Aviva plc
Annual Report and Accounts 2020
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With you today,
for a better
tomorrow
We are a leading Savings, Retirement and
Insurance business, helping our 31.6 million
customers make the most out of life, plan for
the future, and have confidence that if things
go wrong we will be with them to put it right.
We operate through businesses in our Core
markets of the UK, Ireland and Canada and
our other International businesses, which are
managed for long-term shareholder value.
Contents
Chair’s statement
Chief Executive Officer’s report
The external environment
Strategic report
1 Highlights
2
4
8
9 Our strategy
12 Our business model
14 Key performance indicators
18 Chief Financial Officer’s report
24 Our market review
24 UK & Ireland Life
27 General Insurance: UK & Ireland and Canada
32 Aviva Investors
34 Manage-for-value
37 Risk and risk management
44 Capital management
48 Responsibility
49 Section 172 (1) statement and our stakeholders
53 Our people
56 Corporate responsibility
60 Our climate-related financial disclosure
Governance
65 Chair’s Governance Letter
66 Our Board of Directors
68 Directors’ and Corporate Governance report
93 Directors’ Remuneration report
IFRS financial statements
121 Independent auditors’ report
130 Accounting policies
144 Consolidated financial statements
151 Notes to the consolidated financial statements
264 Financial statements of the Company
Other information
275 Alternative Performance Measures
284 Shareholder services
Foreword
The Strategic report contains information about Aviva, how we
create value and how we run our business. It includes our
strategy, our business model, key performance indicators,
overview of our businesses and our approach to risk and our
responsibility to our people, our communities and the planet.
The Strategic report is only part of the Annual Report and
Accounts 2020. The Strategic report was approved by the
Board on 3 March 2021 and signed on its behalf by Amanda
Blanc, Chief Executive Officer.
More information about Aviva can be found at www.aviva.com
Non-Financial Information Statement
Under sections 414CA and 414CB of the Companies Act 2006,
Aviva is required to include, in its Strategic report, a non-
financial information statement. The information required by
these regulations is included in Our business model, Key
performance indicators, Risk and risk management, Our
people and Corporate responsibility.
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:
St Helen’s, 1 Undershaft, London, EC3P 3DQ
The Company’s telephone number:
+44 (0)20 7283 2000
Strategic report
Governance
IFRS financial statements
Other information
Highlights
Highlights
Our purpose
‘With you today, for a better tomorrow’
We have been looking after customers for more than 320 years. We
are deeply invested in our people, our communities and the planet.
We’re here to be with our customers today as well as working for a
better tomorrow.
Our values
Care, Commitment, Community and Confidence. These values
guide the decisions we make and define what it means to be part of
Aviva.
Our strategic priorities
Our strategy is centred on putting the customer first, having a strong
social purpose, focusing on where we can win, execution discipline,
and ultimately creating value for our shareholders. We have three
strategic priorities for the Group:
Focus the portfolio:
Our focus is on our Core markets in the UK, Ireland and Canada.
These are our strongest businesses where we have market leading
positions. In the UK we are number one in General Insurance and
Workplace Pensions and in the top three for Annuities and Equity
Release and in Protection and Health. In Ireland we are number two
in General Insurance and in Canada we are number three for the
Property and Casualty market. These markets also have extensive
customer franchises and can generate attractive financial returns.
Our international businesses in continental Europe and Asia are
being managed for long-term shareholder value.
Transform performance:
In our Core markets we will transform performance to deliver greater
customer trust, engagement and retention, and profitable growth for
our shareholders. We will do this by making it easier for our
customers to engage with us, capitalising on the Aviva brand, driving
targeted growth and simplifying, digitising and automating the
business.
Financial strength:
Financial strength, resilience and sustainability underpin our
strategy. Our focus is on maintaining strong solvency and liquidity
and reducing debt leverage. This will increase our financial flexibility
and provide options for excess capital deployment.
Read more in the ‘Our strategy’ and ‘Our business model’ sections.
Our Performance
Core markets financial highlights
Adjusted operating profit1,R
Cash remittances2,R
£2,492 million
2019: £2,558 million
£1,359 million
2019: £1,409 million excluding
UK Life special remittance
Group financial highlights
Group adjusted operating
profit1,R
Cash remittances2,R
£3,161 million
2019: £3,184 million
£1,500 million
2019: £2,597 million
IFRS profit for the year
Solvency II operating capital
generation2,R
£2,910 million
2019: £2,663 million
£1,932 million
2019: £2,259 million
Total dividend
21.0 pence
2019: 15.5 pence
Basic earnings per share
70.2 pence
2019: 63.8 pence
Non-financial highlights
Carbon emissions reduction
76%
2019: 66%
Solvency II debt
leverage ratio2
31%
2019: 31%
Solvency II shareholder cover
ratio2,R
202%
2019: 206%
Customer Net Promoter
Score® (NPS®)R
Number of markets in 2020 at
or above average:
7
2019: 7
Read more about our performance and financial targets in the ‘Key
performance indicators’ and the ‘Chief Financial Officer’s report’
sections.
R Symbol denotes key performance indicators used as a base to determine or modify remuneration.
1 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.
2 This is an Alternative Performance Measure (APM) which provides useful information to enhance the 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 within the Annual Report and Accounts.
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Chair’s statement
Chair’s
statement
If the pandemic has taught
us anything, it is that we are
ever more closely connected
in this world. No-one can
sensibly argue that a company
can create value without
looking beyond narrow
shareholder interest to
recognise the benefits or
harms that it contributes to
society more widely.
So how was 2020 for you?
We’ve heard “unprecedented” so many times in recent months, the
word has almost lost all meaning. The year was dramatic, certainly.
It was also chaotic and traumatic for all of us. COVID-19 and the UK’s
exit from the EU have shaken what we once took for granted and we
are still far from the new normal, whatever that might look like.
Amid the turmoil, it was also a dramatic year for Aviva. The company
has a new Chair (me), a new Chief Executive (Amanda), and a new
clarity in where we are heading as a business (our new strategy).
Over my 30-year career in financial services I’ve often come up
against Aviva in its various guises. In that time, I saw again and again
a company that was a formidable competitor. The paradox is that for
too long we have not had the respect and recognition from the
market that we have from our peers or our customers.
Where we have at times
in the past underachieved and
underwhelmed, we have now reset the course. Amanda Blanc, our
new CEO, has articulated an ambitious vision built around our three
Core markets of the UK, Canada and Ireland. As part of this we aim to
become the UK’s leading insurer, and the go-to customer brand. And
we have a clear strategy to realise that vision. By focusing the
portfolio, transforming our performance, and ensuring our financial
strength, we will unlock Aviva’s undoubted potential.
Realising that potential will, of course, depend on delivery. A sensible
strategy is only the starting point and Amanda is determined to move
at pace to do what we say we will. There is a long way yet to go, but
we have made a good start and there are clear signs that we are
heading in the right direction. You can read more about this progress
in the following pages.
The reality is that making the best of Aviva for our people and our
shareholders depends on embracing and being proud of what makes
Aviva best for our customers. Where others are narrowing their focus,
Aviva’s key strength and competitive advantage is its unique position
to be there for people at whatever stage they are at in life. We can join
up the dots to understand and serve our customers better, freeing
them up to get on with the stuff that really counts. Whether it is
protecting what matters most to people or helping them shape a
future they dream of, we have the breadth and the expertise for
whatever they need, wherever, however.
And it is by focusing on what our customers need and solving
problems rather than just selling products that we will live up to our
purpose – to be “with you today, for a better tomorrow”. It is
important that we can do so, not only for our customers and you, our
shareholders, but also to fulfil our wider responsibilities to the
communities where we live and work, as well as the wider economy.
If the pandemic has taught us anything, it is that we are ever more
closely connected in this world. No-one can sensibly argue that a
company can create value without
looking beyond narrow
shareholder interest to recognise the benefits or harms that it
contributes to society more widely.
With the challenges facing us all looking ever more daunting, not
least the climate crisis threatening the viability of our planet, acting
in line with a clearly defined purpose will be fundamental to long
term success. So, too, will be extending our track record as a front
runner on environmental, social and governance (ESG) issues. And
success will also depend on a strong set of values to guide our
actions, so we have re-articulated what is important to our people to
help shape our transformation in the months and years to come.
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Chair’s statement continued
Our response to
COVID-19
If there was ever any doubt about the importance of our
purpose, 2020 provided the answer. Being there for
people when it really matters is why we exist, and the
past year truly put that to the test.
Colleagues
Our first priority was looking after our people, so they
could continue to serve our customers. Within a month
we had moved all but a handful of colleagues out of the
office and set everyone up to work from home. We
offered flexible working to help anyone juggling caring
responsibilities and have given practical support to look
after everyone’s health and wellbeing, ranging from
mindfulness sessions to help for those home schooling,
including recycled laptops and an online maths class
from our Chief Financial Officer.
Customers
We recognised the financial and practical challenge of
lockdown on both our individual and business
customers and did what we could to help them
manage. This included free breakdown cover and
enhanced home insurance for NHS staff coping at the
front line and deferred monthly payments for people
experiencing financial difficulties. For businesses, we
created advice on managing new risks and offered
flexible insurance, so they were still covered even as
they adapted to new ways of working.
Communities
Aviva has contributed £43 million to support businesses,
health services and community partners in our markets
round the world. In the UK we pledged £18.5 million for the
Association of British Insurers (ABI) COVID-19 support fund
and £5 million to NHS Charities Together, to help fund
welfare and well-being for NHS employees, volunteers and
patients, and long-term mental health support for NHS
workers. Aviva and the Aviva Foundation* also jointly
donated £10 million, as part of Aviva’s award-winning
international partnership with the British Red Cross.
Shareholders
Despite turmoil in the global economy, Aviva has
continued to demonstrate resilience both in terms of
financial strength and performance. Nonetheless, the
highly uncertain impact on the economy and clear
guidance from regulators led us to announce the
withdrawal of the 2019 final dividend. We recognise the
importance of this dividend, particularly for individual
shareholders and did not take the decision lightly. On
6 August 2020 we declared a second interim dividend
for 2019 and on 26 November 2020 the board declared
an interim dividend of 7.0p per share and an expected
final dividend of 14.0p per share. This final dividend was
confirmed on 3 March 2021.
* The Aviva Foundation is administered by Charities Trust under charity registration
number 327489.
We value Care, looking out for each other and for our customers, just
as our people have so admirably demonstrated through the
pandemic. We value Commitment, keeping our promises and taking
responsibility for our impact on the world. We value Community,
understanding that our strength comes from our connection to each
other and to those around us. Last but by no means least, we value
Confidence. Because we believe that the best is still to come, for our
customers, for our communities, and also for Aviva ourselves.
I want to finish by paying tribute to all my colleagues in Aviva who
have been working so hard to support people in such challenging
circumstances. In an exceptional year they have been nothing short
of exceptional. I thank everyone for their remarkable and continuing
efforts and I am frankly both in awe and humbled at what they have
achieved. Thank you all so very much.
So how was 2020 for you?
Well for Aviva, it has been dramatic, but amid everything we have
lived up to our purpose, helped our customers, and reset the right
strategy for the business. And now is the time to deliver on that
strategy, so that the market can finally recognise what our customers
already know: that to be there for the things that matter most, to
build a better future for people and communities, to set the highest
standards and lead the sector, it takes Aviva.
George Culmer
Chair
3 March 2021
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Chief Executive
Officer’s report
I am pleased to report
the strong progress we have
made towards our strategic
priorities in the short period
of time since I became CEO,
but it is not lost on me that
there is much to do. Aviva
has significant untapped
potential, and I am
determined to realise it
for our shareholders, our
customers and our people.
Overview
Being there for customers when it really matters is exactly why Aviva
exists, and I am incredibly proud of how we have responded in this
most dramatic of years. Our colleagues have been truly fantastic,
responding quickly and ensuring that we provided excellent
customer service despite the challenges.
I am pleased to report the strong progress we have made towards
our strategic priorities in the short period of time since I became CEO,
but it is not lost on me that there is much more to do. Aviva has
significant untapped potential, and I am determined to realise it for
our shareholders, our customers and our people.
The 2020 financial performance has been resilient across our Core
markets of the UK, Ireland and Canada with cash remittances1 to
Group of £1.4 billion. We have delivered record results for both
Savings & Retirement and bulk purchase annuities, with strong
growth in Commercial General Insurance. We are also making good
progress in reducing our expenses though more needs to be done to
reach the top quartile efficiency that we strive for.
All of which resulted in an adjusted operating profit1 of £2,492 million
(2019: £2,558 million), down just 3%, despite the direct and indirect
impact of COVID-19, and strong trading across key business growth
areas.
In line with previously issued guidance the Board has proposed a
final dividend of 14 pence per share making a total dividend for the
year of 21 pence per share.
We are proceeding with £1.7 billion of debt reduction including a
£800 million liability management exercise. This tender offer
together with upcoming maturities of debt
instruments will
contribute to a material reduction in debt in the first half of 2021,
consistent with our target of delivering a sub-30% Solvency II debt
leverage ratio1 once we have completed our major divestments. This
is an important first step in executing against our capital framework.
We are also announcing new financial targets that demonstrate our
confidence in delivering profitable growth across our Core markets.
We are targeting to deliver over £5 billion of cash remittances1 over
the next three years and to grow cash remittances1 to £1.8 billion in
2023. Combined with reduced centre debt interest and other costs
we will deliver strong growth in excess cashflows to fund growing
returns to shareholders and sustainable investment in our business.
Customers
Aviva has 18 million customers across our Core markets and we are
placing them at the heart of everything that we do – our customers
are why we exist, and it is essential that we serve their needs
seamlessly and efficiently, whether they be an individual, a business
or an intermediary. I recognise that the insurance industry has all too
often made the customer experience more difficult and complicated
than it needs to be. Well, what do our customers want from their
insurer? They want fair prices, a trusted brand that delivers on its
promises, excellent service and all from a company that will act in a
sustainable and responsible way. Aviva understands these needs
and importantly, is responding to them. And by meeting our
customers’ expectations, we will live up to our purpose to be “With
you today, for a better tomorrow”.
Strategy
In 2020 we announced three clear strategic priorities for Aviva: focus
the portfolio, transform performance and financial strength.
1 This is an Alternative Performance Measure (APM) which provides useful information to enhance the 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 within the Annual Report and Accounts.
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Chief Executive Officer’s report continued
Our commitment to
colleagues
Aviva is nothing without our people. Living up to our
purpose to be with you today for a better tomorrow
applies to those we work with just as much as it does to
our customers. In 2020, 80% of colleagues said they
would recommend Aviva as a great place to work in our
global employee opinion survey, the Voice of Aviva.
We want Aviva to be a place where people can be
themselves, and we want our workforce to reflect the
customers and communities we serve. This means
offering market-leading benefits and challenging
ourselves to do more to build a workplace – and society
– that works for all.
In 2020 we built on our existing commitment as a Living
Wage employer by becoming one of the first accredited
Living Hours employers in the UK, offering predictable
shifts and guaranteed minimum hours to give people
greater certainty and financial security.
For those with caring responsibilities we give the option
of 35 hours paid leave each year and over 600 people
used the scheme in 2020. For new parents, regardless of
gender, we offer up to 12 months leave in the UK,
including 26 weeks at full pay. 97% of new dads at Aviva
have taken more than two weeks leave, with the
average being five months with their new arrivals.
We introduced a mid-life MOT for employees to help
those in the middle of their careers consider and plan
for their wealth, work and well-being needs. We also
launched new support and training around domestic
abuse helping employees to identify the signs and offer
best practice responses and guidance to customers and
colleagues.
In 2020 the death of George Floyd and the
#BlackLivesMatter campaign also received prominent
attention at Aviva. In September, we published our
BlackLivesMatter action plan and committed to change
by supporting colleagues, educating our people and
doing more to act for change in the wider community.
1. Focus the portfolio
We are focusing on our strongest and most strategically advantaged
businesses in the UK, Ireland and Canada including Aviva Investors.
These are our Core markets, where we have market leading
positions, can generate attractive returns, have a strong brand,
deliver incredible customer service and where we have a clear path
to win. Across these markets we are investing for growth.
Our businesses in continental Europe and Asia are being managed
for long term shareholder value. During 2020, we completed the
disposals of Friends Provident International Limited, our majority
shareholding in Aviva Singapore, and our share in joint ventures in
Indonesia and Hong Kong.
We have also announced the sales of our French business, our Italian
operations (including Aviva Vita announced in November), our
minority shareholding in Turkey, and our entire business in Vietnam,
which we expect to complete later in 2021. We are also exploring our
strategic options in Poland and our other international joint ventures.
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Chief Executive Officer’s report continued
Tackling the climate
crisis
To create a better tomorrow, we need to look after the
planet we call home. This is a key strategic issue for us
as a company. Left unchecked, climate change will
undermine our actuarial assumptions, diminish
investment returns for our customers and shareholders
and shrink our insurable market.
We have committed to an ambition to be a Net Zero
company by 2040, the most ambitious goal set by any
major bank or insurance company in the world today.
As part of this, we have set the target to be net-zero in
our own operations, and to have cut the carbon
intensity of our investment by 60%, both by 2030.
We were the first global insurer to be operationally
carbon neutral and we’ve already reduced the carbon
emissions from our operations by 76% since 2010. This
year we continued our work to create more renewable
energy capacity, opening one of the UK’s largest
combined solar carport and energy storage at our
offices in Perth.
In the UK we set a new 2050 net-zero emissions target
for our auto-enrolment default pension funds, giving
more of our customers the opportunity to invest their
pensions towards building a world they would like to
retire into. We also called on the UK government to
legislate for other default pension funds to follow suit.
Aviva Investors continued to build on their strong
heritage of responsible investing, targeting £10 billion of
investments into UK infrastructure and real estate
projects and engaging with the companies we invest in
to promote a transition to a low-carbon future.
If we are going to prevent the most catastrophic
impacts of climate change, it’s going to take bold
actions and real leadership. Aviva has been leading the
insurance industry for over 300 years, and we are
determined to continue doing so today and tomorrow.
2. Transform performance
Aviva has market leading positions and exceptional relationships
with customers and intermediaries but to date has not translated
these into superior financial performance.
We have a clear focus on correcting this by transforming the
performance of our Core markets. This will be achieved through
targeted growth, where we have leading market positions, accelerating
our simplification, digitisation and automation and delivering higher
levels of customer engagement through digital platforms.
We have reinvigorated our executive leadership team with seven
appointments including new CEOs for UK & Ireland Life and Aviva
Investors. We have made good progress in embedding a strong
individual performance
performance culture by overhauling
management, setting clear expectations for our
leaders and
emphasising the importance of close collaboration.
In March 2021, we have launched a new sustainability ambition,
leveraging our existing strengths in Environmental, Social and
Governance (“ESG”). We want Aviva to be recognised as a business
that leads by example through products and services that are good
for society as a whole and by influencing others to act.
We have set ourselves clear goals to fight climate change including
becoming the first major insurance company in the world to target
achieving Net Zero carbon emission status by 2040. Our ambitions
also reflect our commitment to our home market as we aim to invest
more in our local communities as well as £10 billion in infrastructure
and real estate over the next three years to build a stronger Britain.
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3. Financial strength
Financial strength is a critical underpin to our strategy. Our
Solvency II shareholder cover ratio1 of 202% (2019: 206%) has
remained resilient throughout a turbulent year bolstered by
Solvency II operating capital generation1 from our Core markets and
benefits from disposals of our Manage-for-value markets.
These were partly offset by foreign exchange, market movements
and modelling changes. Our centre liquidity1 of £4.1 billion, as at the
end of February 2021 (2019: End of February 2020 £2.4 billion), is
similarly strong having benefitted from cash remittances1 and
disposal proceeds.
As we have outlined in our capital framework we intend to reduce our
Solvency II debt leverage ratio1 below 30% and once we have
completed the reshaping of our portfolio, we expect to deploy excess
capital through investing for growth across our Core markets and
returns to shareholders.
We intend to grow our dividend per share by low to mid-single digits
over time as we grow across our Core markets, improve efficiency,
reduce debt levels and associated interest costs.
Outlook
Aviva has responded incredibly well to the challenges in 2020
presented by COVID-19 and Brexit. Our Core markets have proven to
be resilient and our customer service has remained high.
While the broader economic outlook remains uncertain, it is positive
to see progress being made with the global vaccination effort and the
economy adapting to social distancing measures.
Our new financial targets demonstrate our confidence in our Core
markets being well positioned to grow. We will continue to deliver
against our capital framework and will provide updates on our plans
for future deployments of excess capital as we make progress in
completing our announced disposals.
Amanda Blanc
Chief Executive Officer
3 March 2021
1 This is an Alternative Performance Measure (APM) which provides useful information to enhance the 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 within the Annual Report and Accounts.
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The external environment
The external
environment
The world is changing fast. We
continue to anticipate and adapt to
the forces around us so that we can
keep on serving our customers well,
protecting them today and helping
them build a better tomorrow.
The most pressing issue facing us all continues to be the global
pandemic. Despite the grounds for hope offered by vaccination
programmes, governments are still engaged in a careful balancing act
between containing the spread of the virus and limiting damage to the
economy and society from those containment measures. As well as the
human cost, the situation has led to widespread economic harm across
many sectors and a significant impact on health services. It has also
substantially accelerated a number of existing megatrends.
We have developed our strategy in the context of political, economic
and regulatory forces as well as the broader megatrends affecting us
all. We acknowledge the risks and challenges these trends present
and aim to turn them into opportunities for growth.
We see the following issues as the key factors affecting our external
environment:
Political and macroeconomic
impact
Political and macroeconomic factors impact
the operating environment of our businesses in
the UK and abroad. These include the COVID-19
driven economic downturn and high debt
levels, low interest rates, and geopolitical
tensions, e.g. between the US and China. The
UK also faces economic headwinds resulting
from the end of the ‘Brexit transition period’ and
a new trading relationship with the European
Union (EU).
Active governments and regulators
Governments are increasingly promoting
private provision and reforming services once
funded by the state (e.g. pensions and
healthcare). While regulators remain focused on
customer outcomes, enforcing conduct and
prudential supervision (e.g. Financial Conduct
Authority pricing review) as well as
standardising insurance accounting (e.g. IFRS
17), there is significant work underway to reform
the UK regulatory framework following the UK’s
exit from the EU.
In 2020, global GDP
contracted severely
-3.5%
(estimation)
Source: IMF World Economic
Outlook Update, January 2021
Percentage of UK
employees who were
members of a
workplace pension
scheme in 2019 (up
from 47% in 2012
when auto-enrolment
began)
77%
Source: ONS, March 2020
Read more about our risk management in the
‘Risk and risk management’ section of this Strategic report.
Ageing
Across the world, populations are ageing due to
better standards of living, improvements in
medical science, and declining fertility rates.
This is putting traditional retirement models
under pressure and creating challenges and
opportunities around funding and care in later
life.
Health & Wellbeing
Traditional healthcare models are under strain
from rising prevalence of chronic conditions,
ageing populations, high costs of new
treatments and the challenges posed to health
systems by COVID-19 (from the disease itself,
including long term effects experienced by
some people, as well as mental health impacts
of containment measures and delays in
diagnosis and treatment of other conditions).
Driven by technological advances and
accelerated by COVID-19 and increased health
awareness, new models are developing with a
focus on prevention, early intervention and
digital technology.
Climate Change
Climate change has increased the frequency of
extreme weather events, leading to increased
political focus and regulation, as well as growing
consumer awareness of the economic and
social consequences of climate change, and the
impact of their saving and investment decisions.
Mobility
Transport is shifting from private ownership
towards more efficient, safer and cleaner
modes: car-sharing, electric fleets, efficient
public transport and self-driving vehicles.
COVID-19 has also triggered significant shifts in
behaviour which are likely to have a lasting
impact on mobility (e.g. home working, reduced
business and leisure travel).
Big Data and AI
Artificial Intelligence (AI) is unlocking the value of
Big Data and bringing new levels of efficiency
and productivity. It also presents new
challenges around the ethical use of data, for
example in the use of algorithms for decision
making, or COVID-19 track and trace systems
that use location data.
Convenience
Powered by new technologies, a new level of
convenience is emerging where consumers’
personal needs are fulfilled instantly, and even
anticipated. COVID-19 has significantly
accelerated the existing shift to online in all
sectors.
New risks
New risks are emerging as a result of
technological advances and behavioural
changes such as the use of personal data and
sharing of information, the need for
uninterrupted access to services, and the
demise of traditional jobs, as well as
development of new skills and capabilities. This
creates a need for new saving, retirement and
insurance solutions.
Global population
aged 65 or over in
2019 (projected to
double by 2050)
703 million
Source: UN World Population
Ageing, 2019
Estimated number of
people with diabetes
in the UK (diagnosed
and non-diagnosed)
4.8 million
Source: Diabetes UK, February 2020
Assets in sustainable
funds at 31 December
2020 (a record high)
$1.65 trillion
Source: Morningstar, January 2021
Growth in UK public
electric vehicle
charging points 2015
– 2020
466%
Source: UK Department for
Transport, February 2021
Respondents
reporting that their
companies have
adopted AI in at least
one business function
50%
Source: McKinsey Global AI Survey,
November 2020
Annual growth in
online retail sales
(UK, 2019-2020)
46%
Source: ONS, January 2021
Percentage increase
in the number of data
breaches globally in
2019 vs. 2018
c.33%
Source: Munich Re, April 2020
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Our strategy
Our strategy
Our purpose
With you today, for a better tomorrow
Since 1696, 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, our
shareholders and our planet.
