM should be viewed as
complementary to IFRS 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.
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
2019
£m
1,855
250
191
981
275
96
(464)
Restated1
2018
£m
1,886
383
27
1,008
261
148
(709)
Group adjusted operating profit before tax attributable
to shareholders’ profit
3,184
3,004
Adjusted for the following:
Investment return variances and economic assumption
changes on long-term business
Short-term fluctuation in return on investments on non
long-term 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 acquired in
business combinations
Amortisation and impairment of acquired value of in-
force business
(Loss)/profit on the disposal and re-measurement of
subsidiaries, joint ventures and associates
Other
Adjusting items before tax
654
(197)
167
(476)
(54)
(15)
(87)
1
(13)
(97)
(406)
(426)
(22)
(47)
190
102
231
(875)
Profit before tax attributable to shareholders’ profits
3,374
2,129
1 During 2019 the Group adjusted operating profit APM has been revised, and now includes the amortisation
and impairment of internally generated intangible assets to better reflect the operational nature of these
assets (see note 1 (b)). Group adjusted operating profit continues to exclude amortisation and impairment of
intangible assets acquired in business combinations. Comparative amounts have been restated resulting in
a reduction in the prior period Group adjusted operating profit of £112 million. There is no impact on profit
before tax.
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.
In 2018 and 2019, 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.
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Alternative performance measures
Continued
In 2019, following the change in the definition of Group adjusted
operating profit, the COR has been amended to include the
amortisation and impairment of internally generated intangible
assets to better reflect their operational nature. Comparative
amounts have been restated resulting in an increase in the prior year
underwriting costs of £53 million and an increase in COR of 0.6%.
Amortisation and impairment of intangible assets acquired in
business combinations will continue to be excluded from the COR as
these relate to merger and acquisition activity.
The Group COR is shown below.
Incurred claims – GI & Health (as per note 5)2
Adjusted for the following:
Incurred claims – Health
Change in discount rate assumptions
Impact of change in the discount rate used in
settlement of bodily injury claims
Total Incurred claims (included in COR)3
Commission and expenses – GI & Health
(as per note 5)4
Adjusted for the following:
Amortisation and impairment of intangibles
acquired in business combinations
Foreign exchange gains/losses
Commission income
Other
Commission and Expenses –
Health & Other Non GI
Total commission and expenses (included in
COR)5
Total underwriting costs
Net earned premiums – GI & Health (as per note 5)
Adjusted for:
Net earned premiums – Health
Net earned premiums (included in COR)6
2019
£m
(6,620)
651
54
45
(5,870)
Restated1
2018
£m
(6,400)
633
—
(190)
(5,957)
(3,321)
(3,188)
19
(45)
20
5
300
(3,022)
(8,892)
10,015
(895)
9,120
31
7
19
4
309
(2,818)
(8,775)
9,887
(857)
9,030
Combined operating ratio
97.5%
97.2%
1 Following the change in the definition of Group adjusted operating profit, COR now includes the amortisation
and impairment of internally generated intangible assets to better reflect the operational nature of these
assets. Comparative amounts have been restated resulting in an increase in the prior period underwriting
costs of £(53) million and an increase in COR of 0.6%.
2 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.
Includes £(6) million (2018: £1 million) relating to incurred claims for Aviva Re.
3
4 Commission and expenses consists of 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.
Includes £(1) million (2018: £3 million) relating to commission and expenses for Aviva Re.
Includes £nil (2018: £(5) million) relating to net earned premiums for Aviva Re.
5
6
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.
Commission and expense ratio
A financial measure of the performance of our general insurance
business which is derived from the sum of earned commissions and
expenses expressed as a percentage of net earned premiums from
the COR table above.
Operating earnings per share (EPS)‡#
Operating EPS 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 considered meaningful to stakeholders
because it enhances the understanding of the Group’s operating
performance over time by adjusting for the effects of non-operating
items.
Following the change in the definition of the Group adjusted
operating profit APM in 2019, operating EPS has been amended and
the 2018 comparative amount has been restated resulting in a
reduction in the prior year from 58.4 pence to 56.2 pence.
A reconciliation between operating EPS and basic EPS can be found
in note 15.