Our strategic priorities
Our strategy is centred on putting the customer first, having a strong
social purpose, focusing on where we can win, execution discipline,
and ultimately creating value for our shareholders.
We have three strategic priorities for the Group:
• Focus the portfolio;
• Transform performance; and
• Financial strength.
Focus the portfolio
Our focus is on our Core markets in the UK, Ireland and Canada.
These are our strongest businesses where we have market leading
positions, extensive customer franchises and can generate attractive
financial returns.
During 2020, we completed the disposals of a majority shareholding
in Aviva Singapore, a majority shareholding in Friends Provident
International Limited (FPI), and our joint ventures in Indonesia and
Hong Kong. We also announced the disposals of our Italian joint
venture, Aviva Vita, and our entire business in Vietnam. In 2021, we
announced the disposals of our entire business in France, our joint
venture in Turkey and the remaining Life and General Insurance
business in Italy.
Our remaining international businesses will be managed for long
term shareholder value. We will build on the good work our teams
are doing to grow and optimise these businesses, but where we
cannot meet our strategic objectives, we will be decisive and
withdraw capital. Ultimately there may be better owners for these
businesses than Aviva.
Transform performance
We will transform performance across our Core markets to
strengthen our competitive position and ensure we can take
advantage of emerging growth opportunities. With top 3 market
positions across the majority of our businesses, we are building on
strong foundations. The growth opportunities we will target are
driven by trends such as an ageing population, a heightened focus
on health and wellbeing, and the emergence of new risks for our
customers, amongst others.
We will transform performance by making it easier for our customers
to engage with us, capitalising on the Aviva brand, simplifying,
digitising and automating the business and driving targeted growth.
We believe that doing this will deliver greater customer trust,
engagement and retention, in addition to improved cost efficiency
and business agility. Ultimately this should then result in profitable
growth and sustainable value creation for our shareholders.
Building a consistent, digitally led customer experience is critical to
how we can enhance customer engagement and retention. We will
do this by further developing our digital platforms to make it easier
for our customers to access the full suite of Aviva products. We will
also connect the rich data we collect from across our businesses to
ensure we can offer our customers the right products and services at
the right time.
Aligned to our strong social purpose, we have increased our
sustainability ambition on tackling climate change and building a
stronger Britain. As part of this ambition, we have announced our
plan to be carbon Net Zero by 2040 and to invest £10 billion into UK
infrastructure and real estate over the next three years. We will also
ensure we maintain high standards on running our business
sustainably and embed this in our governance, decision making,
reporting, and stakeholder engagement.
Read more about how we are transforming performance across our
Core markets in the ‘Our market review’ section of the Strategic
report. Read more about our approach to sustainability in the
‘Corporate responsibility’ section of the Strategic report.
Financial strength
Financial strength, resilience and sustainability underpin our
strategy. Our focus here is on maintaining strong solvency and
liquidity and reducing debt. This will increase our financial flexibility
and provide options for excess capital deployment, our priorities for
which are:
• Debt reduction to achieve a Solvency II debt leverage ratio1 below
30%;
• Returns to shareholders when our Solvency II shareholder cover
ratio1 is above 180%, the upper end of our working range; and
• Investment
in our Core markets where we see attractive
opportunities to do so.
As we focus the portfolio, we expect our Solvency II shareholder
cover ratio1 to remain above our target working range.
Our dividend policy will deliver a sustainable and resilient ordinary
dividend, covered by the capital generation, cash remittances and
growth from our Core markets in the UK, Ireland and Canada. We
expect to grow our ordinary dividends per share in the low-to-mid
single digits. Future growth in the dividend will be driven by the
transformed performance and growth of our businesses, by lower
levels of debt and from the benefits of focusing the portfolio.
Our values
We have redefined our values to help us to deliver our ambitions.
Developed with our employees, they will guide the decisions we take.
Aligned to our purpose and strategy, they define what it means to be
part of Aviva. Our new values are Care, Commitment, Community and
Confidence, see the ‘Our values’ section for more detail.
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 within the Annual Report and Accounts.
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Our strategy continued
Our values
In February 2021 we redefined our values to help us to
deliver on our ambitions. Developed with employees from
across the Group, they will guide the decisions we take as
individuals and as an organisation. Aligned to our Purpose
and Strategy, they define what it means to be part of Aviva:
Care
Because we understand the positive difference we make
in our customers’ lives every day. We truly listen to see
beyond the policyholder to a person with plans and
dreams. We solve problems for our customers, and for
each other. We build relationships that no-one else can.
Empathy is our strongest force.
Commitment
Because we stand up for what we believe in. We act with
courage, keep our promises and take ownership of our
work. We understand the impact we have on the world
and take seriously the responsibility that brings with it.
We will play our part in tackling the climate crisis. We
commit to a better tomorrow.
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Our strategy continued
Community
Because we recognise the strength that comes from
working as one team, collaborating and winning
together for Aviva, for each other and for our customers.
Aviva is built on a foundation of trust and respect. Our
strength comes from our connection – to each other, to
our customers and partners and to the communities
around us.
Confidence
Because we believe that the best is still to come – for our
customers, our people, and society. We’re not just here
for now; we’re here to imagine and to innovate for the
future, creating value for customers and shareholders.
We are brave and passionate, setting new standards for
ourselves and the competition. With a humility that is as
important as the ambition that drives us.
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Our business model
Our business model
Aviva helps our 31.6 million customers make the most
out of life, plan for the future, and have confidence that
if things go wrong we will be with them to put it right.
Our business model defines us, differentiates
us and is how we meet our customers’ needs…
…through our products
and solutions…
Our businesses
Our group portfolio is comprised of the following businesses:
Core markets:
• UK & Ireland Life;
• General Insurance: UK & Ireland and Canada; and
• Aviva Investors.
Manage-for-value markets:
• Our businesses in continental Europe and Asia.
Our channels
Our customers can engage with us through multiple
distribution and service channels (both digital and non-
digital):
• Direct to customer;
• Intermediaries, including tied agents and brokers; and
• Strategic partnerships and bancassurance arrangements.
Our strengths
We have unique strengths as a business that give us a
significant competitive advantage:
• Strong technical skills;
• Diversified distribution;
• Robust capital position;
• Extensive customer franchise; and
• Well recognised brand.
Our skills
We have a wide range and blend of technical skills:
• Customer service;
• Underwriting;
• Risk management;
• Claims management;
• Digital innovation;
• Data Science; and
• Asset and liability management.
Insurance and Protection
• Personal lines
• Commercial lines
• Protection
• Health
Savings and Investments
• Individual savings
• Workplace savings
• Advice and guidance
• Investments and asset management
Retirement
• Annuities
• Equity release mortgages
• Drawdown
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Our business model continued
…from which premiums and
fees are received…
…and create
sustainable value for…
1
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.
2
Customers invest their savings with us.
For a fee, we manage and administer
their investments so they can grow their
savings or secure an income in the
future.
3
Customers pay us premiums which we
reinvest to provide them with income in
their retirement via a lump sum or
regular payments, or by releasing the
money tied up in their property.
Shareholders
We invest carefully so we can deliver sustainable,
growing returns for our shareholders.
21.0 pence
Total 2020 dividend aligned to our Core markets
Customers
Our customers benefit from a range of solutions to
meet their needs, with easy access when and how they
want it.
£30.6 billion
Paid out in benefits and claims to our customers in
2020
Communities
We play a significant role in our communities,
including as a major employer and a long-term
responsible investor.
5.1 million
People helped through £54.5 million of community
investment in 2020
Colleagues
Our aim is for our people to achieve their potential
within a diverse, collaborative and customer-focused
organisation.
76%
Our employee engagement score in 2020
Read more about our business at
www.aviva.com/about-us/who-we-are-and-what-we-do
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Key performance indicators
Key performance
indicators
We aim to assess how we serve our
customers, engagement with our
employees and how we generate
value for our shareholders. We do so
with a set of financial and
non-financial metrics which enables
us to assess our performance against
our strategic priorities and our
purpose.
We use a number of financial and non-financial metrics to help the
Board and senior management assess performance against our
strategic priorities (focus the portfolio, transform performance,
financial strength) and our purpose (with you today, for a better
tomorrow).
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.
We have updated our financial targets to reflect the focus of
the Group:
• Cumulative cash remittances1 from our Core markets – > £5 billion
in 2021-23 inclusive
• Cost reduction – targeting £300 million reduction in controllable
costs1 in our Core markets by 2022
• Solvency II debt leverage ratio1 – < 30%
The KPIs to assess performance against these targets and our
strategic priorities have been included in the analysis below and in
the Chief Financial Officer’s report.
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 within the Annual Report and Accounts.
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Key performance indicators continued
Non-financial KPIs
Customer Net Promoter Score® (NPS®)R
NPS® is our measure of customer advocacy and we use it in seven1 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.
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 up three percentage points to 76% (2019: 73%) reflecting another
solid uplift in engagement, with 80% of colleagues recommending Aviva as a great
place to work. The rise was driven by stronger belief in the strategy and greater
trust in senior leaders.
Number of markets in 2020:
below market average:
0
2019: 0
2018: 0
at or above market
average:
7
2019: 7
2018: 7
2020:
76%
2019: 73%
2018: 76%
Carbon emissions reduction
We are an operationally carbon-neutral company, offsetting the remaining
emissions through projects that have benefitted the lives of over one million
people since 2012. We measure our carbon emissions against our 2010 baseline.
Since 2010 we have reduced carbon emissions (CO2e)2 from our day-to-day
operations by 76% (2019: 66%) beating our 2020 target of a 50% reduction and
exceeding our 70% reduction by 2030 target.
2020:
76%
Reduction since 2010
2019: 66%
2018: 60%
1 Comparatives have been rebased as we have reduced the number of markets covered in the survey from 9 to 7 markets as we no longer report on China and Singapore.
2 CO2e data includes emissions from our buildings, business travel, water and waste to landfill.
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Key performance indicators continued
Financial KPIs
Group adjusted operating profit1 R
Group adjusted operating profit1 supports decision making and
internal
performance management. It is considered a useful measure of performance as it
enhances the understanding of the Group’s operating performance over time.
Group adjusted operating profit1 was £3,161 million (2019: £3,184 million) mainly
reflecting lower operating profit across all Core markets, except Canada. Our Core
markets were impacted by unfavourable trading conditions as a result of the
COVID-19 pandemic, partially offset by positive underlying performance.
2020:
£3,161 million
2019: £3,184 million
2018: £3,004 million
IFRS profit for the year
IFRS profit for the year measures the actual profit after tax attributable to
shareholders, generated by the Group.
IFRS profit for the year increased to £2,910 million (2019: £2,663 million) mainly due
to the profit on disposal of a number of businesses during the year, offset by lower
positive investment variances and economic assumption changes compared to
2019.
2020:
£2,910 million
2019: £2,663 million
2018: £1,687 million
Operating earnings per share2,3 R
Operating earnings per share (EPS)2,3 illustrates the profitability associated with
each share owned by our shareholders. Operating earnings per share2,3 is
considered meaningful because it enhances the understanding of the Group’s
operating performance.
Operating earnings per share2,3 increased to 60.8p (2019: 60.5p), mainly due to the
reduction in Group adjusted operating profit1, more than offset by lower tax and
direct capital instrument (DCI) interest.
2020:
60.8p
2019: 60.5p
2018: 56.2p
Basic earnings per share
Basic earnings per share (EPS) illustrates the profitability after tax associated with
each share owned by our shareholders.
Basic EPS increased to 70.2p (2019: 63.8p), in line with the increase in IFRS profit for
the year.
Solvency II return on equity2 R
Group Solvency II return on equity2 shows how efficiently we are using our financial
resources to generate a return for shareholders.
Group Solvency II return on equity2 has decreased to 9.8% (2019: 14.3%) due to
changes made to the French Life model which corrected a mis-applied rule and a
lower longevity assumption release than in 2019, partially offset by strong
underlying performance by Core markets.
Solvency II operating capital generation2 R
Group Solvency II operating capital generation (OCG)2 measures the amount of
capital the Group generates from operating activities.
Group Solvency II OCG2 decreased to £1.9 billion (2019: £2.3 billion) while OCG
excluding the impact of capital actions, non-economic assumption changes and
other non-recurring items, was stable at £1.4 billion (2019: £1.4 billion). Total
Solvency II OCG2 was lower primarily as a result of changes made to our French Life
model, which corrected a mis-applied rule.
2020:
70.2p
2019: 63.8p
2018: 38.2p
2020:
9.8%
2019: 14.3%
2018: 12.5%
2020:
£1,932 million
2019: £2,259 million
2018: £3,198 million
R Symbol denotes key performance indicators used as a base to determine or modify remuneration.
1 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.
2 This is an Alternative Performance Measure (APM) which provides useful information to enhance the 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 within the Annual Report and Accounts.
3 This measure is derived from the Group adjusted operating profit APM. Further details of this measure are included in the ‘Other information’ section of the Annual Report and Accounts.
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Key performance indicators continued
Financial KPIs
Cash remittances1 R
Cash remittances1 measure the cash transferred from markets to Group and
demonstrate sufficient remittances to cover the dividend.
remittances1
to £1,500 million
from our markets decreased
Cash
(2019: £2,597 million) driven by our decision to retain capital locally and regulatory
constraints resulting from financial market volatility due to COVID-19.
2020:
£1,500 million
2019: £2,597 million
2018: £3,137 million
Controllable costs1,2
Controllable costs1,2 are representative of the underlying day-to-day expenses and
operational overheads involved in running the business.
Controllable costs1,2 decreased by 2% to £3,935 million (2019 restated2:
£4,022 million). The decrease in controllable costs1,2 mainly reflects our continued
focus on efficiency and lowering spend, partially offset by charitable donations
made by Aviva and accelerated onerous contract costs reflecting the reduction in
our UK property footprint.
2020:
£3,935 million
2019 restated: £4,022 million2
2018 restated: £4,052 million2
Solvency II debt leverage ratio1
Solvency II debt leverage ratio1 is one of the indicators used by management to
assess the Group’s financial strength.
Solvency II debt leverage ratio1 remains stable at 31% (2019: 31%). This was due to
an increase in debt and Solvency II total regulatory own funds over 2020.
2020:
31%
2019: 31%
2018: 33%
Estimated Solvency II shareholder cover
ratio1 R
The estimated Solvency II shareholder cover ratio1 is one of the indicators of the
Group’s balance sheet strength.
During the year, the estimated Solvency II shareholder cover ratio1 has fallen by 4pp
to 202% (2019: 206%) primarily as a result of the impact of the economic downturn,
partially offset by the beneficial impact from operating capital generation and
disposals.
2020:
202%
2019: 206%
2018: 204%
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 3% to £1,260 million (2019: £1,224 million), mainly driven by
strong growth in Bulk Purchase Annuity VNB1 in the UK.
2020:
£1,260 million
2019: £1,224 million
2018: £1,202 million
Combined operating ratio1
The combined operating ratio (COR)1 is a measure of general insurance
profitability. A COR1 below 100% indicates profitable underwriting.
Reported COR1 has improved from 2019, with a better COR1 in Canada and UK
Personal lines, offset by adverse movements in UK Commercial lines and Ireland.
2020:
96.2%
2019: 97.5%
2018: 97.2%
Read about our performance at www.aviva.com/about-us
R Symbol denotes key performance indicators used as a base to determine or modify remuneration.
1 This is an Alternative Performance Measure (APM) which provides useful information to enhance the 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 within the Annual Report and Accounts.
2 Following a review of the presentation of claims handling costs, to achieve consistency in our reporting, comparative amounts for the year ended 31 December 2019 have been restated by £83 million (2018: £84 million) to include
previously excluded claims handling costs attributable to the Life & Health businesses from the UK, Ireland and Poland in controllable costs.
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Chief Financial Officer’s report
Chief Financial
Officer’s report
£m unless otherwise stated
2020
2019
Sterling
Change
Sterling %
change
Group Cash remittances1,
of which
Core cash remittances1,2
Estimated Solvency II
1,500
2,597 (1,097)
(42)%
1,359
1,409
(50)
(4)%
shareholder cover ratio1
Solvency II debt leverage ratio1
Group adjusted operating profit3,
202%
31%
3,161
206%
31%
3,184
(4)pp
—
(23)
—
—
(1)%
of which
Core markets adjusted
operating profit3
IFRS profit for the year
Operating earnings per share1,4
Basic earnings per share
Controllable costs1,5
Solvency II return on equity1
Solvency II operating capital
generation1
Value of new business on an
adjusted Solvency II basis1
Combined operating ratio1
2,492
2,910
60.8p
70.2p
3,935
9.8%
1,932
2,558
2,663
60.5p
63.8p
4,022
14.3%
2,259
(66)
247
0.3p
6.4p
(87)
(4.5)pp
(327)
(3)%
9%
—
10%
(2)%
—
(14)%
1,260
96.2%
1,224
97.5%
36
(1.3)pp
3%
—
The events of 2020 have demonstrated two things very clearly for
Aviva. First, our financial strength positions us well to deal with the
unexpected. Second, our people and businesses are capable of
delivering
the most challenging
circumstances.
resilient performance
in
COVID-19 affected customer activity and the broader economic
environment. Despite this our Core markets proved their underlying
strength. Our people continued to serve our customers very well,
demonstrating the importance of our long-term relationships with
our customers and distributors. At the same time, we were able to
launch new products and manage risks through our prudent and
disciplined approach to trading across underwriting and investing.
The pandemic also clearly accelerated the pre-existing trend toward
digital services, reinforcing our belief that we must be a leading
digital insurer and that this will be a key competitive advantage in
future.
Our continued financial strength and growing centre liquidity1
means we remain well positioned to handle any further turbulence,
while also delivering on our commitment to reduce debt, invest in
our business and provide additional returns to shareholders.
COVID-19 affected
customer activity and
the broader economic
environment. Despite this
our Core markets proved
their underlying strength.
Our people continued to
serve our customers very
well, demonstrating the
importance of our long-term
relationships with our
customers and distributors.
1 This is an Alternative Performance Measure (APM) which provides useful information to enhance the 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 within the Annual Report and Accounts.
2 2019 excludes a special dividend from UK life of £500 million.
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.
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 Following a review of the presentation of claims handling costs, to achieve consistency in our reporting, comparative amounts for the year ended 31 December 2019 have been restated by £83 million to include previously
excluded claims handling costs attributable to the Life & Health businesses from the UK, Ireland and Poland in controllable costs.
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Chief Financial Officer’s report continued
Group financial headlines
Operating results
Cash remittances1
Cash remittances1 during 2020 were £1.5 billion (2019: £2.6 billion
including £500 million special dividend from UK Life and £172 million
special remittance
Italy). The vast majority of these,
£1,359 million (2019: £1,909 million including £500 million special
dividend from UK Life) came from our Core markets. Remittances
£127 million
from Manage-for-value
(2019: £613 million) due to regulatory restrictions and our cautious
approach given the continuing economic and market uncertainty.
businesses were
from
profit2
adjusted
operating
Profits
£3,161 million
Group
(2019: £3,184 million) and operating earnings per share1,3 of
60.8 pence (2019: 60.5 pence) were stable. IFRS profit for the year was
£2,910 million (2019: 2,663 million) while basic earnings per share
increased to 70.2p (2019: 63.8p). Adjusted operating profit2 from Core
markets was resilient at £2,492 million (2019: £2,558 million).
of
Group adjusted operating profit2 remained resilient despite the
negative impacts of COVID-19 as we delivered strong results in
general insurance, bulk annuities, as well as our savings and
retirement propositions, with lower profits from our Heritage
business reflecting
its gradual run-off. Our Manage-for-value
operations also performed well on an IFRS basis. The main impact of
COVID-19 was felt in general insurance where the total estimated
impact amounted to a loss of £17 million. Within our Core general
insurance markets, the impact was greater at £84 million, as business
interruption claims net of reinsurance were only partly offset by
favourable impacts of reduced economic activity in other product
lines tempered by higher profit-contingent commission payments to
distributors.
Cost reductions
Our approach to efficiency initiatives was also brought into focus as
a result of COVID-19. Although some costs were reduced, for example
travel, we incurred incremental expenditure including the IT spend
required to allow all of our employees to work remotely. We also
contributed £43 million to community support initiatives. Despite
these headwinds we have delivered £180 million of cumulative
savings since 2018. We remain on track to reduce controllable costs1
by £300 million by 2022 and will deliver this solely from Core markets.
Solvency II operating capital generation (OCG)1
Solvency II OCG1 decreased to £1,932 million (2019: £2,259 million)
while Solvency II OCG1 excluding the impact of capital actions,
non-economic assumption changes and other non-recurring items,
was stable at £1,414 million (2019: £1,433 million). Total Solvency II
OCG1 was impacted by changes made to our French life model which
corrected a mis-applied rule, partly mitigated by an increase in
offsetting Group diversification benefits, as well as a positive
from management actions of £518 million
contribution
(2019: £826 million). This included positive impact of assumption
changes (including longevity releases) albeit lower than in 2019.
Solvency II OCG1 from Core markets increased 5% to £1,948 million
(2019: £1,850 million) driven by a strong performance in general
insurance.
Solvency II return on equity (RoE)1
Solvency II RoE1 was 9.8% (2019: 14.3%), lower primarily owing to
changes to modelling in our French life business which corrected a
mis-applied rule, and significantly lower benefit from longevity
assumption changes in UK Life. Underlying performance, excluding
the impact of capital actions, non-economic assumption changes
and other non-recurring items, Solvency II RoE1 increased to 9.8%
(2019: 8.1%) driven by underlying improvements in UK Life, due to
bulk purchase annuities (BPA) new business, and in our UK and
Canada General Insurance businesses.
Capital and cash
Centre liquidity1
liquidity1 was £4.1 billion
At end February 2021, centre
(February 2020: £2.4 billion) with the increase primarily driven by the
receipt of disposal proceeds for our Singapore, Hong Kong,
Indonesia and FPI businesses, partially offset by payment of
dividends.
Solvency II debt leverage
Solvency II debt leverage ratio1 remained at 31% in 2020 (2019: 31%),
with an increase in total debt offset by an increase in own funds.
During the first half of 2020, Aviva issued £500 million of tier 2
subordinated debt in advance of redeeming £500 million of
restricted tier 1 securities in July. In October 2020, we issued
C$450 million of
tier 2 subordinated debt pre-financing a
C$450 million instrument maturing in May 2021. With high levels of
centre liquidity1 held at Group centre we reduced our commercial
paper in issue by £130 million over 2020.
The Board approved, on 3 March 2021, an £800 million liability
management exercise. This tender offer, alongside upcoming debt
maturities and optional first calls in the first half of 2021, allows us to
reduce our Solvency II debt leverage ratio1 by c.4 percentage points
by half year 2021.
Solvency II capital
At 31 December 2020, Aviva’s Solvency II shareholder surplus was
£13.0 billion and Solvency II shareholder cover ratio1 was 202%
(2019: £12.6 billion and 206% respectively). Solvency II net asset value
per share1 was 442 pence (2019: 423 pence). Solvency II OCG1 of
£1,932 million (2019: £2,259 million) and the benefits of disposals
were offset by capital market movements driven mainly by the
impact of the reduction in interest rates over the course of the year
and the payment of dividends in the period.
Corporate credit rating migration and commercial mortgage
portfolio
During 2020, we experienced no defaults, only c.£60 million of the
bonds were downgraded
in our shareholder portfolio below
investment grade and less than c.13% of the portfolio had been
downgraded to a lower letter.
Our commercial mortgage portfolio continues to perform as
expected. The average loan to value (LTV) ratio across the portfolio
remains low at 61% (2019: 56%), loans in arrears were £34 million
(2019: nil), equivalent to 0.5% of the portfolio, and the loan interest
cover ratio was 2.74x (2019: 2.90x).
1 This is an Alternative Performance Measure (APM) which provides useful information to enhance the 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 within 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 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.
Aviva plc Annual Report and Accounts 2020
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Chief Financial Officer’s report continued
Dividends and capital framework
On 26 November 2020, Aviva announced a new dividend policy and
capital framework that align with the Group’s strategic priorities. We
aim to deliver a sustainable pay-out ratio and grow dividend per
share by low to mid-single digits. Under our capital framework, we
expect to return to shareholders excess capital above 180%
Solvency II shareholder cover ratio1 after allowing for investment in
the business and once our Solvency II debt leverage ratio1 has been
reduced below 30% and we have completed our major divestments.
In light of our 2020 performance and strong capital and liquidity, the
Board has proposed a final dividend of 14 pence per share
(2019: nil), bringing the total dividend in respect of 2020 financial year
to 21 pence per share (2019: 15.5 pence per share). A second interim
dividend in respect of 2019 financial year of 6 pence per share was
paid in the third quarter of 2020.
Business highlights and growth
opportunities
UK and Ireland
We have a vision to grow our business in the UK. Our strategy
focusses on achieving top quartile competitiveness in our home
market in savings and retirement, general as well as life insurance,
protection and health. To do this, we will transform operational
efficiency through simplification and automation,
improving
customer experience, accelerating data, analytics and underwriting
capabilities, and building stronger investments capabilities. We will
also build cross-UK customer capabilities, make better use of digital
tools, and innovate more effectively to make it easier for customers
and intermediaries to deal with us.
In 2020, UK and Ireland Life adjusted operating profit2 decreased 3%
to £1,907 million (2019: £1,974 million) with strong performances in
bulk purchase annuities and Savings & Retirement and a positive but
lower benefit of assumption changes offset by COVID-19 impact on
new business sales3 of equity release and individual protection.
In UK Life and Ireland, Solvency II return on capital1 fell to 7.4%
(2019: 9.1%) as result of positive but lower longevity assumption
benefits compared with 2019, partially offset by increased levels of
BPAs and improved longevity experience. Solvency II OCG1 increased
to £1,259 million (2019: £1,248 million) benefitting from management
actions taken to optimise capital and a stable new business strain
despite a significant increase in BPA sales3.
Savings & Retirement
Net flows1 increased by 14% to £8.5 billion (2019: £7.5 billion) with
higher net flows1 across Workplace and our Platform business.
£119 million
Adjusted
(2019: £88 million) driven by higher revenues driven from an
increased asset base, with assets under management (AUM)1 up 13%
over 2020 to £128 billion (2019: £113 billion).
increased
operating
profit2
to
Workplace savings – Aviva is the number one4 provider of bundled
Workplace pensions in the UK serving 3.8 million customers with
assets of £81 billion (representing an average annual growth of 12%
over the last four years) and net flows1 of £5.3 billion in 2020. The
savings and retirement market represents an enormous opportunity
for Aviva in the UK. The shift to defined contribution (DC) pension
saving as individuals are increasingly having to take responsibility for
their financial futures as well as regulatory changes such as the
introduction of auto enrolment mean that the DC workplace pension
market is expected to grow from £390 billion in 2020 to more than
£950 billion in 20285.
Adviser platform – In a short space of time we have built up assets
of £32 billion and were ranked top two6 by net flows1 in 2020 with a
market share of 14% of net flows1. The complexity and flexibility of
the UK pension and savings system as well as the ageing population,
which includes wealthy baby boomers reaching retirement, has
accelerated the need for financial advice and for platform solutions
that help financial advisers to look after their clients’ assets more
effectively and efficiently. This has driven growth in the adviser
platform market from £400 billion in 2015 to over £750 billion in 2020
with forecast market growth to £1.3 trillion by 20257.
Annuities & Equity Release
Sales3 rose 21% to £7.5 billion (2019: £6.2 billion) while value of new
business (VNB)1 increased 25% to £356 million (2019: £284 million),
reflecting strong growth in our BPA business partly offset by lower
sales of individual annuities and equity release. Adjusted operating
profit2 was 6% lower at £815 million (2019: £866 million) as growth in
BPA business but lower profits in individual annuities and equity
release.
Bulk Purchase Annuities – In 2020, we were ranked in the top four8
bulk purchase annuity providers with sales3 growing by 48% to
£6.0 billion (2019: £4.0 billion) with the overall Annuity & Equity
release book increasing AUM1 by 11% to £75 billion (2019: £67 billion).
The demand from businesses and defined benefit pension fund
trustees for annuities has continued to increase with the market
growing from £13 billion in 2015 to greater than £30 billion in 20209.
This demand has been driven by the desire of corporates to de-risk
their exposure to defined benefit pension obligations through the
bulk purchase of annuities from insurance companies. At £2 trillion,
the total value of defined benefit pension scheme liabilities in the UK
is very high and is expected to result in a high level of demand for
bulk annuities estimated to be £30 billion to £50 billion per annum9
across the entire market over the next five years. Aviva’s financial
strength as well as expertise to both price annuity business
effectively and through Aviva Investors to invest profitably for the
long-term means we are well placed to further succeed in this
growing market.
1 This is an Alternative Performance Measure (APM) which provides useful information to enhance the 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 within 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 Reference to sales represents present value of new business premiums (PVNBP) which is an APM, further details can be found in the ‘Other Information’ section within the Annual Report and Accounts.
4 Broadridge, UK Defined Contribution and Retirement Income 2019.
5 Broadridge, DCMI 2019.
6 Fundscape, advised-only channel, 9M20
7 Fundscape, Q3 2020 report
8 Lane, Clark & Peacock (LCP) pensions de-risking update, October 2020
9 Lane, Clark & Peacock (LCP) BPA Seminar, January 2021
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Connected to our
communities
Aviva has been taking care of people for more than 300
years. We live in the same streets and work in the same
towns. We recognise the strength that comes from our
connection to one another and are deeply invested in
our communities.
As a multinational company and one of the UK’s largest
companies we play an important part in the economies
and societies in which we operate through the taxes we
pay. In 2019 we were the 8th largest corporate
contributor of tax in the UK and in 2020 we paid
£1,052 million in corporate income taxes globally,
including £779 million in the UK.
On top of our donations given specifically to help
people cope with the impact of COVID-19 this year, we
also committed £11.5 million to other local projects,
making total community investment £54.5 million in
2020. Overall, this has helped 5.1 million people, from
keeping them active and looking after the environment,
to tackling loneliness and teaching new skills.
The Aviva Community Fund continued in France, Italy
and Ireland and we officially launched the new look
Aviva Community Fund in the UK. In partnership with
Crowdfunder UK, this gives our people the chance to
choose projects they wish to support. In Canada, Aviva’s
Take Back Our Roads campaign continued to focus on
improving road safety across the country.
As well as looking after our customers, our people
continue to play a vital role in community activity, fully
demonstrating one of Aviva’s values: Care. Everyone is
entitled to paid volunteer leave and despite the
restrictions put in place as a result of COVID-19, in total
our people globally have given more than 29,200
volunteering hours to help others this year.
In the UK, the Aviva Foundation* continued to invest
unclaimed assets of shareholders through grants to
charities and social enterprises. In 2020 the Foundation
committed over £4 million to 10 non-profit
organisations and social enterprises that can help our
communities and vulnerable customers. This included
funding the Financially Resilient Communities
Programme, a consortium of local and national
charities, working with communities to improve
financial advice available for deprived communities.
* The Aviva Foundation is administered by Charities Trust under charity registration
number 327489.
Individual Annuities – We have retained our number 11 position in the
market with individual annuity sales2 of £1.0 billion (2019: £1.4 billion)
as we focused on more profitable business as even lower interest rates
caused by COVID-19 reduced customer demand. Following the
introduction of pension freedoms in 2015 (which gave individuals
greater choice in how they access their savings in retirement) the
demand for individual annuities in the UK has fallen significantly,
nevertheless, we expect individual annuities to remain an important
option for customers when securing income in retirement.
Equity Release – In 2020 we maintained our number three3 position
release mortgages with sales2 of £562 million
in equity
(2019: £780 million). Volumes were impacted by our ability to conduct
in-person property valuations owing to lockdowns, nevertheless with
£3 trillion of housing equity owned by over 55s, we expect demand
for equity release mortgages to continue to grow into the future. With
strong growth in property values over the last two decades,
unlocking the significant value locked up in their homes is a way for
many to achieve financial security in later life.
Protection & Health
Sales2 were in line with prior year at £2.4 billion (2019: £2.4 billion) as
record sales2 of group protection, up 38% to £0.7 billion, were offset
by a reduction in individual protection sales2. VNB4 from Protection
& Health was stable at £167 million (2019: £168 million). Adjusted
operating profit5 was 6% lower at £189 million (2019: £201 million) as
competition impacted both margin and volumes in individual
protection, partly offset by an improvement in group protection
which benefited from improved claims experience.
ABI – 12 months to end Q320.
1
2 Reference to sales represents present value of new business premiums (PVNBP) which is an APM, further details can be found in the ‘Other Information’ section within the Annual Report and Accounts.
3 Aviva analysis of public company disclosures.
4 This is an Alternative Performance Measure (APM) which provides useful information to enhance the 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 within the Annual Report and Accounts.
5 Adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section and to the ‘Other
Information’ section within the Annual Report and Accounts for further information.
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Protection – We are a leading provider of both group and individual
protection ranking second1 in each category. In 2020, our group
protection business had a record year with sales2 of £716 million
(2019: £518 million), however our individual protection business saw
lower sales2 of £1,210 million (2019: 1,357 million) owing to the impact
of lockdown measures on the housing market and key distributors
including advisors, banks and estate agents. The protection market
tends to grow in line with or slightly above inflation which provides a
steady and high-quality source of earnings for Aviva. Our key sources
of competitive advantage include our brand, digital propositions,
underwriting discipline, and our relationships with intermediaries.
We have invested in these businesses to drive future growth, while
also maintaining our focus on efficiency.
Health – While we are the number 3 player3 in health insurance, we
are the only provider of scale that can offer individual and group
protection products, making our health offering not only a
standalone but also complementary proposition. 2020 has
illustrated the importance of health and wellbeing to individuals, but
also to companies and their employees. Our digital offering, where
99% of interactions with health brokers are carried out digitally,
positions us well in this increasingly important market. In 2020 we
increased sales1 by 1% to £513 million (2019: £507 million).
General Insurance
UK, Ireland and Canada net written premiums (NWP) was stable year
on year at £7.7 billion (2019: £7.7 billion) with strong commercial lines
growth offsetting lower personal lines premiums. Adjusted operating
profit4 increased by 3%9 to £500 million (2019: £488 million) as strong
improvements in underlying performance were partially offset by the
negative impacts of £84 million of the COVID-19 pandemic as well as
lower
investment return (LTIR). LTIR declined to
£274 million (2019: £314 million) representing an average return of
2.3% (2019: 2.8%) due to lower interest rates and de-risking activity in
light of the market volatility in 2020.
long term
Core markets general insurance combined operating ratio (COR)5
improved by 0.9 percentage points to 96.8% (2019: 97.7%). Strong
underlying performance across our Core markets was partially offset
by the net negative impacts of COVID-19, which had 1.1 percentage
points adverse impact on COR5, and lower benefits from weather and
prior year development, which had 3.2 percentage points adverse
impact on COR5 compared to 2019.
UK Personal Lines – Our personal lines business has market leading
digital propositions which are driving high customer advocacy. NWP
was 7% lower in 2020 at £2,232 million (2019: 2,399 million) reflecting
the impact of lockdowns and disruption caused by COVID-19 on the
branch networks of our distribution partners as well as
rationalisation of unprofitable business lines.
We currently have around 10% market share6 benefiting from the
strength of the Aviva brand, strong distribution relationships,
including with some of the UK’s largest high street banks, as well as
market leading reputation with brokers. Until recently only our
Quote-me-happy and General Accident brands were available
through price comparison websites (PCWs) however in late 2020 we
launched our Aviva brand’s motor offering on the major PCWs, with
good early signs of success, and our home offering has followed.
UK Commercial Lines – We are the largest commercial insurer7 in
the UK with 11% market share. Our digitally transacted channels
continue to perform exceptionally, while a favourable underwriting
environment and strong retention rates have helped us to grow NWP
in 2020 by 10% to £2,008 million (2019: £1,819 million). We focus on
the small or medium-sized enterprises (SME) and the fast-growing
Global Corporate and Specialty (GCS) markets. We expect growth to
continue as we address under-insurance amongst SMEs and
innovate and invest in our GCS offering to meet client demand for
protection against emerging risks. Our success has been driven by a
focus on exceptional service and a reputation as a trusted partner.
This was evidenced by an increase in broker trust to 95% in contrast
to the wider market – a really important measure given the
disruption caused by the global pandemic and the pivotal role
brokers play in distributing commercial lines products in the UK.
Canada Personal Lines – We are a top 38 insurer in Canada with NWP
in 2020 of £2,075 million (2019: £2,100 million) reflecting the impact of
the pandemic on our distribution partners as well as customer relief
measures. The Canadian market is largely intermediated therefore
we serve our customers mostly through brokers and through our
partner, Royal Bank of Canada (RBC), the most recognised financial
services brand in Canada. We are continuing to invest in automation
and are looking to improve our digital offering, leveraging the wider
Group’s expertise, as demand for digital products slowly increases in
this more traditional insurance market.
Canada Commercial Lines – We are a leading commercial insurer in
Canada with NWP in 2020 up 7%9 to £1,021 million (2019: £961 million)
as we benefit from a rate hardening environment reflecting reduced
capacity and sustained historical under-pricing across the market. In
common with the UK, our Canadian commercial lines business is
distributed largely through intermediaries and focuses on the SME
and GCS markets. We strive to offer best-in-class service and
customer value underpinned by pricing sophistication to help drive
even better retention and profitability in the future.
Aviva Investors
Our asset management business, Aviva Investors has £366 billion of
assets under management5 and has an ambition to become the
global leader in active sustainable investment outcomes. This
includes £292 billion of assets managed for Aviva companies, making
Aviva Investors pivotal to the Group’s wider success. Its long
track-record in private debt, infrastructure, and other real assets, has
supported our growth in areas such as bulk purchase annuities.
Aviva Investors adjusted operating profit4 was 11% lower at
£85 million (2019: £96 million) mainly driven by lower revenue partly
offset by a reduction in controllable costs5. Aviva Investors revenues5
were impacted by lower contribution from securities lending and a
reduction in origination fees reflecting lower demand for alternative
strategies as risk appetites reduced in response to COVID-19.
Aviva Investors maintained the positive client momentum with
positive external clients’ net flows5 of £1.7 billion (excluding liquidity
funds), with significant new business wins in real assets and in credit.
Total net flows5 of £8.5 billion (2019: £(2.8) billion) included
£8.3 billion of net flows5 into liquidity funds and cash.
1 ABI – 12 months to end Q320.
2 Reference to sales represents present value of new business premiums (PVNBP) which is an APM, further details can be found in the ‘Other Information’ section within the Annual Report and Accounts.
3 LaingBuisson, Health Cover UK Market Report, 16th edition.
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 and to the ‘Other
Information’ section 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 our financial performance. Further information on APMs, including a reconciliation to the financial statements
(where possible), can be found in the ‘Other Information’ section within the Annual Report and Accounts.
6 Aviva’s estimates based on the 2019 ABI General Insurance Premium Distribution
7 Aviva’s estimates based on the 2019 ABI General Insurance Premium Distribution
8 2019 MSA Research Results. Includes: Lloyds, excludes: ICBC, SAF, SGI and Genworth.
9 Percentages are quoted on a constant currency basis.
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Chief Financial Officer’s report continued
investing
is becoming hugely
important,
Sustainable or ESG
providing active asset managers with an opportunity to meet this
growing client demand and to contribute to society as a whole. Aviva
Investors has a decades-long track-record of being at the forefront of
sustainable investing having launched the Stewardship range of
funds, the UK’s first ethical fund range, back in 1984.
This heritage continues as evidenced by Aviva Investors being ranked
21 globally for our environmental voting track record and 52 for
responsible investment by Share Action. We continue to lead in this
transition engagement
field having
programme with a promise to divest from companies that are
non-responsive to our expectation that all companies should adopt
a goal of achieving Net Zero greenhouse gas emissions by 2050.
launched our climate
Manage-for-value markets
Our businesses in continental Europe and Asia delivered adjusted
operating profit3 of £1,311 million (2019: £1,150 million), up 14%4.
Solvency II OCG5 decreased to £172 million (2019: £867 million) while
Solvency II return on capital5 fell to 6.2% (2019: 11.4%) impacted by a
correction of a mis-applied rule in French Life model and the low
interest rate environment.
During 2020, and in line with our strategy, we completed the
disposals of Friends Provident International Limited, a majority
shareholding in Aviva Singapore, and our share in joint ventures in
Indonesia and Hong Kong. We also announced the disposals of Aviva
Vita in Italy and our business in Vietnam. In early 2021 we announced
the sales of our French business and our remaining Italian operations
which represent major progress in executing our strategy to focus on
our strongest businesses in UK, Ireland and Canada.
Jason Windsor
Chief Financial Officer
3 March 2021
1 https://shareaction.org/proxy-voting-records-challenge-asset-managers-responsible-investment-claims/
2 https://shareaction.org/proxy-voting-records-challenge-asset-managers-responsible-investment-claims/
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 Percentages are quoted on a constant currency basis.
5 This is an Alternative Performance Measure (APM) which provides useful information to enhance the 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 within the Annual Report and Accounts.
Aviva plc Annual Report and Accounts 2020
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Our market review > UK & Ireland Life
Our market review
We operate through businesses in our Core markets in the UK, Ireland, Canada and our other international businesses which are managed
for long-term shareholder value:
Core markets
• UK & Ireland Life
• General Insurance: UK & Ireland and Canada
• Aviva Investors
UK & Ireland Life
Financial performance
Cash remittances1
Adjusted operating profit2,3
Profit before tax
Controllable costs1,4
2020
£m
2019
£m
1,007
1,394
1,907
1,974
1,958
2,825
1,181
1,214
Solvency II operating capital generation (OCG)1,2
1,259
1,248
Solvency II return on capital1
7.4%
9.1%
Solvency II operating own funds generation1
1,057
1,247
New business
Present value of new business premiums (PVNBP)1
Value of new business on an adjusted Solvency II basis
(VNB)1
29,258 29,159
675
600
Overview
Business strategy overview
Aviva is the UK’s largest insurer with a 23% share5 of the UK life and
savings market. We are in a unique position to solve customer
problems through each step of their lives as we are a trusted provider
of a broad range of products to both individual and corporate
customers covering their savings, retirement, insurance and health
needs. Our strategy is to invest for growth, through which we will
become the UK’s leading insurer and establish Aviva as the ‘go-to’
customer brand for all insurance, protection, savings and retirement
needs for all of our customers.
Through our savings, retirement and protection businesses, we help
individuals save and achieve financial peace of mind through their
workplace, advisers or engaging directly with us as well as manage
their savings and income up to and through retirement. We also help
Manage-for-value markets
• Our businesses in continental Europe and Asia
our corporate customers with de-risking solutions for their pension
schemes and promote wellbeing and health with their workforce.
Strong brand awareness and a proven track record in customer
experience have allowed us to develop strong relationships with
distribution partners such as
independent financial advisers,
employee benefit consultants, banks and estate agents as well as
offering digital direct solutions to customers.
In times of uncertainty and economic volatility, our financial strength
provides our customers and investors with certainty. We are well
capitalised and have demonstrated resilience to stress through a
period of considerable market uncertainty. We receive a significant
capital efficiency advantage from the composite nature of the UK Life
business and the wider Aviva Group.
In Ireland our strategy is to transform and grow the business. Having
successfully integrated Friends First Life Assurance Company DAC,
we’re focused on delivering a single product range to the market and
we are committed to making it easier for intermediaries to do
business with Aviva. Ireland Life is currently fourth in the market,
holding a 13% share6, and the business has set an ambitious target
to become the market leading intermediary provider.
Market overview
The global pandemic brought about immense change for customers
and institutions such as Aviva. Customer behaviours and attitudes
towards insurers have evolved. We have seen an acceleration in
digital adoption, rapid shifts in mobility and customer engagement,
and a new focus on work/life habits. On top of these developments,
trends from before the pandemic also remain relevant; in the UK,
24% of the population will be over 65 in 20 years7, 85% of investible
assets is owned by over 45s7 and £3.0 trillion of housing equity is
owned by over 55s7.
With our diverse product range we are well placed to meet the
changing needs of customers through their
lives, from the
accumulation stage to retirement. Our strong financial position
enables us to provide security to customers while investing in our
proposition, improving connectivity for our intermediary partners,
and bringing to the market innovative health and wellbeing
solutions.
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 a review of the presentation of intercompany loan interest, to achieve consistency in our reporting, comparative amounts have been restated to reclassify net interest expense of £65 million from UK & Ireland Life to
Group debt costs and other interest for the year ended 31 December 2019 as a non-operating item. The change has no impact on the Group’s operating profit. In addition, comparative amounts for Solvency II operating capital
generation of £69 million for the year ended 31 December 2019 have been restated. The change has no impact on the Group’s Solvency II operating capital generation.
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 and to the ‘Other
Information’ section within the Annual Report and Accounts for further information.
4 Following a review of the presentation of claims handling costs, to achieve consistency in our reporting, comparative amounts have been restated by £78 million for the year ended 31 December 2019 to include previously
excluded claims handling costs attributable to UK & Ireland Life in controllable costs.
5 Association of British Insurers (ABI) – 12 months to end Q320.
6 Aviva calculation based on Milliman 2019 Report estimating market size based on responses received from some companies within the Irish life market.
7 Office for National Statistics.
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Our market review > UK & Ireland Life continued
Operational highlights
Products
Savings & Retirement
Our Savings & Retirement business is a leader in both the workplace
and retail markets, we are the UK’s largest bundled Workplace
provider1 giving us scale and our Retail business continues to grow
strongly. Aviva Save, a solution for existing customers’ cash savings,
launched internally in December 2020 and reached the external
market in January 2021. Our products are supported by guidance
and advice and offer access to open architecture asset solutions
including Aviva Investors who provide expertise in ESG investing. We
have been working closely with Aviva Investors to develop tailored
underlying investment solutions such as our approach to ESG
investing and Smooth Managed Fund. We also continue investing in
our platforms for workplace, advisers and direct customers to
enhance the experience, service and propositions on offer. Our new
business is capital efficient and transparent, with profits being
derived from assets under management (AUM)2 fees less costs.
During 2020, new business was impacted by uncertainty caused by
COVID-19. Average investment values were lower caused by market
falls, movement restrictions prevented advisers from working and
new scheme wins were deferred into 2021 due to clients seeking less
volatility, with PVNBP2 decreasing by 7% to £17.6 billion
(2019: £18.9 billion). Net
increased 14% to £8.5 billion
(2019: £7.5 billion) due to higher auto-enrolment volumes and a larger
asset base compared to 2019 which offset the impact of lower new
business.
flows2
Annuities & Equity Release
Our Annuities & Equity Release business consists of bulk purchase
annuities (BPA),
individual annuities and equity release. Our
products offer customers safe and secure income in their retirement
and support employers in their desire to de-risk their pension
schemes. We are the UK’s largest provider of individual annuities3, we
manage the UK’s largest book of equity release mortgages4, and in
the first half of 2020 we were the third largest provider of BPAs5. Our
Annuities & Equity Release products create synergies, with equity
release assets being held long-term to back longer-term annuity
liabilities, alongside assets sourced by Aviva Investors. Profits are
primarily driven by yields, and our focus on capital efficiency secures
significant cash flows, which has allowed us to invest in, and grow,
our BPA business.
The UK BPA market remains attractive to us and we will seek further
opportunities as more businesses look to de-risk their pension
schemes. We have improved the capital efficiency of our BPA new
business by partnering with new reinsurance counterparties and
leveraged our illiquid asset origination capabilities to meet our asset
origination targets despite unprecedented market conditions. We
utilise reinsurance to manage exposure to longevity risk emerging
from higher BPA volumes. In 2020, our BPA sales grew strongly by
48% to £6.0 billion (2019: £4.0 billion), more than an eightfold
increase over the last five years, reflecting our continued focus on
capturing market opportunities with attractive pricing.
Through our
income to
individual annuities we provide an
approximately one million customers. We have a long and proud
record in providing equity release (lifetime mortgages) to customers
who need it, lending over £500 million to customers in 2020.
Equity release was impacted by COVID-19 movement restrictions
during the year which reduced many intermediaries’ ability to write
new business as well as our ability to value properties. We addressed
this by introducing remote valuations to our equity release lending
process, giving customers access to funds released through their
properties. Despite lower volumes, our market share remains strong
and we are the third largest provider of equity release mortgages in
the UK3.
Protection & Health
Aviva is the only provider of scale in the UK covering health, group
individual protection. We have number two3
protection and
positions in protection markets and are third6 in the health market.
We have developed strong relationships with our intermediary
partners, including financial advisers, estate agents and other third
parties. We have invested for growth in these markets, focusing on
our digital proposition and bringing new health & wellbeing to
market. Pricing and underwriting discipline as well as cost efficiency
are key drivers for profitability in this sector.
Our individual protection products protect our customers when they
fall upon difficult times such as bereavement or serious illness. The
individual protection market is highly competitive, with pressure on
both volumes and margins. COVID-19 significantly disrupted
individual protection sales during 2020 as the stalled housing market
caused applications to fall. We saw a shift to direct channel business
following implementation of movement restrictions in the first half of
2020 but this was not enough to offset the reduction in sales through
channels which rely on face to face contact, such as with our estate
agent partners.
Group protection new business grew compared to 2019, with PVNBP2
of £716 million (2019: £518 million) despite pausing new business
sales during the first national lockdown. Volume growth was driven
by group income protection.
We aim to differentiate our individual and group protection offering
by going beyond simply offering financial support to our customers
and providing health and wellbeing support focusing on prevention
and best in class customer service. Our data analytics and
underwriting capabilities give us a strong advantage in a competitive
market.