Controllable costs‡ and operating expenses
Controllable costs are the controllable operational overheads
associated with maintaining our businesses. Controllable costs are
calculated as operating expenses, less premium based taxes, fees
and levies that vary directly with premiums. These costs are by their
nature a direct cost incurred as a result of generating premium
income, and therefore not a controllable operational overhead.
Operating expenses continues to be a useful measure alongside
controllable costs.
Following the change in the definition of Group adjusted operating
profit, operating expenses has been amended to include the
amortisation and impairment of internally generated intangible
assets to better reflect their operational nature. Comparative
amounts have been restated resulting in an increase in prior year
operating expenses of £112 million. Amortisation and impairment of
intangible assets acquired in business combinations will continue to
be excluded from operating expenses as these relate to merger and
acquisition activity.
A reconciliation of other expenses in the IFRS consolidated income
statement to operating expenses (restated) and controllable costs is
set out below:
Other expenses (IFRS income statement)
Less: impairment of goodwill, associates and joint
ventures and other amounts expensed
Less: amortisation and impairment of intangibles
acquired in business combinations1
Less: amortisation and impairment of acquired value of
in-force business
Less: foreign exchange gains/(losses)
Add: other acquisition costs
Add: claims handling costs
Less: other costs
Operating expenses1
Less: premium based income taxes, fees and levies
Controllable costs
2019
£m
2018
£m
3,329
3,843
(15)
(87)
(406)
109
1,001
339
(151)
4,119
(180)
3,939
(13)
(97)
(426)
(28)
954
336
(431)
4,138
(170)
3,968
1 Following the change in the definition of Group adjusted operating profit, operating expenses now include
the amortisation and impairment of internally generated intangible assets to better reflect the operational
nature of these assets. Comparative amounts have been restated resulting in an increase in the prior period
operating expenses of £112 million.
Operating expenses exclude impairment of goodwill, associates and
joint ventures; amortisation and impairment of other intangible
assets acquired
in business combinations; 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
operating expenses as this is principally used to manage the
performance of our operating segments.
Operating expenses include indirect acquisition costs, such as
underwriting overheads, and claims handling costs. These are
considered to be controllable by the operating segments and are
therefore also included in controllable costs.
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Other information
Alternative performance measures
Continued
Operating expenses exclude other amounts that, in management’s
view, are not representative of underlying day-to-day expenses
involved in running the business, and that would distort the year on
year operating expenses trend,
including historical product
governance costs and GI instalment income. In 2019 other costs
includes an additional £175 million product governance provision in
our UK Life business relating to past communications to a specific
sub-set of pension policyholders that may not have adequately
informed them of switching options into with-profits funds that were
available to them (see note 51).
Other costs in 2018 included 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 sales by Friends Provident (of which
over 90% of cases related to pre-2002).
IFRS Return on Equity (RoE)
The IFRS RoE 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).
Following the change in the definition of the Group adjusted
operating profit APM in 2019, IFRS RoE has been amended and the
2018 comparative amount has been restated resulting in a reduction
in the prior year from 13.3% to 12.8%.
IFRS net asset value (NAV) per share
IFRS 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 at the balance sheet date. IFRS NAV
per share monitors the value generated by the Company in terms of
the equity shareholders’ face value per share investment.
Assets Under Management (AUM) and Assets Under Administration
(AUA)
AUM represent all assets managed or administered by or on behalf of
the Group, including those assets managed by Aviva Investors and 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, Aviva Investors AUA comprises AUM
plus £36 billion (2018: £29 billion) of 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 amounts appearing in the Group’s statement of
financial position to AUM is shown below:
Assets managed on behalf of Group companies
Assets included in statement of financial position2
Financial investments
Investment properties
Loans
Cash and cash equivalents
Other
Less: third party funds included above
Assets managed on behalf of third parties4
Aviva Investors
UK Platform5
Other
Total AUM3
2019
£bn
Restated1
2018
£bn
351
11
39
20
1
422
(17)
405
67
29
9
105
510
327
11
36
17
1
392
(17)
375
64
23
9
96
471
1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have
been restated from those previously reported.
Includes assets classified as held for sale.
Includes AUM of £346 billion (2018: £331 billion) managed by Aviva Investors.
2
3
4 AUM managed on behalf of third parties cannot be directly reconciled to the financial statements.
5 UK Platform relates to the assets under management in the UK long-term savings business.
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
IFRS net paid claims plus
contracts) and outflows
It
investment contracts).
redemptions and surrenders under
excludes market and other movements.