Our Health proposition helps customers to live more healthily and
support them and their families when they fall ill. We understand that
customers needed us more than ever in 2020. As well as offering
payment deferrals to customers who needed it the most, we
recognised the restricted availability of private treatments in 2020 by
pledging to refund Health policyholders if claims costs in 2020 and
2021 are lower than expected as a result of COVID-19. Health PVNBP2
grew to £513 million (2019: £507 million) year-on-year due to higher
large corporate business sales.
Ireland Life
Our core lines of business in Ireland are pre and post-retirement unit-
linked contracts, unit-linked savings & investment contracts, in
addition to protection and annuity contracts.
In 2020, the business delivered the fourth and fifth key deliverables in
its Integrated Product Launch Programme, offering the best of both
Aviva and Friends First Life Assurance Company to customers and
intermediaries.
1 Broadridge, UK Defined Contribution and Retirement Income 2019.
2 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APMs, including a reconciliation to the financial statements
(where possible), can be found in the ‘Other Information’ section of the Annual Report and Accounts.
3 ABI – 12 months to end Q320.
4 UK Finance data on UK mortgage lenders.
5 Lane, Clark & Peacock (LCP) pensions de-risking update, October 2020.
6 LaingBuisson, Health Cover UK Market Report, 16th edition.
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• Our Pre-Retirement Pension Savings Products proposition was
delivered in Q3 2020.
• Our Post-Retirement Pension
proposition went live in Q4 2020.
Income Product
(ARF/ARMF)
The final phase of our Integrated Product Launch Programme will
focus on our Annuity, Savings &
Investments and Personal
Retirement Savings Account propositions.
While COVID-19 and the low interest rate environment impacted our
protection and annuity contract volumes during 2020, unit-linked
sales remained strong. Overall PVNBP1 decreased by 3% to
£1,534 million (2019: £1,589 million).
Customers
Across the UK Life business we delivered year-on-year improvements
across multiple customer service measures.
Our transactional net promotor scores (TNPS), a measure of the
number of customers who would recommend us following a
purchase, service or claim, has increased by 2 points to +45
(2019: +43).
Our focus on ‘Brilliant Basics’ continues to drive lower transactional
backlogs, fewer customer complaints and improved speed to service
customer queries. We have used our data analytics capability to
identify and assess key customer issues across a wide range of
customer data.
These
improvements were achieved despite the enormous
resourcing and systems challenges, brought about from the
continued impact of COVID-19. At the height of the crisis, we moved
all staff to working from home while maintaining service levels.
MyPension app generating over 13,000 daily logins, and we have seen
digital engagement increase by 53% during 2020.
Our Workplace business is largely intermediated with over 26,000
clients and 3.8 million members. We are the only provider to be
awarded the maximum ‘6 gold star’ rating from the Finance &
Technology Research Centre for our 2020 workplace pension
solutions and auto enrolment.
Our Retail business offers access to our market leading platform to
both intermediated and direct customers. Working closely with our
platform technology partners, we delivered a substantial upgrade to
our platform software, bringing new features to benefit both advisers
and customers who choose to manage their investments directly
with us. We have built relationships with c.5,000 advisory firms.
During the COVID-19 crisis, our distribution team have built on our
already strong relationships with independent financial adviser (IFA)
firms by staying in close contact with them and understanding how
they’ve been dealing with the crisis, how their models and needs may
change, and how we can support that.
Our Protection business is built upon strong relationships with our
partners. Our distribution network includes intermediaries, banks,
single-tie agreements with three of the largest estate agencies and a
digital direct offering.
During 2020, we successfully launched a number of initiatives to
assist our customers across distribution channels. Our new IFA portal
Aviva Connect provides single sign in for intermediaries across our
products. We launched Digicare+, a new digital app offering a range
of services to support individual and group protection customers in
their day-to-day health and wellbeing, bringing differentiation and
meaningful engagement.
We are proud not only of the scale of the financial and wider support
that our protection products provide, but the care and speed with
which claims are managed. In 2019 we paid out 98.6% of life
insurance claims equating to £582 million.
Our ongoing focus on building our digital capability has transformed
how we engage with customers and brokers. We now offer 94%
digital coverage for protection demands and 99% of interactions
with Health brokers are now carried out digitally.
We are very proud to have won a number of industry awards for the
service we provide to our customers. This includes Best Customer
Service Provider at the 2020 Health Insurance & Protection awards,
Best Claims Management/Claims Team at the 2020 Cover Excellence
Awards and Best Equity Release Customer Service at the 2020 What
Mortgage Awards. Our Workplace proposition won the Best Use of
Technology for Benefits category at the Workplace Savings and
Benefits Awards in October 2020 and the Retail Adviser Platform won
Best Use of Platform Technology at the Schroders Platform Awards
in December 2020. We were also ranked first place by Kagool in their
FTSE 100 Digital Census for communications support offered to
customers during the height of the COVID-19 crisis from March to
May.
In Ireland we have been committed to supporting our customers and
intermediaries in response to the challenges posed by COVID-19,
with the introduction of premium deferrals and premium holidays for
impacted customers. In addition we are committed to making it
easier for intermediaries to do business with Aviva. To further
support our intermediaries, the business held a series of 21 webinars,
with c.22,000 attendees in total, delivering a 98.5% TNPS score.
Distribution channels
With over 11 million customers we have one of the largest customer
bases in the UK life and savings market. 3.5 million of our customers
have registered on our MyAviva app, allowing policyholders easy
access to the most important information about their policy on
mobile devices. 1.8 million customers have registered on our
We have been working closely with the Financial Conduct Authority
(FCA) to explore the rules around guidance, and options to be able to
better support our customers. Our Aviva Guidance Experts have been
supporting our customers, both new and existing, to help them
understand their personal retirement options. We’ve collaborated
across the business to deliver social media, online signposts and
targeted email campaigns in order to reach customers who might
need our support.
In Ireland we continue to focus on intermediaries as our core
distribution channel. In 2019, the intermediary channel accounted
for 74% of total market sales on an annual premium equivalent
(APE)1 basis.
The Irish Life business holds a strong position in the intermediated
retail market and has plans in place to continue to challenge for
leadership in protection lines while focusing on the simplification of
our business, making it easier for intermediaries to interact with
Aviva.
Key business strategic priorities for 2021
• Maintain strong growth in UK Savings through our leading
Workplace and Platform propositions
• Continue to seek capital efficient BPA opportunities to increase
long term cash flow
• Capitalise on our data analytics capability to bring innovative
propositions to the marketplace
• In Ireland we will focus on improving efficiency, optimising product
profitability and the final phase of our Integrated Product Launch
Programme.
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 market review > General Insurance UK & Ireland
General Insurance
UK & Ireland
Financial performance
Cash remittances1
Adjusted operating profit2
Profit before tax
Controllable costs1
Solvency II operating capital generation (OCG)1
2020
£m
171
213
57
793
357
2019
£m
273
297
338
800
251
Solvency II return on capital1
13.1%
14.3%
Solvency II operating own funds generation1
329
333
Net written premiums (NWP)
Combined operating ratio (COR)1
4,630
4,638
98.2%
97.5%
Overview
Business strategy overview
Aviva is a leading insurer in both the UK and Ireland general
insurance (GI) markets. We have consistently maintained our market
share in both the UK & Ireland with market shares of 10% and 13%,
respectively3.
Our strategy is to invest for growth to deliver on our ambition of being
the leading insurer in the UK and Ireland as measured by premium,
reputation, trust, breadth of distribution and strength of digital
platform.
Our strength of distribution, brand recognition, digital innovation,
and high level of service are what set us apart for our customers and
intermediaries. TNPS (Transactional Net Promotor Score) and broker
trust scores continue to be market leading across all areas, with our
UK claims service being ranked world class. The quality of our service
has enabled us to hold long-term relationships with four of the UK’s
six largest banks to provide their insurance solutions.
We are recognised as being market leading in our digital capability.
Our “Ask-It-Never” technology deployment into banking partners,
market leading Commercial digital trading platform, and machine
learning based pricing are some of the reasons why intermediaries
partner with us. 2020 saw the launch of the Aviva brand on price
comparison websites, complementing our General Accident (GA)
and Quote Me Happy (QMH) brands. Our UK business has been
through a reorganisation and we have begun a restructuring
program in Ireland which we will complete during 2021. The
platforms are now in place for growth in a competitive market.
Aviva’s continued strength in the Intermediary sector has been
reflected in several awards won during 2020. Aviva were the first
insurer to secure a clean sweep of Personal lines, Commercial lines
and General Insurer of the Year awards, in a single year, at the 2020
British Insurance Awards while we also secured a record seventh
consecutive General Insurer of the Year award at the Insurance Times
awards.
Personal lines
In Personal lines, our growth ambitions are centered firstly on our
retail sales channels, including sales of the Aviva brand on all price
comparison websites and secondly on targeted activity with specific
broker and partner relationships. We are rationalising our product
portfolio and investing in digital innovations to deliver solutions that
are both more efficient and easier for our customers.
in targeted customer segments. A
Commercial lines
In Commercial lines, our strategy
is to leverage our strong
distribution and superior products and risk management to grow
market share
favourable
underwriting environment, and strong retention rates driven by
service and broker sentiment, allows us to deploy digital and
automated solutions where speed and simplicity is valued, while
offering technical and bespoke service for more complicated risks
with our large, corporate clients.
Market overview
During 2020, we have had to deal with COVID-19, proposed and
confirmed changes in regulation, and a number of weather events in
the UK. These conditions have materially impacted 2020 and we can
also expect a significant impact continuing into 2021.
In the large corporate & specialty markets, there has been a
prolonged period of under-pricing on global property, increased
frequency in natural catastrophes and prior year reserving issues on
non-UK casualty and Directors’ & Officers’ Insurance. The market is
now experiencing hardening for the first time in almost two decades
and rates are trending upwards. This provides us with an opportunity
to continue our strong growth trajectory, at attractive technical rates,
and tackle historically poor performing business. In Ireland, our
Commercial lines appetite will now expand into larger risks.
In the Small Medium Enterprises (SME) sector, the impact of
COVID-19 has significantly affected SME performance and businesses
have had to close or adapt their models and change their risk profiles
as a response to the pandemic. The sector is continuing to suffer
from significant levels of underinsurance, and we are proactively
utilising our Commercial Intelligence Tool to identify gaps in
coverage to support our brokers and customers.
We continue to work with our existing customers to resolve complex
issues and key challenges facing the industry, including care home
and cladding risks.
In the year, the FCA sought guidance through a legal Test Case to
determine whether specific, disputed policy wordings called for the
payment of business interruption claims arising from the COVID-19
pandemic. Aviva was not a party to the Test Case, but fully supported
the process. The test case did not require any change to our
customer approach, nor require further provisions. Throughout this
period, where cover was confirmed, we have adjusted claims and
made payments and will continue to do so.
During 2020, the FCA published their General Insurance Pricing
Practices Report. We support the FCA’s intent to bring greater clarity
and consistency to consumers across general insurance pricing. This
will be a significant area of focus for us over the next 12 months.
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.
3 Aviva’s estimates based on the 2019 ABI General Insurance Premium Distribution.
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The market continues to experience a trend towards digitisation,
further accelerated by pandemic-induced lockdowns.
The Consumer Insurance Contracts Act was enacted in Ireland, with
the requirements to be implemented by September 2021. This
represents a significant change for Irish insurers but will improve
customer trust and transparency levels.
We recognise shifts in mobility, with personal transport shifting from
private ownership to more efficient, safer and cleaner models like
sharing, electric fleets and, in time, self-driving vehicles. Commercial
transport, where these changes are likely to be seen first, will see
similar trends. COVID-19 may have put some of these changes on
relative pause but, longer term, permanent reductions in commuting
will further contribute to shifts in models. At Aviva we are well placed
as these changes develop, given our strengths both in personal car
and commercial fleet insurance.
Operational highlights
Products
We have been simplifying our business structure to provide simple
digitised customer journeys and establish an efficient operational
base.
Personal lines
In the UK, we offer Personal lines insurance, with a core focus on
home, motor and travel insurance. Our personal motor digital
solution allows customers greater control over their claims with
online reporting and a self-serve booking tool for car repairs.
increasing our
We have delivered a profit turnaround by simplifying products and IT
infrastructure,
in digital customer
journeys while cutting overall costs and improving the sophistication
of our pricing models. We have made several changes to our travel
product for existing customers to ensure we continue to provide
strong protection for COVID-19 related claims.
investment
To cut complexity from our business, we have removed 111 products
from UK Personal lines this year and to simplify our home product,
we halved the number of pages in our policy document during Q420.
The process of simplifying our product and IT architecture allows us
to focus on customers’ greatest needs. In 2021, we will continue
progress towards our target of 65% reduction in products by the end
of 2022, vs 2020 baseline.
In Ireland, we focus on home and motor insurance in Personal lines.
We’re constantly updating our private motor rating models to ensure
that we continue to have market-leading risk selection.
Commercial lines
In the UK, we offer Commercial lines insurance to a wide range of
businesses, from micro through small and mid-market to large,
multinational corporates. In Ireland, we provide commercial cover to
all sized businesses.
In a year dominated by COVID-19, we have grown our Commercial
lines business 10% by maintaining positive broker and client
sentiment throughout the year. We have grown SME business by 4%
and Global Corporate Specialty (GCS) by 16%. This growth has been
supported by new client acquisitions, a strong rate environment in
corporate and specialty and an acceleration of our digital
capabilities within SME.
We have enhanced our propositions, provided innovative solutions
for our customers, extended our product range and invested in our
Digital Cyber product ahead of the launch in the first half of 2021. We
have introduced new products such as a single vehicle mini-fleet
product for our SME customers, a full suite of financial lines coverage
for our regional clients and an enhancement of our Regional Cyber
product to provide comprehensive solutions for businesses. To
enhance our proposition for our multinational clients, we have
harmonised our client relationship management model and we have
to
also expanded our claims service management model
additionally support our mid-market customers.
In line with Aviva’s ESG strategy, we have continued to grow our
Renewables book and support our commercial customers with
transitioning to more sustainable ways of working.
Customers
Many customer highlights this year were delivered in direct response
to the COVID-19 pandemic:
• Seamlessly transitioned to remote working and maintained
operational service throughout the pandemic.
• Provided financial hardship support for customers experiencing
financial difficulty.
• Enabling policy changes for cover that is no longer required. This
included mileage changes, removing add-ons, and offering pro-
rata refunds to travel insurance customers who are no longer able
to travel.
• Supported businesses who had to change or adapt their business
models and extended our coverage for empty premises.
• Provided risk management and prevention guidance to business
customers, virtually and on-site.
• Maximising new business and renewal outcomes by effectively
delivering a whole account underwriting approach.
• Tailored, bespoke offerings for our mid-market, corporate and
multinational clients.
• Launched our back to business campaign to provide information
and guidance for our intermediaries and clients on a range of
topics ranging from market support, to underinsurance and the
impact of a hardening market.
More than 50% of Personal lines direct customers hold more than
one GI product with us. Our Commercial lines customers hold more
than three products with us on average, and our retention rates
remain over 80%. This demonstrates our customers’ satisfaction with
our products and services, which is reinforced by our upper quartile
RNPS (Relationship Net Promotor Score), which is 17 points ahead of
the competitor benchmark. In Ireland, our Customer Trust score
increased by 1% and is 4pp ahead of competitor benchmark.
Investment in digital and claims management has enabled UK motor
customers to start and complete their claims online with no
touch points. Customers are demonstrating a
underwriter
preference towards digital
interactions, with 80% taking the
opportunity to book in their car repairs online.
Distribution channels
Our retail businesses across UK and Ireland now service over
3.3 million customers. We have a multi-channel distribution for
Personal lines that includes selling direct to customers through
MyAviva and price comparison sites, as well as relationships with
several of the UK’s leading banks, affinity partners and brokers. In
Commercial lines, which is distributed via intermediaries, we enjoy
strong relationships with brokers of all sizes that allows us to cater
for both Global & Corporate and SME clients.
Aviva plc Annual Report and Accounts 2020
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Our market review > General Insurance UK & Ireland continued
In the UK, our extensive communication campaign in support of our
brokers and their customers was recognised and our market leading
broker trust score of 92% increased to 95% during the pandemic.
Over 9,000 brokers have joined one of our #backtobusiness webinars.
In the second half of the year, our UK business launched the Aviva
brand on price comparison websites for motor and home insurance.
This allows customers a greater choice of distribution channels to
use when buying an Aviva insurance product and has improved our
growth in the final quarter of the year.
In support of our banking partners and our digital agenda, we have
deployed our “Ask-It-Never” underwriting approach with two of our
four major banking partners this year. Ask-It-Never delivers data-
driven frictionless experiences for customers, reducing application
time for new business by half.
Growth in UK SME digitally traded business grew by 16% in 2020 as a
result of our accelerated technology, proposition and product
offering in Digital. Our award-winning Fast Trade platform is a
resilient business model that has maintained service performance
throughout the COVID-19 pandemic for our customers. In 2020, we
have invested in our E-trade platform and launched Aviva Connect,
our
innovative broker platform, to operationally support the
execution of our digital agenda and add value to our customers
through speed and simplicity. In Ireland, we are investing in our small
Commercial E-Trade offering to avail of the opportunity in this space.
Key priorities for 2021:
• Deliver simple, end-to-end digital experience for our retail
customers, and continue to automate and accelerate our digital
capabilities to support our commercial clients.
• Deliver on growth targets. Continue to deliver strong growth in our
Commercial book, which is key to our UK strategy to increase our
market share. Return to growth in our Personal lines business.
Expand our Commercial product offering in Ireland.
• Ongoing focus on becoming more cost efficient, as we cut
complexity from the business.
• Continue to support the wellbeing of our people and develop
capabilities in line with our business growth strategy.
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Our market review > General Insurance Canada
General Insurance
Canada
Financial performance
Cash remittances1
Adjusted operating profit2
Profit before tax
Controllable costs1
Solvency II operating capital generation (OCG)1
2020
£m
131
287
349
401
262
2019
£m
156
191
211
402
261
Solvency II return on capital1
19.9%
15.3%
Solvency II operating own funds generation1
287
203
Net written premiums (NWP)
Combined operating ratio (COR)1
3,096
3,061
94.7%
97.8%
Overview
Business strategy overview
Canada represents the eighth3 largest Property & Casualty market
globally with estimated gross written premium of $CAD60 billion4.
Aviva Canada holds the number three position4 with an 8% market
share, offering a range of GI products to nearly 2.4 million customers.
We are a well-diversified business across our Personal and
Commercial portfolios, with a national footprint and multi-channel
distribution capabilities.
We are investing for growth and our ambition is to be the leading
insurer in Canada by becoming the undisputed choice for our
customers, distributors and our people. Our strategy, aligned to the
Group strategic pillars is to (1) sustain leading performance through
execution excellence, (2) transform the service experience through
digital, and (3) lead the market with customer centric innovation.
Our people (who scored 15% higher on engagement than the top
quartile for Canadian financial services companies) continue to be a
significant advantage for our business.
Personal lines
Our retail business is predominantly sold through brokers and under
RBC Insurance, under the most recognised financial services brand
in Canada. Here, our focus is to improve pricing sophistication and
operational efficiency. Our specialty products, such as pleasure-craft,
recreational vehicles (RV), classic cars and snowmobiles, continue to
be a profitable growth driver and our product range, service, broker
relationships and best-in-class claims service set us apart in the
market. Our investment in Digital Direct will ensure that our Direct
book grows rapidly and sustainably, allowing us to respond to
shifting consumer preferences.
Commercial lines
We will leverage our market leading customer reach to support our
smallest customers by providing easy transactional solutions for our
broker partners, while positioning to grow through improved service
via operational efficiency and attractive pricing. In our larger and
more complex business segments, our focus is on competing
through underwriting expertise. Additionally, we will accelerate our
growth in our Corporate Risks segment leveraging Customer Risk
Management,
(cross
border/multinational). Our surety business has an extensive client
network and will look to navigate any economic recovery with
underwriting discipline.
proposition
improved
and
an
Market overview
Given the COVID-19 impact on the economy, customers and our
people, there is much uncertainty in the insurance market.
Canada continues to be in a low-interest rate environment, similar to
the 2009 recessionary period, and the Bank of Canada is not
expected to pursue additional rate increases until the economy
demonstrates a return to above-potential pace. Recessionary
conditions have affected consumer spending, with higher debt levels
and unemployment in 2020.
The shift in consumer behaviours to digital has accelerated the
growing need for digital capabilities and increased the pace of
technological change among carriers and brokers. Additionally, the
physical distancing initiatives and increase in remote working over
the past year has led to a reduction in auto claims frequency, which
will continue to drive increased government and regulatory pressure
and impact pricing. The Canadian personal motor market is highly
regulated and commoditised.
insurance,
In Commercial
reduced capacity and sustained
market-wide under-pricing over the years has led to a significantly
hardening market during 2020. A number of small businesses have
closed as a result of the pandemic and many companies are
operating below capacity, which is likely to suppress new business
policy count.
Industry consolidation of both insurers and distributors continues. In
addition to insurers growing market share through acquisition, there
is also a continued drive to control distribution through the vertical
integration of brokers.
Weather-related catastrophe events continue to rise in frequency
and severity, impacting our models and risk exposure concentration.
Operational highlights
Products
Our Personal insurance portfolio ($CAD3.6 billion, 65% of overall
business mix) is largely made up of mass market propositions,
particularly in regulated lines/geographies.
This year, we continued to make good progress against our data
science, pricing sophistication and claims agendas, while our future
focus is on digitising the proposition and service experience in order
to deliver value and compete on price.
In 2020 our gross written premium increased year-on-year and
despite the pandemic, we have seen strong new business
performance and policy retention.
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.
3 Canadian Property & Casualty market position source: Swiss Re, sigma No. 4/2020 from the Insurance Information Institute (www.iii.org).
4 Canadian market share source: 2019 MSA Research Results. Includes: Lloyds, excludes: ICBC, SAF, SGI and Genworth.
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IFRS financial statements
Other information
Historically we have primarily sold our personal and commercial
insurance propositions through intermediaries. The acquisition of
RBC General Insurance
included a 15-year strategic
distribution agreement between RBC and Aviva. The RBC Insurance
Agency, a distributor for RBC home and auto insurance solutions
underwritten by Aviva, now makes up approximately 23% of our
overall personal insurance business.
in 2016
We are continuing to invest in our broker channel through the
modernisation of our policy system which will deliver an improved
broker experience via a new broker portal, additional connectivity,
and new self-serve capabilities.
Additionally, we have plans to build our Direct channel into a
meaningful business for customers who wish to transact with Aviva
digitally and in order to truly diversify our channel mix.
Our commercial lines business remains intermediated by our broker
network, as well as via Managing General Agents, whose proposition
is based on their ability to provide a unique product or expertise for
a specific group of customers.
Key priorities for 2021:
• Continue to strengthen our insurance fundamentals including
pricing, underwriting, claims management, data science and risk
and control capabilities.
• Modernising our systems and infrastructure to deliver change at
pace.
• Enhance our service experience to make it easy for customers and
distributors to engage with, buy and sell Aviva and RBC.
• Deliver focused growth by optimising, scaling and diversifying our
portfolio and channels.
Our market review > General Insurance Canada continued
Personal lines
Our personal insurance business is made up of Retail and Group
Home and Auto, High Net Worth proposition as well as Lifestyle
products. In 2021, our personal insurance growth is projected to be
in line with the market (i.e. low single digit) with opportunistic growth
anticipated in our Direct channel (due to changing consumer buying
trends) as well as in our less commoditised specialty lines, where we
have market leading expertise. However, we remain cautious as
COVID-19 relief measures are expected to offset any organic
customer growth.
Commercial lines
Our Commercial insurance business is made up of SME (20% of
overall business) and GCS (15% of overall business), where we offer
Commercial auto, property and casualty products across various
customer and industry segments. Our focus for these businesses
continues to be around pricing and underwriting fundamentals with
strong distribution and client management capabilities.
Despite COVID-19, we ended the year with above average market
growth in SME (c.8%) and in GCS (c.10%) due to hard market
conditions. As capacity in the market continues to be strained, we
plan to deliver strong premium and customer growth in target
segments through 2021 (particularly SME Middle Market, Surety and
Corporate Risk). The impact of COVID-19 on net claims for 2020 was
$CAD269 million. This incorporates reported and expected future
claims primarily in relation to business interruption losses related to
COVID-19. Notwithstanding this, numerous class action lawsuits
have been brought against Aviva Canada and the wider insurance
sector relating to business interruption coverage. We expect to be
engaged in defending these actions of a number of years.
Customers
Our claims TNPS performance (Auto +61, Property +54) remains
strong due to internal efforts and our claims transformation
programme. We have seen continuous improvement in our claims
process, where cycle time has reduced significantly compared to
2019 and we are focused on quick settlements, automation and
digitising key customer touchpoints.
Overall complaint volumes for 2020 are down 17% compared to
2019. In 2021, we will continue to investigate the top complaints
drivers and work to address root causes of these issues. A focus on
ease of doing business through understanding what customers and
partners need from us, and delivering against those needs in a single
interaction, has maintained a First Contact Resolution ratio of 88%.
Distribution channels
In Canada, we have nearly 2.4 million customers; one of the largest
customer bases in the Property & Casualty market. We have a strong,
long-standing relationship with our network of over 800 independent
brokers and a partnership with Royal Bank of Canada (RBC), the
largest bank1 (market share 20%) and most valuable number in
Canada1, with a significant portion of high net worth customers.
However, shifting consumer behaviours and an evolving Canadian
distribution landscape highlight the importance of accelerating our
direct-to-consumer proposition.
1 RBC market position/share based on market capitalisation and brand rank source: 2020 ADV ratings .
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Our market review > Aviva Investors
Aviva Investors
Financial performance
Cash remittances1
Adjusted operating profit2
Profit before tax
Controllable costs1
2020
£m
50
85
84
2019
£m
86
96
91
430
446
Solvency II operating capital generation (OCG)1
70
90
Solvency II return on capital1
13.7%
13.7%
Assets under management (AUM)1
£366bn £346bn
Aviva Investors revenue1
515
542
Overview
Business strategy overview
Aviva Investors manages £366 billion of assets across a number of
international markets, with £292 billion managed on behalf of Aviva.
By combining our insurance heritage and DNA with our skills and
experience in asset allocation, portfolio construction and risk
management, we provide a range of asset management solutions to
our institutional, wholesale and retail clients.
We have a highly diversified range of capabilities, with expertise in
real assets, solutions, multi-assets, equities and credit.
Our strategy is to support Aviva becoming the UK’s leading insurer
and the go-to customer brand.
The key drivers of our strategy are
• Customer: deliver our customers’ investment needs, placing ESG
and a rigorous risk and control culture at the core of our future
strategies
• Simplification: streamline our business to become more efficient
and deliver better customer outcomes
• Growth: continue to grow in both our Aviva client and external
businesses
• People: develop a high-performance culture, focusing on our
diversity and inclusion strategy, talent and career development
Market overview
For active managers, advantaged access to distribution, scale and
operating efficiency have become
important to
compete profitably. Managers are also increasingly focusing on ESG
opportunities.
increasingly
We differentiate ourselves in the market through our engaged
approach and demonstrable leadership in sustainability, both
through ESG propositions and how we invest. On climate change,
where we are unable to influence companies to demonstrate a
substantial commitment to tackle global warming as an investor, we
are willing to use the ‘ultimate sanction’ of divesting.
Our leadership position in ESG is recognised with various industry
awards and ratings:
• Aviva Investors scores are above average in all modules of the
United Nations’ Principles for Responsible Investment (PRI) ratings
which covers over $100 trillion in AUM1;
• Multiple
international awards
International
Corporate Governance Network (ICGN) Global Stewardship Award
2019, and the Global
Investment
Investment Group (GIG)
Excellence Award 2019 ESG Manager of the Year; and
including
the
• A recognised leadership position in promoting sustainability
disclosures with involvement in initiatives such as the Task Force
on Climate-Related Financial Disclosures (TCFD) and Continuous
Data Protection (CDP).
Operational highlights
Products
Concerns over the economic disruption caused by COVID-19 led to
significant volatility in financial markets and elevated levels of
investor activity throughout 2020.
Client appetite for lower-risk investment strategies was the primary
driver of lower revenue for the year.
Notwithstanding the challenging market conditions, we had positive
momentum in our Aviva client and external client businesses
throughout 2020.
For our Aviva clients, significant inflows of £5.1 billion from the Core
business, primarily on the Adviser channel, Workplace and annuities
in the UK, were offset by £6.5 billion outflows from the run-off in
assets for the existing back book.
External net inflows of £1.7 billion in the period were driven by
positive gross flows of £8.3 billion, with significant new business wins
in Real Assets (£1.8 billion) and Credit (£3.2 billion).
We continued to experience strong momentum in our Liquidity
business, with £5.5 billion of net liquidity fund inflows and 80 new
client accounts.
Customers
Our investment performance was not immune from the market
turbulence, and at the end of December 2020 55% of our funds were
ahead of benchmark over one year.
Consistent delivery of strong investment performance is key to
meeting our customers’ investment needs and remains a key priority.
Our ongoing focus on ESG creates easy ways for our customers to do
good, leading by example and influencing others to act, thereby
playing an active role in the fight against climate change, creating a
stronger economy and society as well as generating enhanced
shareholder value over the long-term.
Distribution channels
Our Aviva client distribution channels mainly comprise:
• Savings & Retirement, where we develop ESG-focused
propositions to meet the long-term savings needs of Aviva’s
defined contribution pension and savings customers; and
• Aviva shareholder, where we develop investment solutions to
support Aviva’s growth ambitions, primarily in the UK bulk
purchase annuity and individual annuity markets.
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 and to the ‘Other
Information’ section within the Annual Report and Accounts for further information.
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Our market review > Aviva Investors continued
Our external client distribution channels mainly comprise:
• Large asset owners, including insurance companies, consultants,
pension funds, and sovereign wealth funds;
• Global financial institutions such as large private banks; and
• In the UK, wholesale intermediaries to the retail customer
including IFAs and wealth managers.
With 58 distribution agreements, our diversified client base is made
up of over 300 institutional clients, over 90,000 retail investors and
over 3,500 professional investors such as IFAs, discretionary fund
managers, charities and institutions.
Key business strategic priorities for 2021
• Continued improvement in investment performance to deliver
enhanced investment returns for our clients
• Ongoing focus on simplifying our business to deliver efficiency
benefits
• Continuing to focus on our leadership position in sustainability
through both ESG and how we invest
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Our market review > Manage-for-value
Manage-for-value
Our international businesses in continental Europe and Asia will be
managed for long-term shareholder value. We will build on the good
work our teams are doing to grow and optimise their businesses, but
where we cannot meet our strategic objectives, we will be decisive
and withdraw capital. Ultimately, there may be better owners for
these businesses than Aviva.
During 2020, we completed the disposals of a majority shareholding
in Friends Provident International Limited, a majority shareholding in
Aviva Singapore and our joint ventures in Indonesia and Hong Kong.
We have also announced the disposals of our Italian joint venture,
Aviva Vita, and our entire business in Vietnam.
In 2021, we announced the disposals of our entire business in France,
our joint venture in Turkey and our remaining Life and General
Insurance businesses in Italy. Please see note 4(f) for further
information. We confirm that we are exploring strategic options for
our businesses in Poland and our other international joint ventures.
Financial Highlights
Cash remittances1
Adjusted operating profit2
Profit before tax
Controllable costs1
Solvency II operating capital generation (OCG)1
Solvency II return on capital1
Life new business
Present value of new business premiums (PVNBP)1
Value of new business on an adjusted Solvency II basis
(VNB)1
General insurance new business
Net written premiums (NWP)
Combined operating ratio (COR)1
2020
£m
127
2019
£m
613
1,311
1,150
1,719
845
172
991
884
867
6.2%
11.4%
12,834 15,240
576
612
1,687
93.5%
1,610
96.6%
France
Overview
In France, the life market is dominated by mutuals and banks. Aviva
France is ranked 3rd amongst the traditional insurers.
Our business offers a full range of savings, investment, protection
and health insurance products with strength in distribution with
Epargne Actuelle our 100% owned life broker, Union Financiere de
France (UFF) the number 2 financial adviser network, tied agents and
independent brokers, and partnering with Association Française
d’Épargne et de Retraite (AFER), through France’s number one
savers’ association.
For the life business, our focus in the market is on balancing the
demand amongst French savers for low volatility guaranteed
products alongside the pressure this places on return on capital in
the current negative interest rate market environment.
The French general insurance market grew by +2.5% to €50.5 billion
to the end of September 20203, with premiums split between 3 main
categories; mutual without intermediaries (c.23%), bancassurers
(c.15%) and other traditional insurers (c.62%). In the personal lines
intense, with well-established
is
(mainly motor), competition
mutuals and traditional players facing increasing competition from
bancassurers and from small to midsize players aiming to maintain
their market shares. While the pure Direct only captures c.2% of
distribution so far, full multichannel distribution (direct and physical)
is becoming increasingly relevant in individual.
Motor and Home premiums increased by respectively 2.3% and 3.2%
in the French market at the end of November 2020, a slower growth
rate compared to 2019.
In the context of the COVID-19 crisis, General Insurance new business
and claims saw a decrease of 20% in Motor claims frequency at the
end of November 2020. A return to a second nationwide lockdown
(although less severe than the first lockdown) and the strong
economic downturn this caused (GDP expected at c.(8)% in 2020
compared to 2019), translates into an uncertain mid-term outlook in
the general insurance market, with an intensification of price
competition on personal lines and an increased underwriting
pressure on the commercial lines, in a context where the interest rate
environment weighs on financial performance.
The COVID-19 pandemic highlights the need to consider re-adjusting
operating losses coverage. In this context, in cooperation with the
French Ministry of the Economy and Finance, the French Insurance
Federation set up a working group to develop a framework for
providing insurance for a systemic crisis, such as a global pandemic,
via a public–private partnership.
Operational highlights
Products
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.
A key pillar of our strategy is to grow our pension business and to
continue to transform our savings business mix to position us for
longer-term low/negative interest rates while continuing to serve our
customers’ needs through the provision of attractive unit-linked and
capital-light products.
In 2020, new business declined 22% overall, due to the COVID-19
crisis, in line with the French market. Unit-linked sales remained high
at €2.6 billion (PVNBP1 basis), above market trend, demonstrating
our focus on shifting new business toward capital-light savings and
Pension business, which was helped by the success of our product
offers (structured/ISR/Real Estate unit-linked products) and targeted
marketing campaigns.
In General
than market
Insurance, Aviva showed stronger
commercial performance, recording a 4.5% increase in premiums
(excluding Health) collected at the end of 2020. In 2020, retention
rates increased to 89.5% (+1.2pp). We have limited exposure to
business interruption losses in France, this was limited to c£5 million
at 31 December 2020.
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 within 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’ section within the Annual Report and Accounts for further information.
3 Source: Fédération Française de l’Assurance
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Our market review > Manage-for-value continued
Customers
The implementation of our General Insurance strategic proposition
continues with a key milestone achieved in the launch of ‘Client
Unique’ – a multi-channel project: one client, one product, one price,
any channel; an innovative proposition allowing retail customers to
choose the combination of channels that works for them. In 2020,
Aviva France successfully launched the home product on a client
unique basis.
Distribution channels
France operates through a diversified distribution network: the 4th
largest agent network in France (approximately 1,000 tied agents),
over 1,000 active brokers, and strong capabilities
in wealth
management through UFF (over 1,200 financial advisors) and
Epargne Actuelle (1st Life broker in France). Our direct business is the
second largest for General Insurance in France.
From a General Insurance broker perspective, we continue our
dynamic of profitable growth and strengthening our partnerships
with brokers highlighted by a 22% increase in premiums at the end
of 2020.
Key priorities for 2021
In the context of the COVID-19 pandemic and associated economic
downturn, Aviva France executes a commercial strategy focused on
profitable growth based on:
• Completing the disposal of Aviva France in the second half of 20211;
• Pension business, where we are already in top three for the new
individual pension product;
• Continued effort on Life savings business transformation;
• Customer retention; and
• 2021 pricing strategy.
Italy
Overview
In Italy we are the 10th largest Life business, 3rd in long-term care
(LTC), market leader in CQP and CQS2 (credit protection of salary and
pension backed loans) and 16th General Insurance provider3.
Our life product catalogue is comprised of hybrid, savings and
protection, LTC and pension products distributed mainly through
bancassurance agreements and financial advisor networks. We
continuously
launching new
products able to meet clients’ and distributors’ expectations while
optimising the capital charge generated by the market volatility.
innovate our product catalogue
Our general insurance motor business represents the primary line of
business in the Italian market, and we have improved its profitability
thanks to a fixing programme (established in the second half of 2017)
that reviewed our agency network to improve overall profitability
across the motor business. In 2020, the motor business has been
positively impacted by the restrictions to mobility caused by
COVID-19 lockdown. We continue to improve the non-motor
business, a more profitable general insurance segment which is still
under-penetrated in Italy compared to other European countries. In
particular, non-motor business has seen positive volume growth of
4% year-on-year.
Operational highlights
Products
In Italy, our hybrid product, a pivot of our distribution strategy in the
savings business, 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 introducing features to make the with
profits component capital light. Since its launch in 2017 we have seen
a compound annual growth rate of 44% to €3.1 billion (£2.7 billion)
demonstrating its increasing attractiveness in the market.
insurance, we
In general
launched a new Guidewire based
underwriting platform offering a simple and flexible range of
products and we have been commended by the industry for our
innovative implementation. In parallel, we commenced a review and
renewal of our entire product catalogue, which will be finalised next
year, and intend to extend the use of the new platform across more
of our distribution channels so that all our customers and
distribution partners can benefit from its simplicity. Our General
Insurance business continues with the implementation of Aviva Plus,
a new digital platform, powered by Guidewire, for both the
distributors and to enhance the direct sale. Moreover, Aviva Plus will
permit more efficiency and costs saving,
the
decommissioning of old platforms, and better analytics.
thanks
to
Customers
Our customer base has gone up by 2% year on year, thanks to the
new distributors we have started working with.
We have received strong customer feedback during the year and we
are above the market average on both customer satisfaction score
and retail net promoter score. The TNPS on motor and home claims
demonstrate that our General Insurance claims teams are able to
provide a full positive customer experience even during the
COVID-19 pandemic.
We have achieved important improvements to our customer
segmentation analysis capabilities, which has enhanced our ability
to design products that better meet customers’ and distributors’
demand.
Moreover, we’re finalising the insourcing of the contact centre with
around 75% expected to be completed by the second half of 2021
and we have improved the MyAviva self-service capability.
Distribution channels
In 2020 we have continued with our strategy to diversify the
distribution network. We have:
• Signed a new 10-year distribution agreement with Banca Patrimoni
Sella, member of Banca Sella Group;
• Extended the partnership with UBI, due to expire at the end of 2020,
until June 2021;
• Renewed the distribution agreement which expired in September
2019, with the other bancassurance partner, Unicredit, until July
2021; and
• In General Insurance, we have further diversified our distributor
mix, concentrated on non-tied agents, especially through new
relations with brokers. The Partnership with B&S has allowed us to
become market leader in the CQP/CQS business.
In 2020 we have supported all our distributors to withstand the
COVID-19 crisis and have accelerated our digitisation roadmap. To
guarantee the business continuity and support our partners, we have
put in place a series of actions to digitise and simplify the sales
process for bancassurance partners and agents.
1 The sale of Aviva France was announced on 23 February 2021 and is subject to consultation and customary conditions, including regulatory approvals, and is expected to complete by the end of 2021. Please see note 4(f) for
further information.
2 CQP: Cessione del Quinto della Pensione; CQS: Cessione del Quinto dello Stipendo
3 Ranking ANIA (Italian National Association of Insurance Companies)
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Our market review > Manage-for-value continued
Key priorities for 2021
• Focus on optimising shareholder value under manage-for-value
sales and claims processes including self-claims in personal accident
and the reporting of motor third party liability claims online.
strategy
• General Insurance growth gaining scale, by increasing volumes
with digital and improving business mix
• In our Life business we look to continue structuring capital light
products attracting new distributors to recover size after the Aviva
Vita sale.
Poland
Overview
In Poland we are the number two1 life insurer in the market with one
of the largest life tied agent salesforces and two key bancassurance
partnerships with Santander and ING. 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.
We are number ten1 in the General Insurance market with well
including direct tied agents,
diversified distribution channels,
brokers and bancassurance partnerships with Santander and ING.
We also operate in the pension and asset management markets. We
are the second largest pension fund in terms of AUM1 and fifth largest
asset manager of open-ended investment funds.
Operational highlights
Products
Aviva Poland offers a wide range of insurance and investment
solutions such as life cover for individuals and groups, general
insurance for retail and commercial clients, and pension schemes as
well as investments through unit trusts.
Our personal life portfolio consists of unit-linked insurance with a
significant protection element. The focus of new business sales has
switched to pure protection distributed through tied agents and
bancassurance partnerships.
In the pension market, auto-enrolment recommenced, and we have
written more than 5,100 contracts with companies employing almost
half a million employees (of which nearly 150,000 have joined the
pension scheme already).
Our General Insurance business has experienced a stable year with
strong NWP growth of 12% in commercial property.
Customers
In 2020 we have implemented a series of operational improvements
and immediately responded to customer expectations regarding the
COVID-19 pandemic which have resulted in improved customer
experience metrics (TNPS) from +23 at the end of 2019 to +32 at the
end of 2020.
High and stable TNPS results on the key customer touchpoints in
2020 were maintained: +69pp after policy purchase and +51pp after
claim.
We have also improved the user experience on digital touchpoints,
resulting in rising TNPS result for MyAviva by 2pp and Aviva website
by 36pp.
Distribution channels
Aviva Poland has one of the largest agency networks in Poland which
is the main distribution channel for the life business.
Our General Insurance distribution mainly comprises direct for
personal offer and brokers as the dominant channel for commercial
lines.
We also continue to build on the strength of our distribution
relationship with our bancassurance partners and further digitise the
1 Source: by GWP, Polish Financial Supervision Authority (KNF)
The MyAviva platform is very well embedded in Poland and 2020 has
seen us reach over 500,000 active customers, introduce a series of
new functionalities, and hit over 100,000 transactions.
Key priorities for 2021
We have three priorities that will ensure successful strategy execution
in 2021:
• Distribution development – investment in tied agent network
modernisation
structure and
recruitment, and deepened relationships with Santander and ING,
as well as new partnerships;
technology, new
through
• Development of Aviva brand supported by customer excellence
and digitisation to optimise front and back end solutions and
customer experience across all channels; and
• Growth across corporate business to double the size of corporate
business in life and General Insurance commercial lines.
Turkey
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 two private auto-enrolment provider. We offer protection
products through both bancassurance and retail channels including
a direct sales force.
Although, the COVID-19 pandemic has impacted new sales volumes
we have consolidated our market leading position in the pensions
improving customer persistency and
market by focusing on
developing better remote sales capabilities. Our new credit linked
product not only enabled us to maintain our protection market share
but has also increased our profitability with increased penetration
and adjusted prices. In 2020, we have also implemented customer
solutions such as a mobile application and customer journeys and
segment based services to provide a better digitally enabled
customer experience.
In February 2021, we announced the disposal of Aviva Turkey, see
note 4(f) for further information.
China
In China, we continue to have an excellent relationship with our
partner COFCO. In 2020 our joint venture continued to focus on its
core agency channel, maintaining a team of more than 12,000 agents
nationwide as of December 2020 despite severe COVID-19 disruption
early in the year. Throughout the year we have performed resiliently
despite the challenges of COVID-19. This is as a result of our
well-developed digital capability which allowed the business to
rapidly adapt to lockdown and digitally accept and underwrite 99.5%
of new policies. We also increased the number of online users of our
health platform by 320,000 in the year.
Our joint venture won a number of awards this year, including two in
the China Finance Summit 2020 which recognised our success in
brand and innovation, as well as three other awards including the
Annual Impactful Joint Venture Insurance Company, Ark Award of
Value Growth Insurance Company and Excellent Life Insurance
Company of the Year.
India
In India, we have a life insurance business through our joint venture
with Dabur Invest. Corp. The business is a provider of savings,
protection and retirement products through bancassurance, retail
agency channels and a direct sales force.
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Types of risk inherent to our business model:
Risks customers transfer to us
• Life insurance risk includes longevity risk (annuity customers living
longer than we expect), mortality risk (customers with life
protection), expense risk (the amount it costs us to administer
policies) and persistency risk (customers lapsing or surrendering
their policies).
• General insurance risk arises from loss events (fire, flooding,
windstorms, accidents etc). Health insurance exposes the Group to
morbidity risk (the proportion of our customers falling sick) and
medical expense inflation.
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, 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 (including those set out in “the
external environment” section) 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 Customer, Conduct and
Reputation Committee, 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
‘Directors’ and Corporate
in the
Governance report’ in the Annual Report and Accounts.
is set out
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). In 2020, we integrated climate
into our risk appetite framework – see ‘Our climate-related financial
disclosure’ for more information.
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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. The impact of COVID-19 on these
risk types has been considered further as a spotlight in this section.
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
We take a balanced approach to
credit and believe we have the
expertise to manage it and the
structural investment advantages
insurers with
conferred
long-dated,
illiquid
liabilities that enables us to earn
superior investment returns.
relatively
to
We actively seek some market risks
as part of our investment and
product strategy. We have a limited
appetite
rate and
property risks as we do not believe
that
adequately
are
rewarded.
interest
these
for
• 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 development and management framework 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 the 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,
are
intrinsically well managed and
where there is a spread of risks in
the
category. General
insurance risk diversifies well with
our Life Insurance and other risks.
same
that
• 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
The relatively
illiquid nature of
insurance liabilities is a potential
source of additional investment
return by allowing us to invest in
liquid,
higher yielding, but
less
assets
commercial
such
mortgages.
as
• Maintaining committed borrowing facilities 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
Asset management
risk
• Fund liquidity
• Performance
and margin
• Product
• Retention risks
Risks specific to asset management
should generally be reduced to as
low a level as is commercially
sensible, on the basis that taking on
these risks will rarely provide us
with an upside.
• 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
Risk preference
Mitigation
Operational risk
• Conduct
• Legal & regulatory
• People
• Process
• Data security
• Technology
• Brand and
Reputation
Operational risk should generally
be reduced to as low a level as is
commercially sensible.
Operational risk will rarely provide
us with an upside.
• Application of enhanced business standards covering key processes
• Our Operational Risk & Control Management Framework which includes the
tools, processes and standardised reporting necessary to identify, measure,
manage, monitor and report on the operational risks and the controls in
place to mitigate those risks within centrally set tolerances
• Enhanced scenario-based approach to determine appropriate level of capital
to be held in respect of operational risks
• On-going investment in simplifying our technology estate to improve the
resilience and reliability of our systems and in IT security to protect ours and
our customers’ data
Spotlight: COVID-19 – Risk management in action
The COVID-19 pandemic has impacted all the geographic markets in which we operate and all the major risk types inherent to our business.
Prior to and during the COVID-19 pandemic we have taken active risk management actions to protect our capital position, ensure continuous
service to our customers and manage our risk exposures, as set out below:
Risk Type
Risk mitigation
Life insurance risks
Impacted because of increased
mortality and morbidity as a result
of COVID-19
Individual Life Protection – Mostly reinsured and we have strict underwriting criteria that limits our
exposure to cohorts of the population at highest risk of COVID-19.
Group Life Protection – Potential greater net exposure, however we have taken pricing actions to limit
our exposure from new business.
The impact of COVID-19 on our annuity products has been limited over 2020. However, we will continue
to closely monitor the impact on the future longevity experience of our portfolio.
General insurance risks
Primarily impacted as a result of
business interruption and travel
disruption
to
government action to contain the
COVID-19 virus spread
consequential
Business interruption – Standard commercial policy wording does not provide cover for COVID-19.
However, we have some exposure through broker determined wordings where we are the lead or follow
insurer and many of the issues were subject to the FCA test case. The Supreme Court appeal took place
on 15 January 2021, following the verdict the legal uncertainty in the UK around gross losses has been
significantly reduced.
Travel – COVID-19 wording has been clarified to eliminate ambiguity, pricing adjusted to ensure risk is
appropriately priced and further reinsurance cover has been purchased.
Credit & Market risks
Impacted as
financial markets
have reacted to the potential
economic impact of government
actions to manage the pandemic
and central bank monetary policy
to mitigate the impact.
Operational risk
Impacted
government
by
lockdown measures to reduce the
COVID-19 virus spread
As a result of the significant financial market impact of COVID-19, particularly to credit and equity
markets and interest rates, we took a number of actions to reduce our exposure to credit, equity and
interest rate risk across all our markets. Actions include purchasing tactical derivative hedges, asset
disposals and reallocations and reducing new business sales in certain markets and products.
Customer service – Continued service, despite increased absenteeism and childcare commitments,
maintained through IT-enabled home-working and increased customer digital interaction.
Financial crime – Programme of employee and customer communication and guidance undertaken in
response to use of COVID-19 as a pretext for phishing activity, leading to pension and investment fraud,
as well as exaggerated and fraudulent claims.
New risks relating to extensive home-working – We have adapted our processes and controls to
address heightened risks including cyber, data loss and occupational health to ensure these remain at
an acceptable level.
Asset management risk
Impacted by
financial market
response to COVID-19 pandemic
and in particular the commercial
property sector
Trading and liquidity management actions were taken within our funds, to ensure continued and
uninterrupted service to our customers. However, due to the adverse impact of COVID-19 on the UK
commercial property sectors, and in particular the difficulty in being able to assign values to our
commercial property portfolios, we temporarily suspended our unit-linked property funds to
redemptions for six months in March 2020.