(being
APMs derived from Solvency II measures
The Solvency II regime requires insurers to hold own funds in excess
of the Solvency Capital Requirement (SCR). Own funds are available
capital resources determined under Solvency II. This includes the
excess of assets over liabilities in the Solvency II balance sheet,
calculated on best estimate, market consistent assumptions and
include transitional measures on technical provisions (TMTP),
subordinated liabilities that qualify as capital under Solvency II, and
off-balance sheet own funds.
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.
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Other information
• 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 are made in order to show a more representative view
of the Group’s solvency position.
A reconciliation of the Solvency II regulatory surplus to the Solvency
II shareholder surplus is provided below:
Estimated Solvency II regulatory surplus
Adjustments for:
Fully ring-fenced with-profit funds
Staff pension schemes in surplus
Notional reset of TMTP
Pro forma adjustments1
Own funds
2019
£m
28,347
SCR
2019
£m
(15,517)
Surplus
2019
£m
12,830
(2,501)
(1,181)
—
(117)
2,501
1,181
—
(75)
—
—
—
(192)
Estimated Solvency II shareholder surplus
24,548
(11,910)
12,638
1 The 31 December 2019 Solvency II position includes three pro forma adjustments that relate to the disposal
of FPI (£nil impact on surplus), the disposal of Hong Kong (£nil impact on surplus) and the potential impact
of an expected change to Solvency II regulations on the treatment of equity release mortgages (£0.2 billion
decrease in surplus as a result of an increase in SCR).
2018
Estimated Solvency II regulatory surplus
Adjustments for:
Fully ring-fenced with-profit funds
Staff pension schemes in surplus
Notional reset of TMTP
Pro forma adjustments1
Own funds
2018
£m
SCR
2018
£m
Surplus
2018
£m
27,567
(15,339)
12,228
(2,634)
(1,142)
(127)
(113)
2,634
1,142
—
(6)
—
—
(127)
(119)
Estimated Solvency II shareholder surplus
23,551
(11,569)
11,982
1 The 31 December 2018 Solvency II position includes the pro forma impact of the disposals of FPI (£0.1 billion
increase in surplus) and the potential impact of an expected change to Solvency II regulations on the
treatment of equity release mortgages (£0.2 billion reduction in surplus as a result of an increase in SCR).
A summary of the shareholder view of the Group’s Solvency II
position is shown in the table below:
Own Funds
Solvency Capital Requirement
Estimated Solvency II Shareholder Surplus
at 31 December
2019
£m
2018
£m
24,548
(11,910)
23,551
(11,569)
12,638
11,982
Estimated Shareholder Cover Ratio
206%
204%
Alternative performance measures
Continued
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
Insurance assets and liabilities valuation
differences (net of transitional deductions)2
Inclusion of risk margin (net of transitional
deductions)
Net deferred tax on valuation differences3
Revaluation of subordinated liabilities4
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 regulatory own funds6
2019
£m
18,685
2018
£m
18,455
(8,424)
(7,828)
19,564
19,293
(3,122)
(1,220)
(716)
(99)
(3,256)
(1,149)
(649)
(286)
24,668
24,580
2019
3,679
28,347
2,987
27,567
1
2
Includes £1,855 million (2018: £1,872 million) of goodwill and £6,569 million (2018: £5,956 million) of other
intangible assets comprising acquired value of in-force business of £2,479 million (2018: £2,916 million),
deferred acquisition costs (net of deferred income) of £3,221 million (2018: £2,858 million) and other
intangibles of £869 million (2018: £182 million).
Includes valuation adjustments to reflect insurance assets and liabilities 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, non-controlling interests and adjustments for ring-fenced funds restrictions.
6 Regulation was introduced in France that allows French insurers to place the Provision pour Participation aux
Excedents (PPE) into Solvency II own funds. The PPE has been included in the France local regulatory own
funds in 2019 but it is not included in the Group regulatory own funds.
A number of APMs relating to Solvency II are utilised to measure and
monitor the Group’s performance, growth and financial strength:
• Solvency II shareholder cover ratio‡
• Value of new business on an adjusted Solvency II basis (VNB)‡
• Operating Capital Generation (OCG) ‡#
• Operating own funds generation
• Solvency II return on equity (ROE)‡
• Solvency II net asset value (NAV) per share‡
• Solvency II debt leverage ratio
Solvency II shareholder cover ratio‡
The estimated Solvency II shareholder cover ratio, which is derived
from own funds divided by the SCR using a ‘shareholder view’, is one
of the indicators of the Group’s balance sheet strength. 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 31 December 2019 position is based on a
formal reset of the TMTP, in line with the requirement to reset the
TMTP at least every two years and hence no adjustment is required.
The TMTP is amortised on a straight-line basis over 16 years from 1
January 2016 in line with the Solvency II rules.
Aviva plc Annual report and accounts 2019
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Strategic report
Governance
IFRS financial statements
Other information
Alternative performance measures
Continued
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 life business written in the
period, including the impact of interactions between in-force and
new business, adjusted to:
• remove the impact of the contract boundary restrictions under
Solvency II;
• include businesses which are not within the scope of Solvency II
own funds (e.g. UK and Asia Healthcare, Retail fund management
and UK equity release); and
• reflect a gross of tax and non-controlling interests basis, include
the impact of ‘look through profits’ in service companies (where
not included in Solvency II) and reflect the difference between
locally applicable capital requirements for the smaller Asian
markets (Indonesia, Vietnam, Hong Kong) and the value of new
business on an adjusted Solvency II basis.
A reconciliation between VNB and the Solvency II own funds impact
of new business is provided below:
2019
VNB (gross of tax and non-
controlling interests)
Solvency II contract boundary
restrictions – new business
Solvency II contract boundary
restrictions – increments / renewals
on in-force business
Businesses which are not in the scope
of Solvency II own funds
Tax and Other1
Solvency II own funds impact of new
business (net of tax and non-
controlling interests)
UK
£m
Europe
£m
Asia &
Other
£m
Group
£m
592
414
218
1,224
(71)
(148)
(45)
(264)
98
73
25
196
(138)
(100)
(1)
(171)
(19)
(68)
(158)
(339)
381
167
111
659
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. The economic assumptions
follow Solvency II rules for risk-free rates, volatility adjustment and
matching adjustment. The operating assumptions are consistent
with the Solvency II balance sheet, when these assumptions are
updated, the year-to-date VNB will capture the impact of the
assumption change on all business sold that year.
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 2019 UK new business (where
applicable) was 95 bps (2018: 105 bps).
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.
Present value of new business premiums (PVNBP)
PVNBP measures 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 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.
UK
£m
Europe
£m
Asia &
Other
£m
Group
£m
The table below presents a reconciliation of sales to IFRS net written
premiums:
20181 Restated
VNB (gross of tax and non-
controlling interests)
Solvency II contract boundary
restrictions – new business
Solvency II contract boundary
restrictions – increments / renewals
on in-force business
Businesses which are not in the scope
of Solvency II own funds
Tax and Other1
Solvency II own funds impact of new
business (net of tax and non-
controlling interests)
481
517
204
1,202
(51)
(131)
(31)
(213)
126
83
21
230
(117)
(92)
(4)
(212)
(36)
(69)
(157)
(373)
347
253
89
689
1 Other includes the impact of ‘look through profits’ in service companies (where not included in Solvency II) of
£(78) million (2018: £(63) million), the reduction in value when moving to a net of non-controlling interests
basis of £(57) million (2018: £(81) million) and the difference between locally applicable capital requirements
for the smaller Asian markets (Indonesia, Vietnam, Hong Kong) and the value of new business on an adjusted
Solvency II basis of £(37) million (2018 restated: £(46) million).
The methodology underlying the calculation of VNB remains
unchanged from the prior year. For 2018, new business written
contributed to the calculation of the UK Life’s transitional measures
(in line with the clarification issued by the PRA in 2017), but this is no
longer applicable to the Group in 2019.
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
2019
£m
2018
£m
45,665
4,621
10,224
(3,563)
40,763
4,799
9,968
(3,840)
56,947
51,690
(15,294) (12,726)
(257)
(286)
(327)
(247)
(10,917) (10,329)
(4,799)
(4,621)
5,057
4,776
(2,879)
(1,775)
27,680
26,333
17,456
10,224
16,365
9,968
27,680
26,333
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.
Aviva plc Annual report and accounts 2019
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Governance
IFRS financial statements
Other information
Alternative performance measures
Continued
Operating capital generation (OCG)‡#
OCG measures the amount of Solvency II capital the Group generates
from operating activities and incorporates an expected return on
investments supporting the life and non-life insurance businesses.