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Risk and risk management continued
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. We consider the individual and aggregate impact from these trends when designing and implementing our risk
management processes:
Key trends and movement
Risk management
Outlook
for
prospects
Economic & credit cycle – uncertainty
over
future
macroeconomic growth, credit and
current low interest rates, and the
response of Central Banks, could
adversely impact the valuation of our
investments
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.
credit
or
Trend: Increasing
Risks impacted: Credit risk, Market risk,
Liquidity risk
UK-EU relations – the nature of the
UK’s relationship with the EU and the
EU’s treatment of 3rd countries in
respect of
financial services has
implications for our business model, in
particular for our asset management
and insurance businesses in the EU
and how our UK and EU businesses
interact.
Trend: Stable
Risks impacted: Operational risk
We limit 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
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.
evaluate
to
The Group remains exposed to the uncertain
economic impact of COVID-19 and the decision
for the UK to leave the European Union. Areas of
uncertainty include: credit downgrades and
defaults, interest rate reductions and falls in
property prices. We continue to manage our key
interest rate exposures, specifically in Italy and
France. We have action plans in place to
manage exposures should they move outside
our risk appetites.
the
Following the end of the decision for the UK to
leave the European Union transition period, in
2021 we will continue to actively monitor
developments in EU policy towards 3rd countries
such as the UK, which could impact our business
identify contingent management
model and
actions to address these. Specifically in respect of:
relevant financial services equivalence decisions
and
implications where not granted;
additional restrictions to asset management
rights as a non-EU manager;
delegation
limitations on reinsurance back to the UK by our
EU subsidiaries; limitations on outsourcing back
to UK-based experts by EU subsidiaries;
restrictions on use by EU insurers (including
Irish subsidiary) of UK branches for
Aviva’s
passporting; and restrictions on brokers ability to
place business in the UK and restrictions over the
transfer of personal data from the EU to the UK
and other 3rd countries, including intra-group
transfers for data processing.
to
EU pronouncements over recent years have
expressed concerns over the systemic risk
posed by dependence of the EU on critical
financial infrastructure and services provided
by 3rd countries, in particular the UK. Later in
2021 the EU will begin further consultations on
changes
regulation of EU domiciled
investment funds (AIFMD, UCITS) which may
propose restrictions on delegation of asset
management activities to the UK. In light of the
ECJ’s judgement in the Schrems II case, the EU
in 2021 will also be revisiting the safeguarding of
EU personal data transferred to 3rd countries
such as the UK and the legal obligations on the
data transferor to ensure data is protected
notwithstanding the existence of standard
contract clauses (SCCs).
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Risk and risk management continued
Key trends and movement
Risk management
Outlook
In the UK pressure on public finances may result
in further erosion of tax relief for pension
savings, and increase in Insurance Premium
Tax. Also in the UK, the FCA following the
conclusion of its consultation are expected to
issue regulations preventing existing customers
being charged higher premiums on renewal
than new customers. The regulator in Ireland
has expressed similar concerns over renewal
pricing. In Canada, where motor premium
increases are approved by provincial regulators,
pressure to minimise these will persist. In
Poland pension reform which could radically
impact the pensions industry has been delayed
until 2021, while regulatory pressure on charges
on unit-linked products is likely to increase.
EU intends to conclude its review of Solvency II
in 2021, while at the same time we expect
greater clarity on how the UK might seek to
diverge from Solvency II to better suit the needs
of UK insurers and policyholders. Both reviews
could impact the amount of prudential capital
our businesses are required to hold in the UK
and EU.
Data mastery and the effective use of ‘Big Data’
through artificial intelligence and advanced
analytics has and will continue to be a critical
driver of competitive advantage for insurers.
However, this will be subject to increasing
regulatory scrutiny to ensure this is being done
so in an ethical, transparent and secure way.
The competitive threat to traditional insurers
will continue to persist with the potential for big
technology companies and low cost innovative
digital start-ups to enter the insurance market,
where previously underwriting capability, risk
selection and required capital have proven to
be a sufficient barrier to entry.
Aviva considers climate change to be one of the
most material long-term risks to our business
model. 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
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 continue
to become
increasingly common for all companies.
governments, with
by
in public policy – any
Changes
change in public policy (government
or regulatory) could
influence the
demand for, and profitability of, our
products. In some markets there are
(or could be in the future) restrictions
and controls on premium rates, rating
factors and charges.
Trend: Volatile
Risks impacted: Operational risk
product
We actively engage with governments and
regulators in the development of public policy
and regulation. We do this to understand how
public policy may change and to help ensure
better outcomes for our customers and the
Company. The Group’s multi-channel distribution
and
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.
strategy
and
to both
Aviva continues to develop our data science
inform and enable
capabilities
improvements
journey, our
in the customer
understanding of how customers interact with us
and our underwriting disciplines. Our Data
Charter, now implemented across the Group, sets
to use data
out our public commitment
responsibly and securely. Our new Group Data
Strategy will provide a renewed focus to ensuring
that Aviva derives increased value from the data
we hold for our customers in a secure and ethical
way across the Group.
‘Our climate-related financial disclosure’ sets out
how Aviva incorporates climate-related risks and
opportunities
into governance, strategy, risk
management, metrics (e.g. Climate Value-at-Risk)
and targets. We commit to aligning our business
to the 1.5°C Paris Agreement target and plan to be
a Net Zero company by 2040.
New technologies & data – failure to
understand and react to the impact of
new technology and
its effect on
customer behaviour and how we
distribute products could potentially
result in our business model becoming
obsolete. Failure to keep pace with the
use of data to price more accurately
and to detect insurance fraud could
lead to loss of competitive advantage
and underwriting losses.
Trend: Increasing
Risks impacted: Operational risk
Climate change – potentially resulting
in higher than expected weather-
related claims
(including business
continuity claims), inaccurate pricing
of general insurance risk, reputational
impact from not being seen as a
responsible steward/investor, as well
as adversely
impacting economic
growth and investment markets.
Trend: Increasing
Risks impacted: General insurance risk,
Credit risk, Market risk
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Risk and risk management continued
Key trends and movement
Risk management
Outlook
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
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 ‘red team’ 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.
Medical advances and healthier
lifestyles – these contribute to an
in life expectancy of our
increase
annuity customers and thus future
payments over their lifetime may be
higher than we currently expect.
Trend: Stable
Risks impacted: Life insurance risk
(longevity)
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.
industrialisation
In 2020 there continued to be high profile cyber
security incidents for corporates in the UK and
elsewhere. Cyber threat is expected to persist in
2021 with increasing levels of sophistication
and
Aviva
continuously monitors the external threat
environment
that our cyber
investment remains appropriate to mitigate the
continued and changing nature of the cyber
threat.
anticipated.
to ensure
the
two key drivers of
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. In particular, there is
likely to be a reduced level of improvement
from
recent
improvements, smoking cessation (as you can
only give up smoking once) and the use of
statins
in the treatment of cardiovascular
disease (where the most significant benefit
from use in higher risk groups has now been
seen). Also, despite continued medical
advances
changes,
increasing obesity and strains on public health
services have begun to slow the historical
trend, leading in the UK to some significant
in
industry-wide longevity reserve releases
recent years. In the longer term this may even
result in a reversal in the trend of increasing life
expectancy.
emerging,
dietary
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: Increasing
Risks impacted: Operational risk
We listen to our customers to ensure we meet
their savings, retirement and insurance 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.
Outsourcing – we rely on a number of
outsourcing providers for business
processes,
servicing,
customer
investment operations and IT support.
The failure of a critical outsourcing
provider could disrupt our operations.
Trend: Stable
Risks impacted: Operational risk
functions
Our businesses are required to identify business
critical outsourced
(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. Specific focus areas have been on
contingency and exit planning.
The financial impact of a recession will be felt
across our customer demographic. This could
include rising unemployment as government
support packages end or retiree drawdown due
to low interest rates and falling markets. These
pressures will inevitably cause changes in
customer behaviours and we maintain an agile
approach with our strategy, plans, and in
particular product development. We also
expect regulatory scrutiny to increase to ensure
we continue to serve and treat our existing
customers fairly particularly those who are
vulnerable.
We expect regulatory scrutiny (including PRA’s
CP19/30 – Outsourcing and Third Party Risk
Management) of outsourcing arrangements to
remain high following financial difficulties
faced by some providers.
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Risk and risk management continued
Key trends and movement
Risk management
Outlook
Pandemic –
increasingly
in an
globalised world, new or mutations of
existing bacteria or viruses may be
stretched healthcare
difficult
systems to contain, disrupting national
economies
our
operations and
the health and
mortality of our customers.
affecting
and
for
Trend: Increasing
impacted: Life
Insurance risk
Risk
longevity, morbidity),
(mortality,
(business
Insurance
General
interruption, travel) and Operational
risk.
We have contingency plans which are designed to
impact on
reduce as
far as possible the
operational service arising
from mass staff
absenteeism, travel restrictions and supply chain
disruption caused by a pandemic, which we were
able to put
into action during the current
COVID-19 pandemic. We reinsure much of the
mortality risk arising from our Life Protection
business and hold capital to cover the risks of a 1-
in-200 year pandemic event. We model extreme
pandemic scenarios (e.g. a repeat of the 1918
global influenza pandemic or COVID-19). In the
Group and commercial insurance business we
limit our potential exposure through our policy
wordings. As an
investment manager and
investor, we engage with companies to ensure the
responsible use of antibiotics to reduce the risk
that antimicrobial resistance negates the efficacy
of medical treatment.
We expect the current COVID-19 pandemic to
continue until an effective vaccine is fully
rolled-out in 2021 or failing that the virus
becomes endemic with the long-term impact
on mortality and morbidity dependent on the
extent natural
in the
general population and the efficacy of new
healthcare treatments.
immunity develops
Going forward, trends such as global climate
change, urbanisation, antimicrobial resistance
and intensive livestock production are likely to
increase the risk of future pandemics, while
reductions in migration and international travel
as a result of COVID-19 are likely to be
temporary making the containment of future
pandemics more challenging. We expect the
experience and learnings from the current
COVID-19 will improve the effectiveness of the
public healthcare response to any future
pandemics.
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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 in line with a new dividend policy and capital framework announced in November 2020.
Our new capital framework and priorities
In November 2020, we announced a dividend policy and capital framework that aligns with our strategy to focus on the Core markets of the
UK, Ireland and Canada. At the core of our capital framework is financial strength and efficient deployment of capital.
• We aim to operate a sustainable dividend policy with a level of dividend that is resilient in times of stress and is covered by capital and cash
generated from the Core markets. We aim to grow our dividend per share by low to mid-single digits over time as we benefit from growth
in key segments, improved efficiency as well as lower levels of debt and associated interest. As we make further progress on focusing the
portfolio, this will provide further flexibility to both invest in our business and to provide additional returns to shareholders.
• Our first priority for capital deployment is to reduce to and then maintain our Solvency II debt leverage ratio1 below 30%.
• Once we have achieved this, to the extent that we have both excess capital above the top of our working capital range for the Solvency II
shareholder cover ratio1 of 160%-180% and excess centre cash, we will consider additional returns to shareholders.
Capital and liquidity risk appetite
The Group seeks to retain financial flexibility by maintaining strong liquidity, access to a range of capital markets and significant unutilised
committed credit lines. The Group’s economic capital risk appetite is set in terms of our Solvency II shareholder cover ratio1. Our Solvency II
shareholder cover ratio1 working range is 160%-180%.
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. During 2020 we took a relatively cautious approach to cash
remittances1 in the wake of the challenges the COVID-19 pandemic presents for businesses, households and customers, the uncertain impact
on the global economy, and regulatory restrictions in certain markets.
We actively manage our centre liquidity1 including stress testing our forecast cash remittances1 and centre liquid assets in order to support
our dividend and deleveraging ambitions.
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 merger and acquisitions, business capital allocation,
pricing, hedging, reinsurance and asset allocation.
When making capital allocation decisions in addition to EVA we consider other key metrics including cash remittances1, Solvency II operating
capital generation (OCG)1
and Group adjusted operating profit2.
Capital and cash
Group Solvency position
The Group 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.
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 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.
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Capital management continued
The Group Solvency II capital position is summarised in the table below:
Estimated Solvency II regulatory surplus as at 31 December1
Adjustments for:
Fully ring-fenced with-profit funds
Staff pension schemes in surplus
PPE1
Notional reset of the transitional measure on technical provisions (TMTP)
Pro forma adjustments2
Estimated Solvency II shareholder surplus at 31 December
Own funds
2020
£m
SCR
2020
£m
Surplus
2020
£m
Own funds
2019
£m
SCR
2019
£m
Surplus
2019
£m
29,262 (16,441) 12,821
28,347
(15,517) 12,830
(2,492) 2,492
(1,179) 1,179
—
—
—
(385)
564
—
—
—
(385)
564
—
(2,501)
(1,181)
—
—
(117)
2,501
1,181
—
—
(75)
—
—
—
—
(192)
25,770 (12,770) 13,000
24,548
(11,910) 12,638
Financial strength is key to the Group’s strategy and the Group’s estimated Solvency II shareholder cover ratio3 has remained resilient
throughout a turbulent year and is 202% at 31 December 2020 (2019: 206%). 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
Opening restatements4
Operating capital generation
Non-operating capital generation
Dividends5
Hybrid debt repayments
Acquisitions and disposals
Estimated Solvency II surplus at 31 December
Own funds
2020
£m
24,548
78
1,691
(741)
(549)
257
486
SCR
2020
£m
(11,910)
(202)
241
(963)
—
—
64
Surplus
2020
£m
12,638
(124)
1,932
(1,704)
(549)
257
550
25,770
(12,770)
13,000
The increase in surplus since 31 December 2019 is mainly due to the beneficial impacts from Solvency II OCG3, impact from disposals of
subsidiaries (primarily Singapore) partially offset by the impact of the economic downturn and interim dividends in respect of the 2019 and
2020 financial years.
Our capital management ensured a stable solvency position in a tough economic environment:
• We have maintained a stable new business strain despite higher volumes of bulk-purchase annuity volumes in the UK reflecting disciplined
pricing and efficient use of reinsurance to conserve capital. In Europe, we have lowered with-profits volumes protecting solvency in the low
interest rate environment.
• We maintained an active and disciplined approach to investment risk in 2020 which included reducing equity, interest rate and credit risk
by changes in investment mix and additional hedging in response to the impact of the economic downturn from COVID-19.
Solvency II operating capital generation3
Solvency II OCG3 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 remittances3 from our business, which in turn supports the Group’s
dividend as well as funding further investment to provide sustainable growth. Solvency II OCG3 by division is summarised in the table below:
Solvency II OCG3
UK & Ireland Life7
UK & Ireland General Insurance
Canada
Aviva Investors
Manage-for-value
Group centre, debt costs and Other7
Total Group Solvency II OCG3
2020
£m
1,259
357
262
70
172
(188)
1,932
Restated6
2019
£m
1,248
251
261
90
867
(458)
2,259
Solvency II OCG3 decreased to £1,932 million (2019: £2,259 million). Total Solvency II OCG3 was impacted by changes made to our French life
model which corrected a misapplied rule, and also benefited from a lower contribution from management actions of £518 million
(2019: £826 million) which included positive assumption changes as well as diversification benefits in Group centre and other.
1 Regulation was introduced in France that allows French insurers to place the Provision pour Participation aux Excédents (PPE) into Solvency II own funds. At 31 December 2019 PPE was included in the France local regulatory
own funds but was excluded from the estimated Group regulatory own funds, subject to confirmation of the appropriate treatment at Group level. The treatment has since been confirmed and PPE is included in the estimated
Group regulatory own funds at 31 December 2020.
2 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). The 31 December 2020 Solvency II position does not include proforma adjustments. Note that from 31 December 2020 no
pro forma adjustments will be made for planned disposals.
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 Opening restatements allows for adjustments to the estimated position presented in the preliminary announcement and the final position in the SFCR.
5 Dividends includes £17 million of Aviva plc preference dividends and £21 million of General Accident plc preference dividends, and £511 million for the interim dividends in respect of the 2019 and 2020 financial years.
6 The 2019 comparative results have been restated from those previously published due to a change in presentation of segmental information.
7 Following a review of the presentation of intercompany loan interest, comparative amounts for the 12 months ended 31 December 2019 have been amended to reclassify net interest expense from UK & Ireland to Group centre,
debt costs and Other of £69 million as a non-operating item. The change has no impact on the Group’s Solvency II OCG.
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Capital management continued
Solvency II operating own funds generation1 and Solvency II return on capital/equity1
Solvency II operating own funds generation1 and Solvency II return on capital/equity1 was first introduced in November 2019 and is now
embedded in our management of capital. Solvency II return on equity (RoE)1 is calculated as:
• Operating own funds generation less preference dividends, 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, absence of
redemption incentives, mandatory costs and encumbrances.
Solvency II RoE1 is used by the Group to assess performance and growth, as we look to deliver long-term value for our shareholders. It is a
more relevant measure of performance than IFRS return on equity1 as it is an economic value measure, the basis on which we manage Group
capital. Solvency II operating own funds generation1 and return on capital/equity1 by division is summarised in the table below:
UK & Ireland Life
UK & Ireland General Insurance2
Canada
Aviva Investors
Manage-for-value
Group centre, debt costs and Other2
Total Solvency II return on capital1
Senior and subordinated debt
Total Solvency II operating own funds generation1
Direct Capital Instruments, Tier 1 notes and preference shares
Total Solvency II return on equity1
Operating
own funds
generation1
£m
1,057
329
287
67
497
(250)
1,987
(296)
1,691
(65)
2020
Return on
capital1 /
equity1
%
7.4%
13.1%
19.9%
13.7%
6.2%
n/a
8.1%
Operating
own funds
generation1
£m
1,247
333
203
70
850
(162)
2,541
(284)
2,257
(72)
2019
Return on
capital1 /
equity1
%
9.1%
14.3%
15.3%
13.7%
11.4%
n/a
10.8%
1,626
9.8%
2,185
14.3%
Solvency II RoE1 was 9.8% (2019: 14.3%) and Solvency II operating own funds generation1 was £1,691 million (2019: £2,257 million), lower
primarily owing to changes to modelling in our French life business which corrected a mis-applied rule, and significantly lower benefit from
longevity assumption changes in UK Life. Excluding the impact of capital actions, non-economic assumption changes and other
non-recurring items, Solvency II RoE1 increased to 9.8% (2019: 8.1%) and Solvency II operating own funds generation increased to £1,685
million (2019: £1,313 million) driven by underlying improvements in UK Life, due to BPA new business, and in our UK and Canada General
Insurance businesses.
Cash remittances1
The table below reflects actual remittances1 received by the Group from our businesses, comprising dividends and interest on internal loans.
Cash remittances1 are eliminated on consolidation and hence are not directly reconcilable to the Group’s IFRS statement of cash flows.
UK & Ireland Life3,4
UK & Ireland General Insurance3,5
Canada3,6
Aviva Investors
Core markets
Manage-for-value markets3
Other
Total
2020
£m
1,007
171
131
50
1,359
127
14
1,500
2019
£m
1,394
273
156
86
1,909
613
75
2,597
Cash remittances1 from our Core markets in 2020 are lower than 2019 as 2019 included a special remittance of £500 million from UK & Ireland
Life which was not repeated in 2020. In addition we have chosen to retain cash in the subsidiaries to maintain balance sheet strength given
the unprecedented economic and market uncertainty related to COVID-19. Cash remittances1 from our Manage-for-value markets are lower
mainly driven by regulatory restrictions related to COVID-19 and a 2019 special remittance from Italy of £172 million which is not repeated in
2020. Other includes excess cash remitted to Group on the winding down of Aviva Re.
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 For UK General Insurance only, capital held for internal risk appetite purposes is used instead of opening shareholder Solvency II own funds to ensure consistency in measuring performance across markets. This is only applicable
to UK General Insurance Solvency II return on capital and not to the aggregated Group Solvency II return on capital and Solvency II return on equity measures, with the reversal of the impact included in Group centre costs and
Other opening own funds.
3 We use a wholly owned, UK domiciled reinsurance subsidiary for internal capital and cash management purposes. Some remittances otherwise attributable to the operating businesses arise from this internal reinsurance vehicle.
4 UK & Ireland Life cash remittances include £250 million (2019: £nil) received in February 2021 in respect of 2020 activity.
5 UK & Ireland General Insurance cash remittances include £74 million (2019: £83 million) received in February 2021 in respect of 2020 activity.
6 Canada General Insurance cash remittances include £115 million (2019: £141 million) received in February 2021 in respect of 2020 activity.
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Capital management continued
Sensitivity analysis
As part of the Group’s internal capital management process, we regularly monitor the Group’s sensitivity to economic and non-economic
scenarios. The table below shows the absolute change in Solvency II shareholder cover ratio1 under each sensitivity, e.g. a 2pp positive impact
would result in a Solvency II shareholder cover ratio1 of 204%.
Sensitivities
50 bps increase in interest rate
100 bps increase in interest rate
50 bps decrease in interest rate
100 bps increase in corporate bond spread2,3
50 bps decrease in corporate bond spread2,3
Credit downgrade on annuity portfolio4
25% increase in market value of equity
25% decrease in market value of equity
20% decrease in value of commercial property5
20% decrease in value of residential property5
10% increase in lapse rates
5% increase in mortality/morbidity rates – life assurance
5% decrease in mortality rates – annuity business
Impact on Solvency II
shareholder cover ratio1
31 December 2020
pp
9pp
15pp
(11)pp
3pp
(3)pp
(6)pp
3pp
(5)pp
(11)pp
(7)pp
(2)pp
(2)pp
(16)pp
Note that the sensitivity analysis does not take into consideration that the Group’s assets and liabilities are actively managed. Additionally,
the Solvency II 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 allocations, adjusting bonuses credited to
policyholders and taking other protective action.
Solvency II regulatory own funds and Solvency II debt leverage ratio1
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 and Solvency II
debt leverage ratio1:
Regulatory view
Solvency II regulatory debt
Senior notes
Commercial paper
Total debt
Unrestricted Tier 1
Restricted Tier 1
Tier 2
Tier 36
Total regulatory own funds7
Solvency II debt leverage ratio1
2020
£m
8,316
1,112
108
9,536
20,850
1,317
6,740
355
29,262
31%
2019
£m
7,892
1,052
238
9,182
20,377
1,839
5,794
337
28,347
31%
Solvency II debt leverage ratio1 remains at 31% (2019: 31%). An increase in total debt was offset by an increase in Unrestricted Tier 1 own
funds over 2020. The net increase in debt was driven by the issuance of 4.000% £500 million Tier 2 notes in June 2020 and 4.000%
C$450 million Tier 2 notes in October 2020. These issuances were partially offset by redemption of the Group’s 5.9021% £500 million direct
capital instrument in July 2020 and a reduction in commercial paper over 2020. For details of subsequent events relating to borrowings see
note 52(g).
Note that:
• 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 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.
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 The corporate bond spread sensitivity is applied such that even though movements vary by rating and duration consistent with the approach in the solvency capital requirement, the weighted average spread movement equals
the headline sensitivity. Fundamental spreads remain unchanged. This methodology differs to the prior period. The 31 December 2019 corporate bond spread sensitivities have not been restated for the change in approach.
3 A modelling refinement was implemented to the corporate bond credit sensitivities in the UK following a review of the 31 December 2019 methodology.
4 An immediate full letter downgrade on 20% of the annuity portfolio credit assets (e.g. from AAA to AA, from AA to A). The 31 December 2020 downgrade sensitivity now includes infrastructure (except Private Finance Initiatives).
5 The property sensitivities are in addition to reduced property growth assumed over the next 5 years in the base solvency position.
6 Tier 3 regulatory own funds at 31 December 2020 consists of £259 million subordinated debt (2019: £259 million) plus £96 million net deferred tax assets (2019: £78 million).
7 Regulation was introduced in France that allows French insurers to place the Provision pour Participation aux Excédents (PPE) into Solvency II own funds. At 31 December 2019 PPE was included in the France local regulatory
own funds but was excluded from the estimated Group regulatory own funds, subject to confirmation of the appropriate treatment at Group level. The treatment has since been confirmed and PPE is included in the estimated
Group regulatory own funds at 31 December 2020.
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Responsibility
Responsibility
Acting responsibly and sustainably means we can look after our customers and our people, help build thriving, resilient communities, and
protect the planet.
This section of our report explains how we take our responsibilities seriously:
Our customers
• Our purpose, ‘with you today, for a better tomorrow,’ captures the reason we exist as a business.
Understanding what’s important to our 31.6 million customers, serving them well and treating them
fairly is key to our long-term success. See Section 172 (1) statement and our stakeholders
Our people
• Our aim is for our people to achieve their potential within a diverse, collaborative and customer-
focused organisation. See Our people
Build resilient communities
• We will help people handle the life-changing effects of a hotter planet. We will help more people get
access to financial education and services. We will work towards healthier, more diverse, more
inclusive communities that are better placed to bounce back from a crisis. See Corporate
responsibility
Protect the planet
• Aviva is a trusted climate change leader and we remain committed to tackling this vital issue. See
Climate-related financial disclosure
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Responsibility > Section 172(1) and our stakeholders
Section 172 (1)
statement and our
stakeholders
Overview
We report here on how our directors have performed their duty under
Section 172 (1) (s.172) of the Companies Act 2006. S.172 sets out a
series of matters to which the directors must have regard to 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 and reputation of the Company to ensure
that our obligations to our shareholders, employees, customers and
others are met and 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 fall short of the standards we expect.
Our Board is also focused 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 communities and the environment is
outlined in the ‘Corporate responsibility’ and ‘Our climate-related
financial disclosure’ section of the Strategic report.
Our culture
Our culture is shaped by our clearly defined purpose – with you today
for a better tomorrow. As the provider of financial services to millions
of customers, Aviva seeks to earn their trust by acting with integrity
and a sense of responsibility at all times. We look to build
relationships with all our stakeholders based on openness and
transparency. We value diversity and inclusivity in our workforce and
beyond, and the ‘Our people’ section of this report sets out how that
underpins everything we do.
Key strategic decisions in 2020
For each matter that comes before the Board, the Board considers
the likely consequences of any decision in the long term, identifies
stakeholders who may be affected, and carefully considers their
interests and any potential impact as part of the decision-making
process.
• 2020 has been dominated by COVID-19 and its impact on our
customers, our people and the communities in which we operate.
For our customers we moved quickly to expand our remote
working capability to maintain strong levels of service for individual
and commercial customers. We have provided extensive support
for our people throughout the period of restrictions, focusing on
wellbeing and mental health support, as well as practical
assistance for working at home. Aviva has played a significant role
in helping our communities, contributing more than £40 million to
support community partners. While COVID-19 has been a tragedy
for public health and the global economy, Aviva has continued to
demonstrate resilience both in terms of financial strength and
performance. Nonetheless, in the wake of the unprecedented
challenges of COVID-19 we announced on 8 April 2020 the
withdrawal of the recommended 2019 final dividend. This reflected
the highly uncertain impact on the economy of COVID-19 and the
urging of regulatory authorities publicly to exercise restraint in
paying dividends. On 6 August 2020 at the Interim Results
Announcement we declared a second interim dividend for 2019.
On 26 November 2020 we provided an update on our dividend
policy and declared an interim dividend for 2020. On 4 March 2021
we declared a final dividend for 2020.
At the Interim Results Announcement we also announced that going
forward we would focus on our strongest businesses in the UK,
Ireland and Canada where we have the necessary size, capability and
customer service capabilities to generate superior returns for
shareholders. The Aviva international businesses in continental
Europe and Asia would be managed for long-term shareholder value,
and where we could not meet our strategic objectives, we would
withdraw capital. In addition, we announced that we must translate
our strength in customer and distribution into superior financial
performance for shareholders, and further strengthen our financial
position in order to give the optionality to invest in our businesses
and provide returns to shareholders.
Consistent with our strategic priorities, on 11 September 2020 we
announced the sale of a majority shareholding in Aviva Singapore.
The sale of Aviva Singapore was a first step in focusing our portfolio
and demonstrated execution against our strategic priorities. On
30 November 2020 we announced completion of the transaction.
During the fourth quarter we announced the sale of a major part of
our Italian life business, Aviva Vita, with completion expected in the
first half of 2021. We also announced completion of the disposals of
our Indonesian joint venture and our Hong Kong joint venture.
Finally, on 23 February 2021, we announced the sale of our French
business, and on 24 February 2021 we announced the exit from our
Turkish joint venture.
1 The s.172 statements of our qualifying subsidiaries will be made available on the Aviva plc website.
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Responsibility > Section 172(1) and our stakeholders continued
Stakeholder engagement
The table below sets out our approach to stakeholder engagement during 2020:
Stakeholders Why are they important to Aviva?
What is our approach to engaging with them?
Customers
Understanding what’s important to our
31.6 million customers is key to our long-
term success.
• The Customer, Conduct and Reputation Committee (CCRC) receives regular
reporting on customer outcomes and customer-related strategic initiatives.
• The CCRC closely monitors customer metrics and engages with the leadership
Our people
people’s
and
Our
commitment to serving our customers is
essential for our long-term success.
well-being
team if our performance does not meet our customers’ expectations.
• 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.
• As part of our COVID-19 response the Board discussed and supported the
activities to support customers,
including premium deferrals and the
prioritisation of existing customers, particularly vulnerable customers, over new
business.
• For further information on how we engage with our customers, please see the
reports from each of our business divisions in the ‘Our 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 Chair also is chair- of the Evolution Council (a diverse group of high calibre
leaders from across the business), involving them in discussions related to the
Group’s strategy and incorporating their insight into the Board’s decision-
making. Council meetings are attended by several Non-Executive directors and
the Non-Executive directors may also attend 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 and they allow for
openness, honesty and transparency within the business. They also act as a
platform for Aviva employees to influence change in relation to matters that
affect them.
• 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 and we are proud to be a pioneer in some areas of employee benefits,
including providing six months paid parental leave for all UK employees.
• During 2020 the Board ensured that our people’s safety was at the heart of
decision-making. Our people received regular communications through our
leaders and colleagues were consistently provided with guidance and support.
This included making sure that the capabilities were in place to allow our
people to work from home. Internal surveys for employees were issued to
ensure that the Board received feedback from employees as to whether they
felt supported and well informed.
• The Board recognises the benefits of a diverse workforce and an inclusive
culture and as a result there has been significant activity and investment on
Diversity and Inclusion, with a priority on gender and ethnic minorities
particularly following the Black Lives Matter movement.
• The Group Chief Executive Officer is a member of the 30% Club, a business-led
organisation committed to accelerating progress towards better gender
balance at all levels of the organisation. Further information on our approach
can be found in the ‘Our people’ section of this Strategic report.
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Responsibility > Section 172(1) and our stakeholders continued
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.
Communities We
recognise
importance of
the
contributing to our communities through
volunteering, community
investment,
and long-term partnerships. As a major
insurance company we are fully engaged
in building resilience against the global
impact of climate change.
• Our directors maintain oversight of the management of our most important
suppliers and our operating subsidiary boards review and report on their
performance.
• 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 issues.
• An important part of our culture is the promotion of high legal, ethical,
environmental and employee related standards within our business and among
our suppliers. Before working with any new suppliers, we provide them with our
Third-Party Code of Behaviour, and our interaction with them is guided by our
Business Ethics Code 2020.
• 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.
• 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.
• The Board received an update on supplier risks and performance in December
2020, including how we treat suppliers fairly and equitably.
• The Board receives regular updates on our Corporate Responsibility activity,
including our strategic partnership with the British Red Cross, the Aviva
Foundation1 and our wider community investment approach.
• Aviva and the British Red Cross have been working in strategic partnership since
2016 to build safer and stronger communities in the UK and beyond. 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 times of crisis.
• During 2020 Aviva significantly increased community investment in light of
COVID-19 to support vulnerable customers and the communities in which the
Company operates. This included Aviva and the Aviva Foundation donating
£10 million to the British Red Cross and other National Societies to support
communities across our markets, including the creation of a hardship fund in
the UK to provide financial support to those most in need.
• Since the end of 2018, through the Aviva Foundation, over £7 million has been
granted to organisations delivering public benefit projects aligned to Aviva’s
purpose, values, and expertise. The Aviva Foundation will continue these
investments through 2021. For further information, see the
‘Corporate
responsibility’ section of this Strategic report.
• Aviva was the first international insurer to become operationally carbon neutral
in 2006 and we continue to offset 100% of any remaining operational carbon
emissions. Being carbon neutral means taking part in a carbon offset
programme which allows us to invest in environmental projects around the
world that reduce the same amount of carbon that we produce through our
buildings and other operations. We are now taking our ambition a step further
and have set out our goal to becoming a Net Zero company across our
operations, supply chain and investments, as part of our commitment to the UN
Net Zero Asset Owners Alliance.
• 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 disclosure in this Strategic report.
1 The Aviva Foundation is administered by Charities Trust under charity registration number 327489
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Responsibility > Section 172(1) and our stakeholders continued
Regulators
As an insurance company, we are 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.
• We maintain a constructive and open relationship with our regulators and have
a programme of regular meetings between the directors and our UK regulators.
• The CCRC provides focus over this area through its oversight of the regulatory
relationship and landscape.
• On 26 October 2020 the FCA published the outcome of its investigation into
Aviva’s announcement on preference shares in March 2018. Aviva released its
response the same day accepting the FCA finding. Aviva had earlier recognised
the uncertainty created for preference shareholders by the March 2018
announcement, and on 31 July 2018, set up a discretionary goodwill scheme for
impacted preference shareholders.
• The Board worked closely with the regulators and other supervisory bodies in
the wake of the unprecedented challenges presented by COVID-19.
• The Board meets with shareholders at the Annual General Meeting (AGM) which
provides an opportunity, predominantly for our retail shareholders, to engage
directly with the Board. Due to the restrictions associated with the COVID-19
pandemic, it was not possible to hold our usual AGM arrangements, but we
filmed an event with the Chair and Group Chief Executive Officer answering
questions submitted by shareholders to ensure our engagement with
shareholders continued as far as possible in the circumstances.
• The Chair 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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Responsibility > Our people
Our people
Aviva’s diverse workforce includes over 28,000 colleagues, with more
than 15,000 colleagues in our home market in the UK.
Our people are committed to doing their best for our customers
every day and that didn’t change in 2020 despite the challenges of an
exceptional year. Our focus has been on keeping them safe and
supporting them so they can continue to look after our customers.
Our approach
The focus of our global People teams
is to transform the
performance of Aviva through our people. The People strategy has
been refreshed in line with our evolving business strategy and has the
following aims:
• Drive a step change in accountability and a more balanced
performance culture with the customer at the heart of what we do.
• Upskilling and reskilling our people around the capabilities
required now and in the long-term.
• Risk management embedded in every employee’s role and
responsibilities.
• Clearly defined behaviours for all our people aligned to our values
that run through all our people interventions.
Impact of COVID-19
In March, we began closing offices across the globe. We took
measures to protect our people and the operational resilience of the
business so we could continue to provide great service to our
customers. This included expanding home working by increasing
remote working capacity, building additional laptops, and launching
new collaboration tools like Microsoft Teams. By April, around 97%
of colleagues globally were working from home.
With colleagues safely at home, and customer needs continuing to
be met, our focus shifted to supporting colleagues and taking the
opportunity to work smarter. This included:
• Regular updates clarifying any changes or Government
announcements for our employees and confirming our response.
• Increasing the frequency of leadership communications.
• Continuing to pay colleagues who had to reduce their hours when
schools or childcare were unavailable.
• Providing physical equipment at home to anyone who needed it.
• Introducing a smart working policy to articulate ways of working
remotely that supports employees, customers and Aviva.
• Supporting mental wellbeing through a range of apps, virtual
classes and support forums.
• Online content and training courses supporting leaders in remote
leadership approaches.
Once we could begin to open our offices again, we made sure they
were COVID-19 secure and initially prioritised access for those
employees who needed to come in for their job or for health or
wellbeing reasons. Although it was not office-life as colleagues knew
it, with temperature checks on arrival, one-way systems, and social
distancing, feedback from those who returned was positive.
Engaging our people
In 2020 our global employee opinion survey, the Voice of Aviva,
showed another solid uplift in engagement, with 80% of colleagues
saying they would recommend Aviva as a great place to work. The
rise was driven by stronger belief in the Aviva strategy (up 12 points)
and greater trust in senior leaders (up 7 points). Our colleagues are
much clearer about our plans and how they can contribute to the
business’ success.
Feedback on Aviva’s culture shows strong improvements in speed of
decision-making and on customer and risk-focused behaviours.
Three in four colleagues are having performance conversations
quarterly or more often. This is an important lead indicator of wider
leadership behaviour – listening to, coaching, recognising and
supporting teams and also driving a step change in performance.
The organisation will focus on two key areas as a result of the 2020
survey. Firstly, providing greater clarity on the implications of the
organisational strategy on market and function’s priorities to give
colleagues clear direction and accelerate their performance. And
secondly, clarifying expectations around supporting and managing
performance so colleagues understand what and how they are
expected to deliver and their progress against that.
Another influence on engagement is colleagues feeling listened to
and involved in decisions. We continue to take our responsibility to
consult very seriously. We have positive and constructive
relationships with trade unions in all our markets, as well as all-
employee representative bodies (for example, Your Forum in the UK).
Bodies like Your Forum and the Evolution Council, hosted by the
Chair, remain a key way of recognising that we all have a part to play
in contributing to the debate on issues and opportunities impacting
our people and our organisation.
Our representative bodies meet regularly with members of the Group
Executive Committee as well as members of their respective senior
leadership teams. We believe that by doing so we encourage a
culture of trust and open and honest communication that will help
us ensure that our organisation is a better place to be. In 2020,
Amanda Blanc, Group CEO, also attended and presented to the
European Consultative Forum.
Diversity and Inclusion
We want Aviva to be a place where people can be themselves, and
we want our workforce to reflect the customers and communities we
serve. It’s a fundamental part of living up to our purpose, key to
continuing as a sustainable and successful business, and it helps
contribute to fairer, more equal communities.
We are determined to keep challenging ourselves to do more to build
a workplace – and society – that works for all.
It’s important to us that all our colleagues at Aviva are involved,
including those with visible and invisible disabilities. We make
reasonable adjustments for our people and for candidates who are
interested in working for us. As a Disability Confident Employer, we
will interview every disabled applicant who meets the minimum
criteria for the job and offer Workplace Adjustment Passports to
colleagues.
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Responsibility > Our people continued
In the Voice of Aviva, employees were asked ‘if they can be
themselves at work’; 84% responded positively, up 2 points from
2019. Diversity and Inclusion is woven into everything at Aviva, from
inclusive policies to customer propositions, supported by our
engaged leadership helping to drive the changes that are needed.
Health and wellbeing
The challenges of 2020 have shown the strength of the Wellbeing
programme at Aviva. Our colleagues’ health and wellbeing continue
to be at the forefront of decision making as we support our
customers, our people and our business.
We’ve made considerable efforts in Diversity and Inclusion (D&I),
which is promoted through our six Global Employee Resource
Groups, known as the Aviva Communities, each sponsored by
members of the Aviva Group Executive Committee. These cover race,
religion and social mobility; gender; sexuality and gender identity;
caring responsibilities; age and mental and physical health. The
Communities work collectively so that we have an intersectional
approach to D&I. This was recognised through a number of awards
in 2020 including placing #45 (the only insurer in the UK) in the
Stonewall Workplace Equality Index, and appearing on the Sunday
Times Top 50 Employers for Women.
During the COVID-19 pandemic, we provided support to our people
leaders and colleagues through two evolving guides – ‘Leading
Virtually’ and ‘Working Virtually’ – sharing hints, tips, advice and
resources to support individuals whether they were trying to balance
work and home schooling or faced lockdown living alone. Leaders
were encouraged to regularly check on the wellbeing of their team to
make sure that working remotely, or ‘out of sight’, didn’t result in a
loss of connection, and were provided with advice on topics such as
motivation and isolation. So, while we may have been physically
distanced, we encouraged our colleagues to remain socially
connected.
The death of George Floyd and the #BlackLivesMatter campaign
received prominent attention at Aviva. The organisation heard
directly from colleagues through safe listening sessions, two-way
leadership communications and widespread use of our internal
social media platforms.
its
BlackLivesMatter action plan on www.aviva.com and is committed to
change by supporting colleagues, educating its people and acting in
the wider community. Aviva are founder signatories of the CBI Race
Ratio and the Canadian Black North Initiative.
In September, Aviva published
We are particularly focused on two of our D&I priorities, gender and
ethnicity:
Gender
• At the end of 2020, Aviva had 33% female senior leadership (32%
2019). We will continue improving senior female representation
through initiatives such as Equal Parental Leave, targeted female
development programmes and diverse short lists.
Ethnicity
• In 2019, a data campaign #ThisIsMe was launched to collect the
diversity data of UK colleagues. The completion rate has
progressed from 10% in 2019 to 53% in 2020. The data will be used
to drive evidence-based actions and help set targets for ethnicity.
• In early 2020, an ethnic minority leadership programme was
piloted with 18 employees and has proved very successful. It will
run as one of Aviva’s leadership programmes in 2021 alongside the
female leadership programme.
• Aviva is committed to educating all in the organisation. Notable
initiatives include development of Anti-Racism Training and the
introduction of Reverse Mentoring with black employees and the
senior executive.
• Aviva met the requirements of the Parker Report with the
appointment of an ethnically diverse member of the board.
• In 2020, Aviva was a founder member of the CBI, Change the Race
Ratio campaign.
• Aviva has published it’s #BlackLivesMatter action plan on its
website.
We have also been sharing advice to help colleagues avoid the
‘always on’ culture that can surface when working from home, and
with colleagues working flexible hours.
We quickly adapted the face to face elements of our wellbeing
programme. For example, in the UK, colleagues now have access to
a virtual class timetable, with over 30 free classes a week covering
everything from mindfulness, deep relaxation, stretch and tone to
high impact aerobics. Similarly, our seminars and talks on wellbeing
topics became virtual events, with all talks recorded so colleagues
can watch at a time to suit them. We created virtual challenges to
help colleagues feel part of something bigger and give them a reason
to focus on their wellbeing. Colleagues in Singapore even had care
packages sent to their homes to replace wellbeing benefits in the
office.
Feedback from our people globally suggests we’re getting this right.
During lockdown we regularly asked our colleagues the question ‘I
feel Aviva is sufficiently supporting my health and wellbeing in the
current environment’. The positive response to the question ranged
from 84% to 87% and was broadly echoed in the subsequent Voice
of Aviva survey, with 79% of our colleagues saying they felt Aviva was
supporting their health and wellbeing.
The pandemic hasn’t been our only
focus, our wellbeing
programmes have continued to evolve. In the UK for example, we
have added the following support:
• Domestic abuse policy and support – we’ve created training and
guidance for our leaders and colleagues as well as a policy to
highlight our support for any colleagues who are suffering
domestic abuse.
• Menopause support – we’ve made a support app available to all
colleagues, providing specialist consultation and ongoing live chat
support. We also have online training which highlights the impact
menopause symptoms can have in the workplace and what
adjustments can be made to support menopausal colleagues.
These services are combined with our intranet hub of information
and virtual menopause support group.
• DigiCare+ Workplace – this new app provides colleagues with
access to a yearly health check (via pin prick blood test), second
opinion service, digital GP, mental health and nutritionist support.
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Responsibility > Our people continued
Our plans for 2021
We are committed to transforming the performance of Aviva. That
starts with supporting the performance of each and every colleague.
In 2021, we will continue to build on the best of our culture, learn
from the COVID-19 pandemic, enable agile and productive ways of
working, and equip colleagues to support our customers now and in
the future.
At 31 December 2020, we had the following gender split:
Board membership
Male
6
Female
4
Senior management
Male
831 (67%)
Female
407 (33%)
Aviva Group employees
Male
14,387 (50.3%)
Female
14,209 (49.7%)
The average number of employees during 2020, in our continuing
businesses, was 29,079 (2019: 30,189).
Read more about our approach to responsible and sustainable
business in the ‘Corporate Responsibility’ section of this report and
our people strategy at www.aviva.com/about-us/our-people.
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Responsibility > Corporate responsibility
Corporate
responsibility
Aviva exists to be with people today for a better tomorrow. Acting
responsibly and sustainably means we can look after our customers,
protect the planet, and help build resilient communities that can thrive.
Building a better tomorrow
Aviva has been taking care of people for more than 300 years. We aim to use
our empathy and expertise to tackle the challenges facing our world. We
have reviewed our responsible and sustainable business approach and
over the coming years will focus our efforts on taking action on climate
change, offering products that meet our customers’ evolving needs, and
building stronger communities better placed to bounce back from a crisis.
All this is built on the basics of being a responsible business: understanding
our customers’ needs, serving them well and treating them fairly,
protecting people’s data, acting ethically, reporting openly and ensuring
we and the companies we do business with respect human rights.
More about our responsible and sustainable business approach, and the
indicators we use
found on
www.aviva.com/sustainability.
track our progress, can be
to
Acting now on climate change
To create a better tomorrow, we need to look after the planet we call home.
Our approach to tackling climate change is backed by our long history as a
leader in sustainable practices.
More details of our approach can be found in the ‘Climate-related financial
disclosure’ section of this document and at www.aviva.com/climate-
related-financial-disclosure.
As part of this approach 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 and core business environmental and climate impacts.
Emissions1,2
Scope 1 (tCO2e)
Scope 2 location-based (tCO2e)
Total scope 1 & 2 location-based (tCO2e)
Scope 3 (tCO2e)
Total location-based emissions (tCO2e)
Carbon offsets3 (tCO2e)
Total net emissions
Energy consumption (MWh)4
Scope 2 market-based (tCO2e)
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 fulfils the requirements of the UK Streamlined Energy and
Carbon Reporting (SECR) framework, including our operational energy and
carbon emissions. Aviva UK uses the Department for Environment, Food
and Rural Affairs (DEFRA) methodology for carbon reporting and non-UK
markets use emission factors from the International Energy Agency (IEA).
To date globally we have achieved a 76% reduction in CO₂e against our
2010 baseline (2019: 66%). This has been aided in 2020 by the reduction in
travel and operational emissions as a result of COVID-19. This means we
have exceeded our 2030 carbon reduction target (of 70% against a 2010
baseline). We will now be focusing on making our operations and supply
chain Net Zero.
We have also 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 our new long-term development project to provide
clean cooking stoves in India.
In 2020, Aviva, with support from the Scottish Government, launched one
of the UK’s largest combined solar carports and energy storage facilities at
its Perth office.
In addition, in 2020 Aviva has invested £11.7 billion in green assets. This
includes £7.2 billion in low-carbon infrastructure, such as wind farms and
solar panels, £3.2 billion in green and sustainable bonds and £1.3 billion in
specific climate funds.
From a wider environmental perspective, we remain committed to
reducing water use and waste levels across our offices. Having achieved
zero-use of single-use plastics in all but one of our markets last year, given
the need for hygienic practices with the onset of COVID-19, a small volume
of single-use plastic has been reintroduced. This will be removed as soon
as it is safe to do so.
More details of our environmental KPI data and our independent
assurance process can be found at:
www.aviva.com/CRkpisandassurance2020.
2020
Total
11,749
17,834
29,583
5,081
2020
UK
8,386
8,269
16,655
1,910
34,664
18,565
2019
Total
14,207
21,340
35,547
14,628
50,175
2019
UK
9,354
11,969
21,323
6,516
27,839
2018
Total
16,198
25,012
41,210
17,739
58,949
2018
UK
10,780
13,864
24,644
8,761
33,405
(34,664)
(18,565)
(50,175)
(27,839)
(58,949)
(33,405)
—
—
—
—
—
—
118,472
7,738
73,811
—
146,562
9,370
90,417
192
150,421
11,166
96,000
93
Intensity ratios:
Scope 1 & 2 location-based emissions (tCO2e) / £ million GWP
Total location-based emissions (tCO2e) / £ million GWP
Total location-based emissions (tCO2e) / employee
0.97
1.14
0.98
1.14
1.27
1.18
1.14
1.61
1.43
1.61
2.11
1.67
1.44
2.06
1.57
2.09
2.83
1.93
Includes scope 1 and 2 energy kWh and fuel from company car use
1 Assurance on emissions figures is provided by PricewaterhouseCoopers LLP and available at www.aviva.com/CRkpisandassurance2020
2 Emissions are included where Aviva has operational control, including JVs
3 Carbon offsetting through the acquisition and surrender of emissions units on the voluntary and compliance markets
4
Notes:
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
Location-based: A location-based method reflects the average emissions intensity of grids on which energy consumption occurs
Market-based: A market-based method reflects emissions from electricity that companies have purposefully chosen
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Responsibility > Corporate responsibility continued
Purposeful products: Putting the customer at the centre
We are committed to developing insurance and investment products
and services that meet our customers’ needs and support their
values.
Building resilient communities
The COVID-19 pandemic has put an unprecedented strain on
communities across the world. Aviva was proud to act fast by working
with trusted partners to support those who needed help.
In 2020, we offered more than 100 green or accessible products and
services across the world to 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 Responsibility Reporting Criteria 2020
on www.aviva.com/social-purpose.
In 2020 the impacts of COVID-19 were felt by our customers across
the world. Aviva’s markets responded with a raft of adjustments to
products and services to meet these unexpected needs. This
included support for Aviva UK direct, Quotemehappy and General
Accident home, motor and personal van customers who were
experiencing severe financial difficulties as a result of COVID-19, by
deferring their monthly payments and spreading payments over the
remaining term of their policies.
We contacted customers who were within two years of their
retirement date offering support and guidance through market
volatility and extended our existing working from home cover to our
home insurance customers free of charge. We also supported
businesses’ shifting to home working, providing them with the same
level of protection whilst they carried out their activities from
employees’ homes.
We also put measures in place to support key workers, including
extending cover for UK customers who are NHS workers to include
additional breakdown, courtesy cars, priority repairs and enhanced
home insurance cover at no additional cost. We insured personal
vehicles for use in the course of healthcare work and delivery of food
and essentials to elderly or vulnerable people in Ireland and free
breakdown cover for healthcare workers in Canada. Aviva France’s
package of support ranged from premium and rent deferrals, to the
creation of a solidarity fund for people who could not defer.