The Group considers this measure meaningful to stakeholders as it
enhances the understanding of the Group’s operating performance
over time by separately identifying non-operating items. The
calculation of OCG is consistent with previous periods.
The expected investment returns assumed within OCG are consistent
with the returns used for Group adjusted operating profit.
OCG includes the effect of variances in experience for non-economic
items, such as mortality, persistency and expenses, the effect of
changes in non-economic assumptions (for example, longevity),
model changes that are non-economic in nature and the impact of
capital actions, for example, strategic changes in asset mix including
changes in hedging exposure. Consistent with the Group adjusted
operating profit APM, OCG is determined on start of period economic
assumptions and therefore excludes economic variances and
economic assumption changes.
An analysis of the components of OCG is presented below, including
an analysis of Solvency II operating own funds generation which is
the own funds component of OCG (see the section below):
Solvency II own funds impact of new business
(net of tax and non-controlling interests)
Operating own funds generation from Life existing
business
Operating own funds generation from non-life
Other own funds generation1
Group debt costs
Solvency II operating own funds generation
Solvency II operating SCR impact
Solvency II OCG
2019
£m
659
507
431
944
(284)
2,257
2
2,259
2018
£m
689
835
299
497
(298)
2,022
1,176
3,198
1 Other includes the impact of capital actions and non-economic assumption changes.
OCG is a key component of the movement in Solvency II shareholder
surplus. The tables below provide an analysis of the change in
Solvency II shareholder surplus.
2019 Shareholder view
Own funds
2019
£m
SCR
2019
£m
Surplus
2019
£m
Group Solvency II shareholder surplus
23,551
(11,569)
11,982
at 1 January
Operating capital generation
Non-operating capital generation
Dividends1
Share buy-back
Hybrid debt repayments
Acquired/divested business
Estimated Solvency II shareholder surplus at
31 December
2,257
178
(1,222)
—
(210)
(6)
2
(362)
—
—
—
19
2,259
(184)
(1,222)
—
(210)
13
24,548
(11,910)
12,638
1 Dividends includes £17 million (2018: £17 million) of Aviva plc preference dividends and £21 million (2018: £21
million) of General Accident plc preference dividends.
2018 Shareholder view
Own funds
2018
£m
SCR
2018
£m
Surplus
2018
£m
Group Solvency II shareholder surplus
24,737
(12,506)
12,231
at 1 January
Operating capital generation
Non-operating capital generation
Dividends1
Share buy-back
Hybrid debt repayments
Acquired/divested business
2,022
(777)
(1,166)
(600)
(875)
210
1,176
(231)
—
—
—
(8)
3,198
(1,008)
(1,166)
(600)
(875)
202
Estimated Solvency II shareholder surplus at
23,551
(11,569)
11,982
31 December
1 Dividends includes £17 million (2018: £17 million) of Aviva plc preference dividends and £21 million (2018: £21
million) of General Accident plc preference dividends.
Solvency II future surplus emergence
Solvency II future surplus emergence is a projection of the capital
generation from existing long-term in-force life business. The
projection is a static analysis as at a point in time and hence it does
not include the potential impact of future new business or the
potential impact of active management of the business (for example,
active management of market, demographic and expense risk
through investment, hedging, risk transfer, operational risk and
expense management), which may affect the actual amount of OCG
earned from existing business in future periods.
For business subject to short contract boundaries under Solvency II,
allowance has been made for the impact of renewal premiums as
and when they are expected to occur.
The projected surplus, which is primarily expected to arise from the
release of risk margin (including transitional measures) and solvency
capital requirement as the business runs off over time, is expected to
emerge through OCG in future years. The cash flows are real-world
cash flows, i.e. they are based on best estimate non-economic
assumptions used in the Solvency II valuation and real-world
investment returns rather than risk-free. The expected investment
returns are consistent with the returns used in IFRS.
Operating own funds generation
Operating own funds generation measures the amount of Solvency II
own funds generated from operating activities. Operating own funds
generation is the own funds component of OCG and follows the
methodology and assumptions outlined in OCG.
Solvency II Return on Equity (RoE)‡
Solvency II ROE is calculated as:
• Operating own funds generation less preference dividends, direct
capital instrument (DCI) and tier 1 note coupons divided by;
• Opening value of unrestricted tier 1 shareholder own funds
Unrestricted tier 1 shareholder own funds represents the highest
quality tier of capital and includes instruments with principal loss
absorbing features such as permanence, subordination, undated,
incentives, mandatory costs and
absence of
encumbrances. The tables below provide a summary of the Group’s
regulatory Solvency II own funds by tier and a reconciliation between
unrestricted tier 1 regulatory own funds and unrestricted tier 1
shareholder own funds:
redemption
Regulatory view
Unrestricted regulatory tier 1 own funds
Restricted Tier 1
Tier 2
Tier 31
Estimated Solvency II regulatory own funds2
2019
£m
20,377
1,839
5,794
337
28,347
2018
£m
19,312
2,096
5,811
348
27,567
1 Tier 3 regulatory own funds at 31 December 2019 consists of £259 million subordinated debt (2018: £253
million) plus £78 million net deferred tax assets (2018: £95 million).
2 Regulation was introduced in France that allows French insurers to place the Provision pour Participation aux
Excedents (PPE) into Solvency II own funds. The PPE has been included in the France local regulatory own
funds in 2019 but it is not included in the Group regulatory own funds.
Shareholder view
Unrestricted regulatory tier 1 own funds
Adjustments for:
Fully ring-fenced with-profit funds
Staff pension schemes in surplus
Notional reset of TMTP
Pro forma adjustments 1
2019
£m
2018
£m
20,377
19,312
(2,501)
(1,181)
—
(117)
(2,634)
(1,142)
(127)
(113)
Unrestricted shareholder tier 1 own funds
16,579
15,296
1 The 31 December 2019 Solvency II position includes two pro forma adjustments that relate to the disposal of
FPI (£0.1 billion reduction in own funds) and the disposal of Hong Kong (£nil impact on own funds). The 31
December 2018 Solvency II position includes the pro forma impact of the disposal of FPI (£0.1 billion reduction
in own funds).
Aviva plc Annual report and accounts 2019
281
Strategic report
Governance
IFRS financial statements
Other information
Alternative performance measures
Continued
Solvency II RoE provides useful information as it is used as an
economic value measure by the Group to assess growth and
performance.
The Solvency II return on equity is shown below:
Solvency II operating own funds generation
Less preference share dividends
Less DCI and tier 1 note coupons
Opening Unrestricted tier 1 shareholder Solvency II
own funds
Solvency II Return on Equity
2019
£m
2,257
(38)
(34)
2,185
2018
£m
2,022
(38)
(36)
1,948
15,296 15,550
14.3% 12.5%
Solvency II return on capital (unlevered)
Solvency II return on capital (unlevered) is calculated as operating
own funds generation excluding interest costs divided by opening
shareholder Solvency II own funds. It is used as an economic value
measure by business divisions to assess growth and performance.
Solvency II net asset value (NAV) per share‡
Solvency II NAV per share is used to monitor the value generated by
the Group in terms of the equity shareholders’ face value per share
investment. This is calculated as the unrestricted tier 1 Solvency II
shareholder own funds, divided by the actual number of shares in
issue as at the balance sheet date. Consistent with Solvency II ROE, it
is an economic value measure used by the Group to assess growth.
The Solvency II NAV per share is shown below:
2018
Unrestricted tier 1 shareholder Solvency II own funds (£m) 16,579 15,296
3,902
Number of shares in issue at 31 December (in millions)
3,921
2019
Solvency II NAV per share
423p
392p
Solvency II debt leverage ratio
Solvency II debt leverage ratio is calculated as Solvency II debt
expressed as a percentage of Solvency II regulatory own funds plus
senior debt and commercial paper. Where Solvency II debt includes
subordinated debt, preference share capital and direct capital
instrument and tier 1 notes. The Solvency II debt leverage ratio
provides a measure of the Group’s financial strength.
Solvency II regulatory debt
Senior notes
Commercial paper
Total Solvency II debt
Estimated Solvency II regulatory own funds,
senior debt and commercial paper
Solvency II debt leverage
2019
£m
7,892
1,052
238
9,182
2018
£m
8,160
1,113
251
9,525
29,637
28,931
31%
33%
A reconciliation from IFRS sub-ordinated debt to Solvency II
regulatory debt is provided below:
IFRS borrowings
Less borrowings not classified as Solvency II regulatory debt
2019
£m
2018
£m
9,067
9,420
Senior notes
Commercial paper
Operational borrowings
Less: Amounts held by Group Companies
IFRS sub-ordinated debt
Revaluation of subordinated liabilities
Other movements
Solvency II subordinated debt
Preference share capital, deferred capital instrument
and tier 1 notes
Solvency II regulatory debt
(1,052)
(238)
(1,571)
—
6,206
716
20
6,942
950
7,892
(1,113)
(251)
(1,721)
5
6,340
649
(10)
6,979
1,181
8,160
Other APMs
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.
Centre liquidity
Centre liquidity represents cash remitted by the business units to the
Group centre less centre operating expenses and debt financing
costs. It includes cash disposal proceeds and capital injections. This
provides meaningful information because it shows the liquidity at
the Group centre available to meet debt interest and central costs
and to pay dividends to shareholders.
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. Excess
centre cash flow does not include cash movements such as disposal
proceeds or capital injections.
These amounts eliminate on consolidation and hence are not
directly reconcilable to the Group’s IFRS consolidated statement of
cash flows.
Annual Premium Equivalent (APE)
APE is a measure of sales in our life insurance business. APE is
calculated as the sum of new regular premiums plus 10% of new
in the period. This provides useful
single premiums written
information on sales and new business when considered alongside
VNB.
Operating expense ratio
The operating expense ratio expresses expenses as a percentage of
operating income.
Operating income is calculated as Group adjusted operating profit
before Group debt costs and operating expenses.
Aviva plc Annual report and accounts 2019
282
Strategic report
Governance
IFRS financial statements
Other information
Alternative performance measures
Continued
Spread margin
The spread margin represents the return made on the Group’s
annuity and other non-linked business, based on the expected
investment return, less amounts credited to policyholders. While not
a key performance metric of the Group, the spread margin is a useful
indicator of the expected investment return arising on this business.
Underwriting margin
The underwriting margin represents the release of reserves held to
cover claims, surrenders and administrative expenses less the cost of
actual claims and surrenders in the period.
Unit-linked margin
The unit-linked margin represents the annual management charges
on unit-linked business. This is an indicator of the return arising on
this business.
Aviva plc Annual report and accounts 2019
283
Strategic report
Governance
IFRS financial statements
Other information
Shareholder services
Shareholder
services
2020 Financial Calendar
Ordinary dividend timetable:
Final
Interim**
Ordinary ex-dividend date
23 April 2020
13 August 2020
Dividend record date
24 April 2020
14 August 2020
Last day for Dividend Reinvestment
11 May 2020
3 September 2020
Plan and currency election
Dividend payment date*
2 June 2020 24 September 2020
Other key dates:
Annual General Meeting
2020 interim results announcement
1:30pm on 26 May 2020
6 August 2020
* 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 can 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 Investor Services PLC (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; or
• 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
Log in to the Computershare Investor Centre to:
• Change your address
• Change payment options
• Switch to electronic communications
• View your shareholding
• View any outstanding payments
Annual General Meeting (AGM)
The 2020 AGM will be held at The Queen Elizabeth II Centre, Broad
Sanctuary, Westminster, London SW1P 3EE, on Tuesday, 26 May
2020, at 1.30pm.
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 2020 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’re 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)
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• In writing: Citibank Shareholder Services, PO Box 43077,
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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 2019
284
Strategic report
Governance
IFRS financial statements
Other information
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).
‘goal’,
‘likely’,
‘target’,
‘trends’,
‘guidance’,
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’,
‘future’,
‘outlook’,
‘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 outcome of the
negotiations on the future economic relationship between the UK
and the EU); 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
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 (including the impact of COVID-19) on our
business activities and results of operations; our reliance on
information and technology and third-party service providers for our
inability of reinsurers to meet
operations and systems; the
obligations or unavailability of reinsurance coverage; increased
competition in the UK and in other countries where we have
in pricing and reserving for
significant operations; 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 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
the
risks associated with our acquisitions; and
integration risk and other
impact,
timing/regulatory approval
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.
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The cover of this report is printed on Revive Silk
100 and the text on Revivce Offset, made from
100% genuine de-inked post consumer waste
and is FSC® certified. This report was printed
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Aviva plc Annual report and accounts 2019
285
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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