Demonstrating the alignment of our climate action priority with our
desire to develop products that do good, in October 2020 Aviva UK
set a Net Zero carbon emissions target for its own auto-enrolment
default pension funds. This is aligned to the Paris Agreement and the
UK Government’s own Net Zero target. Aviva is committed to making
progress towards the Net Zero target as quickly as possible and has
announced it is exploring the feasibility of an earlier target. In March
2021, Aviva announced its plan to become a Net Zero carbon
emissions company by 2040, which will help shape the review of
these funds.
More generally, in order to deliver great customer outcomes, we are
committed to helping our 31.6 million customers protect what’s
important to them and save for a bright future.
We know the importance of providing excellent customer service, as
demonstrated through our businesses’ Net Promoter Scores® (NPS®),
which are our measures of customer advocacy. Seven out of seven 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).
Globally as a business in 2020 we committed £43 million to charitable
partners to support customers and communities to face the impact
of the COVID-19 pandemic.
For example, in the UK, we pledged £18.5 million for the Association
of British Insurers (ABI) COVID-19 support fund, as well as £5 million
to NHS Charities Together, to help fund welfare and wellbeing for
NHS employees, volunteers and patients; assistance for patients
leaving hospital, and long-term mental health support for NHS
workers. Other markets also supported local initiatives, including
Italy’s donation of $200,000 to support the Mutual Aid Fund instituted
by the Mayor of Milan, Aviva Poland’s support to Warsaw University
who sought materials for printing PPE, and Aviva Singapore’s pledge
to support Sayang Sayang Fund to extend help to healthcare
professionals and specific communities that may be particularly
impacted.
Aviva and the Aviva Foundation1 jointly donated £10 million as part
of Aviva’s award-winning partnership with the British Red Cross,
enabling all our Aviva markets to connect with Red Cross National
Societies and support their COVID-19 response projects locally. Our
flagship action saw us invest to create a Hardship Fund in the UK to
provide financial aid to 13,000 families and individuals most in need
through strategic partnerships across the UK, including those
specifically supporting Black, Asian and minority ethnic (BAME)
communities. Research has found BAME communities have been
disproportionately affected by COVID-19 and you can learn more
about the Hardship Fund at:
https://www.redcross.org.uk/stories/disasters-and-
emergencies/uk/coronavirus-cash-grants-support-people-with-
dignity.
In addition to the donations given to specifically support COVID-19
this year, we committed £11.5 million to other local projects, making
total community investment £54.5 million in 2020. Overall, this has
helped 5.1 million people (2019: 1.2 million).
These additional community initiatives included a continuation of
the Aviva Community Fund in France, Italy, the UK and Ireland. For
example, following a successful pilot in 2019, a new look Aviva
Community Fund officially launched in the UK in January 2020, in
partnership with Crowdfunder UK, and ran on a quarterly cycle.
Aviva Canada’s Take Back Our Roads campaign, focused on
improving road safety across the country, continued in 2020 with
highlights including collaborating with the City of Toronto to carry
out an analysis of heavy trucks involved in serious injuries and
fatalities over the past five years, identifying trends and helping to
shape interventions to address safety in and around construction
sites. A number of school-zone improvement projects are underway.
Our people continue to play a vital role in our community activity,
and despite the restrictions put in place as a result of COVID-19, in
total, our people globally have contributed more than 29,200
volunteering hours to support their local communities throughout
2020. They also gave or fundraised £1.8 million.
1 The Aviva Foundation is administered by Charities Trust under charity registration number 327489
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Responsibility > Corporate responsibility continued
In 2020 the Aviva Foundation in the UK continued to invest
unclaimed assets of shareholders through grants to charities and
social enterprises. In 2020 the Foundation committed to giving
£4 million to 10 non-profit organisations and social enterprises that,
working with our business, can support our communities and
vulnerable customers. This included funding the Financially Resilient
Communities Programme, a consortium of local and national
charities, working with communities to improve financial advice
available for deprived communities.
Good governance, risk management and business ethics
We are committed to the highest standards of ethical behaviour as
outlined by the Aviva Business Ethics Code 2020. 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 2020).
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 Customer,
Conduct and Reputation Committee (CCRC) 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 2020, 41 cases were reported through Speak
Up (2019: 89), with none related to bribery and corruption concerns.
25 cases reached conclusion, and 16 remain under investigation.
We conduct due diligence when recruiting and engaging external
partners. At the end of 2020, 99% of our UK, Canada and Ireland
registered suppliers have agreed to abide by our Third Party Business
Code of Behaviour (or provided a satisfactory reason why they didn’t
do so, for example, because they have their own existing code of
behaviour). Our Third Party Business 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.
As part of our work with the Living Wage Foundation, we have also
announced our support for the Living Hours campaign to ensure that
workers have sufficient, predictable hours and encourage other
companies to do the same.
The CCRC 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 Group Executive Committee member
responsible for corporate responsibility and sustainability, and the
topic has been covered by the CCRC four times during the course of
2020, as well as twice at the Aviva plc Board.
Details of the Company’s compliance with the Code, as well as the
activities of the CCRC, can be found in the Directors’ and Corporate
Governance report in the Annual Report and Accounts and online at
www.aviva.com/investors/corporate-governance.
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 respecting human rights and doing our best to
make a positive impact on society whenever we can. As part of this
commitment, we continue to pursue our anti-modern slavery
agenda both within the organisation through our operations and
it through partnerships and
supply chain and outside of
collaboration. We continually look for ways to strengthen our
approach to addressing human rights. As part of this effort we have
refreshed our group-wide human rights policy during 2020 to reflect
issues for our business and
the most salient human rights
stakeholders. We have reflected this commitment in our updated
Aviva Business Ethics Code 2020 and our Third Party Business Code
of Behaviour, in which we set expectations for third parties and
suppliers.
Within our own operations, in 2020 we have continued work on the
country-wide human rights impact assessments conducted in 2019,
which looked at assessing our markets’ risk approach in areas
including governance, employees, customers and investments. We
have analysed the results of these assessments and created action
plans and feedback sessions with all markets. To date, all markets in
which Aviva operates have been involved in this work. The
assessments showed key areas to focus on to enhance Aviva’s work
on human rights, which included the need to create further Group-
wide training on Business and Human Rights and Modern Slavery, to
be delivered up to executive level. This training was subsequently
developed with our partner the Slave Free Alliance to educate our
staff about our commitment to human rights as well as understand
the part we all play to tackle modern slavery.
We have also continued to engage key suppliers on the topic of
human rights and conducted modern slavery threat assessments on
a range of key suppliers which were selected based on their potential
modern slavery risks. In 2020 we have completed 17 assessments,
including checks conducted remotely or via self-administered
questionnaires due to the travel limitations imposed by COVID-19.
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Responsibility > Corporate responsibility continued
No cases of modern slavery were discovered at Aviva both in our
operations and supply chain, however corrective action plans were
issued to all the suppliers to support and improve their capability.
We also continue to work with trusted partners to enhance our
approach. To mark United Nations Human Rights day on the 10th of
December, we organised a Human rights and Modern Slavery
workshop with the Slave Free Alliance, where through role play and
solving business dilemmas, we worked with our people, including
leaders, executives, Corporate Responsibility
key people
practitioners, risk business partners, procurement and supply chain
colleagues, to understand the complexities of modern slavery and
human trafficking, be able to spot the signs of it and know how to
respond in the event that a case is identified. We remain committed
to working with the UN Global Compact and key like-minded
organisations 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. Moreover, we continue to work with the
World Benchmarking Alliance (WBA) on the Corporate Human Rights
Benchmark (CHRB).
To understand more about our wider Human Rights and Modern
Slavery approach please consult our modern slavery statement1, as
well as our Human Rights Policy and the Aviva Business Ethics Code
2020, which can all be found on aviva.com.
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
invest responsibly with
dating back to the early 1970s. We
Environmental, Social and Governance (ESG) considerations a
central pillar of our investment process because we believe it can
minimise risk and allows us to spot opportunities for our customers.
This process includes areas like climate change, biodiversity, human
rights, plastics and gender diversity. Demonstrating the depth of our
ESG work, AI received the highest grade in the United Nations
Principles of Responsible Investment’s (UN PRI’s) 2020 annual
assessment of A+ for our ESG strategy, governance and active
ownership (i.e. engagement and voting).
During 2020 AI continued to enhance their responsible investment
processes. This work has included:
• Targeting £10 billion of investments into UK infrastructure and real
estate projects over the next three years, as pension funds and
insurers continue to increase their appetite for such investments.
• Embedding our responsible investment philosophy, which sets out
our responsible investment commitments as a business;
• Continuing to implement specific ESG integration policies for each
of our investment functions: Credit, Equities, Multi-Asset and
Macro, Real Assets and Solutions;
• Continuing the development of 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); and
• Working with Aviva France and Aviva UK Life to design funds and
solutions for customers looking to integrate ESG considerations
further into their investment proposition, including the AVSD 2.0
(Aviva Vie Solutions Durables) project in France.
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, as
part of Climate Action 100+, Aviva Investors co-filed a resolution at BP
to provide clarity on how the company’s strategy is consistent with
the goals enshrined in the Paris Agreement. As a result, BP
committed to being Net Zero for oil and gas extracted, significantly
reduce carbon intensity for traded energy, and outlined a roadmap
including a 40% reduction in oil and gas over the next decade while
increasing new energy capex by ten times to £5 billion.
We recognise the need to encourage change not just with the
companies we invest in, but in our industry and economy as a whole.
Aviva is a founder member of the United Nations Global Investors for
Sustainable Development (GISD) Alliance, which advises global
policymakers on how to generate greater investment in sustainable
development.
In October 2020, Amanda Blanc, Aviva Group CEO, attended the
annual GISD meeting and talked about the coalition Aviva is leading
to create an International Platform for Climate Finance (the IPCF) to
bridge the gap between public financing needs and large scale
private sector investment on climate change, as well as about the
World Benchmarking Alliance (WBA). We co-founded the WBA
alongside the United Nations Foundation and others to establish
league tables, ranking
public, transparent and authoritative
companies on their contribution to the SDGs. In 2020, the WBA
published a suite of rankings addressing food and agriculture, digital
inclusion and gender equality and empowerment.
Corporate Responsibility (CR) key performance indicators and the
accompanying limited assurance statement by PwC can be found in
Aviva’s Environmental, Social and Governance Summary on
www.aviva.com/sustainability. More details of our internal diversity,
inclusion and wellbeing approach can be found in the ‘Our people’
section of this Strategic report.
1 Our modern slavery statement can be found at www.aviva.com/content/dam/aviva-corporate/documents/socialpurpose/pdfs/aviva-modern-slavery-act-transparency-statement-2019.pdf
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Responsibility > Our climate-related financial disclosure
Our climate-related
financial disclosure
As a leading savings, retirement and insurance business, 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 unmitigated climate-
related risks present a systemic threat to societal and financial
stability and to our business, over the coming decades.
to
response
reflects Aviva’s 2020
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
customer expectations and regulatory requirements. These pages,
along with
at
www.aviva.com/TCFD.
expanded
available
report,
the
are
Governance
Aviva has a strong system of governance, with effective and robust
controls. In 2020, we continued to ensure appropriate governance is
in place in line with the PRA’s Supervisory Statement 3/191. The UK
and material regulated entities’ Chief Risk Officers (CROs) are
responsible for ensuring climate-related risks and opportunities are
identified, measured, monitored and managed through our risk
management framework and in line with our risk appetite.
The Group CRO is responsible for overseeing, at Group level, the
embedding of this framework. A Group-wide climate-related risks
and opportunities project supports the CROs in meeting regulatory
expectations. The Group CRO is the executive sponsor of the project.
The Risk Committee and the Customer, Conduct and Reputation
Committee (CCRC) oversee our management of climate-related risks
and opportunities. In 2020, the Risk Committee met eleven times to
review, manage and monitor all aspects of risk management,
including climate-related risks and opportunities. The CCRC met five
times to oversee how Aviva meets its corporate and societal
obligations. Papers considering the impact of climate change on our
business were presented to Board committees across Aviva (e.g. a
paper was presented to the Risk Committee to highlight the ways in
which climate change may affect our business and to invite the
committee’s views on the actions taken and planned).
In addition, Aviva’s climate risk preference was reviewed and
approved by the relevant Group and local governance to allow the
consideration of climate-related risks and opportunities through our
risk management framework.
In 2020, the Plc Board reviewed and approved the 2021-2023
business plan, which incorporates our climate metrics, operating risk
limits and tolerances. This allows climate-related risks and
opportunities to be further embedded in our day-to-day decision
making in line with our wider risk appetite. In 2021, the Plc Board also
reviewed and approved our new climate change plan as well as our
Net Zero Asset Owner Alliance target.
We also continued developing the skills of our Boards and our people
in this area. As part of our regular Board and senior management
training programme, Aviva’s climate-related risks and opportunities,
new climate change plan and Board responsibilities were presented
to the Group and local Boards as relevant. This training equips our
Boards to give appropriate direction to the company and ensures
challenge, guidance and support are given to the executives so that
actions are taken to identify, measure, monitor, manage and report
these risks and opportunities. A detailed training plan is being put in
place which envisages at least annual training to all relevant
employees across the organisation, with more in-depth training to
those who hold direct responsibilities to identify, measure, monitor,
manage and report climate-related risks and opportunities.
In 2021, Environmental, Social and Governance (ESG) metrics
including climate will be added to other risk metrics considered in
determining senior management remuneration.
Strategy
Our new climate change plan resets the scope and level of our
climate ambition to create a broader, joined-up approach covering
all material areas of our business including investments, insurance,
operations, accountability and leadership.
Aviva is a trusted climate leader. We commit to aligning our business
to the 1.5°C Paris target2 and plan to be a Net Zero company3 by 2040.
Our businesses will seek to develop and offer further climate
conscious products. We are targeting Net Zero by 2030 for our
operations and supply chain, as well as using our influence to help
tackle climate change. This climate change plan is aligned to our
Company Purpose ‘With you today, for a better tomorrow’ and our
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. We seek to align our investments
with a pathway towards Net Zero carbon emissions and ensure
consistency with the 1.5°C Paris target. We are setting targets for how
we will transition our portfolios and will publish updates on our
progress. We signed up to key global commitments such as the
United Nations-convened Net Zero Asset Owner Alliance. We target
a reduction in the carbon footprint of our investments by 25% by
2025 and by 60% by 2030, and we aim to transition all assets4 to Net
Zero by 2040. We are also planning further investments in green
assets5 by 2025.
We use our influence as a shareholder and an investor to engage with
and encourage companies to transition to a low carbon economy.
We limit our exposure to carbon intensive sectors and companies
and divest from highly carbon-intensive fossil fuel companies where
we consider they are not making sufficient progress towards the
engagement goals set.
We believe the highest emission fuels are not part of a low carbon
future. We will therefore not be investing in or insuring coal
(generation or mining). By the end of 2022, we will have divested all
companies making more than 5% of their revenue from thermal coal
unless they have signed up to Science Based Targets6 or the funding
is for ring-fenced green project finance. This applies to all
shareholder funds and policyholder funds where possible. We will
divest the equities, put the bonds into run-off and put the companies
on our Stoplist.
1 The PRA Supervisory Statement – ‘Enhancing bank’s and insurers’ approaches to managing the financial risks from climate change’.
2 The 1.5°C target was set 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.
3
4 Scope of our target will be core markets, all main asset classes (credit, equities, direct real estate, and sovereigns when methodology developed this year; including both active and passive funds), and shareholder assets and
‘Net Zero company’ target covers all material ‘Scopes 1, 2 and 3’ carbon emissions (including investment, operations, supply chain); we are also developing a methodology for Net Zero underwriting.
those policyholder assets where we have decision making control and we have carbon emissions data.
5 Low carbon infrastructure debt & equity; such as Solar photovoltaics (PV), offshore & onshore wind, new energy centres reducing users’ demand for energy, waste to energy, green hydrogen generation, battery storage, low
carbon public transport & electric vehicle charging infrastructure and energy efficient buildings. Green bonds that meet Climate Bonds Initiative’s requirements, Social bonds and Sustainability bonds, Green loans and specific
climate-related funds (such as the Climate Transition fund range). To determine the scope of our green assets, we have used “our and our customers assets” this includes all shareholder, with-profits and unit linked assets but
excludes external mandates not on Aviva’s balance sheet.
6 Science Based Targets Initiative is a collaboration between United Nations Global Compact, CDP (a global disclosure system), World Resources Institute and Worldwide Fund for Nature. It supports companies to set emission
reduction targets in line with the decarbonisation required to limit global temperature increases to 1.5°C.
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Responsibility > Our climate-related financial disclosure continued
Further, in line with the Powering Past Coal Alliance (PPCA) Finance
Principles we commit to avoiding exposure to equity and debt
instruments of companies that plan to generate electricity from
unabated coal beyond the PPCA timeframe1.
In April 2020, we added a further 42 thermal coal mining and power
companies to our investment Stoplist and removed one which met
our engagement criteria. This took the total number of companies
with revenue from coal on the Stoplist to 59. We have divested any
equity holdings we had in the Stoplist and expect to run-off existing
fixed income where there may be detrimental financial impact of
doing so immediately.
AI aims to support the drive to make the changes needed to keep
global temperature rise to 1.5°C through its management of our
investments and active ownership as set out in the AI Corporate
Governance and Voting Policy2. This will seek to reflect emerging best
practice pathways at a country and industry level. AI also integrates
sustainability risk and wider considerations of ESG factors into the
investment process and launched a new Engage & Divest approach
in February 2021. We believe this will deliver long-term sustainable
and superior investment outcomes for customers while adhering to
their mandate.
AI is building out a Climate Transition Fund range that helps investors
support the transition to a low carbon economy across all core asset
classes. In 2020, AI launched the second Equity Climate Transition
Fund. Both the European and Global funds will take a long-term, high
conviction investment approach, targeting global companies that
derive material revenues from goods and services addressing climate
change mitigation and adaptation as well as investing in those
companies aligning their business models to a low carbon economy.
AI Corporate Governance and Corporate Responsibility Voting Policy
expects companies to report climate-related risks, strategy, policies
and performance against the TCFD recommendations.
We integrate consideration of long-term sustainability issues into the
products and services we offer. We continue to develop our customer
ESG strategy and offer climate conscious and ethical funds such as
the stewardship fund range. For example, in the UK we have added
these funds as a default strategy option for our corporate pension
customers. In France we offer Socially Responsible Investment (SRI)
options. Both our French and UK businesses have added AI Climate
Transition European Equity and Global Equity Funds to savings and
investment platforms.
The Aviva Master Trust Trustees have made ‘My Future Focus’ –
combining actively managed funds where ESG is integrated into the
investment process and passive funds with an ESG tilt – their
standard default solution. In Italy we have several sustainable
investments and a series of SRI unit linked products available.
Further, in October 2020 we announced a Net Zero target for our UK
auto-enrolment default pension funds.
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 continue to develop climate conscious products and services,
which reward customers for environmentally responsible actions,
provide some element of adaptation/resilience or additional cover
where possible for those customers at risk of extreme weather
impacts. For example, Aviva France has bespoke electric vehicle (EV)
policies and reduced premiums for customers who use public
transport. In the UK, solar panels on residential roofs attract no
additional premium. In Canada, our partnership with Lyft makes it
easier for customers to choose car share journeys and we offer
endorsements to cover domestic solar panels and wind turbines.
When paying out claims, we also have the opportunity to reduce our
environmental
impact through repair and restoration where
possible. In the UK, our improved drying process after flood claims
reduces the associated carbon emissions.
As the frequency and intensity of extreme weather increases, we have
where possible been working to reduce the impact on our customers’
lives, livelihoods and build resilience to climate change. We put
specific information in the media to help customers minimise the
impact of particular storms or floods.
In the UK we seek to proactively communicate with as many
customers as possible before extreme weather events. In the UK and
Canada, where appropriate we work with customers to help them
become more resilient (e.g. offering coverage to install risk mitigation
devices after a claim and to ‘build back better’). In Canada, we were
also the first insurer to announce comprehensive water coverage on
property policies.
We sponsored a new code of practice for flood resilience released in
January 20203. The code covers all aspects of prevention and
resilience to make properties more resilient to flood. We have also
been working with Business in the Community supporting an online
tool for small business resilience – ‘Would you be ready?’.
We limit our exposure to the most carbon intensive elements of the
economy through our Group Underwriting Boundaries. These
include restrictions on toxic waste companies that present a
intensive
significant hazard to the environment, and carbon
industries such as mining, offshore oil and gas extraction. At the start
of 2019, we exited the standalone operational fossil fuel4 power
market as part of our commitment to help tackle climate change.
These restrictions have been adopted by our general insurance
businesses in the UK, Ireland, Canada, France and Poland.
At the end of 2019 we took another important step in our
commitment by launching a specialist renewable energy proposition
providing insurance solutions for the full lifecycle of renewable
energy risks worldwide. Through this product we currently insure the
largest windfarms in the USA and Africa.
More broadly, we aim to use our underwriting insight to support our
investment decisions, to ensure a consistent view of climate-related
risks is taken. For example, the issuers on Aviva’s investment Stoplist
are mirrored as exclusions in the Group Underwriting Boundaries.
Operations – As a business it is important that we lead by example
focusing on reducing our environmental impact through energy
efficiency, clever use of technology and communications, using
renewable energy sources and minimising the carbon intensity of our
car fleet. 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 a positive climate impact. We have already
reduced our emissions by 76%5.
1 Noting that coal power phase-out is needed by no later than 2030 in the OECD and EU and no later than 2050 in the rest of the world.
2 https://www.avivainvestors.com/content/dam/aviva-investors/main/assets/about/responsible-investment/our-approach-to-responsible-investment/downloads/2021-voting-policy.pdf
3 https://www.youtube.com/watch?v=bDvDPLu7ZMw
4
5 Assurance on emissions figures is provided by PricewaterhouseCoopers LLP and available at www.aviva.com/CRkpisandassurance2020
In line with PPCA Finance Principles.
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Responsibility > Our climate-related financial disclosure continued
Since 2010, we have had a long-term reduction target of 70% by 2030,
which we have now met ten years earlier than promised. We are
committed to using 100% renewable electricity Group-wide by 20251.
In 2019, we commissioned a ‘first of its kind in the UK’ solar carport
installation for our Norwich office.
Following this success, in 2020 we installed a solar carport array at
our Perth office. It’s the biggest combination of solar, energy storage
and EV charging points in the UK. The Perth ‘low-carbon hub’
features a 1.1MW solar carport, integrated with 1.8MWh of Tesla
battery energy storage and 50 EV charging points, forming the
cornerstone of Aviva’s ambitious drive to take the office off grid by
providing 26% of the site’s annual energy.
The Corporate Responsibility section includes an expanded table
featuring our energy use and carbon emissions data to reflect the
new requirements of the UK Streamlined Energy and Carbon
Reporting (SECR) framework.
Accountability and Leadership – We are strong advocates of the
need for listed companies to publish consistent information to help
make better decisions and promote the transition to Net Zero carbon
emissions by 2050. More accurate information will help financial
institutions to manage climate-related risks and grasp opportunities
to support the transition. It will also help our customers and investors
understand how their money is invested and so make more informed
decisions.
We welcome the increased regulatory focus on this area and are
eager to see much wider reporting
line with the TCFD
recommendations. At the 2021 Annual General Meeting, we are
providing the opportunity for our own shareholders to vote on this
disclosure.
in
We continue 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 continue to work with policymakers
and regulators encouraging them to change the financial system, so
that markets reward sustainable investments and sustainable
businesses, advocating for an economic recovery driven by emission
reduction and climate adaptation while also integrating biodiversity
impacts and associated mitigation strategies. In line with Aviva’s
Marshall Plan for the Planet we are proposing that a new institutional
mechanism – the International Platform for Climate Finance – be
created at Glasgow COP262.
As an employer, an active member of our local communities and with
a significant customer base, we can amplify individual efforts to
create a joint legacy that we can all be proud of (e.g. EV charging
points for employees, car sharing support and the use of low carbon
public transport for commuting), partnering with others to provide
climate resilient community projects.
Risk management, metrics and targets
Rigorous and consistent risk management is embedded across Aviva
through our risk management framework. This framework sets out
how we identify, measure, monitor, manage and report on the risks
to which our business is, or could be, exposed (including climate-
related risks). In 2019, we updated our risk policies (including our risk
management framework policy). In 2020, we updated our business
standards (a key component of our risk management framework) to
further integrate climate-related risks and opportunities across all
risk and control management activities.
We integrated climate into our risk appetite framework, defined our
climate risk preference and incorporated climate risks into our 2021-
2023 business plan, to facilitate risk-based decision-making. 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 its impacts both today and in the future. Through these
actions, we continue to build resilience to climate-related transition,
physical and liability (litigation) risks including the risk of assets
becoming stranded.
We have developed models and tools to assess and monitor3 the
potential impact on our business of different 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). The IPCC Global Warming of
1.5°C report, published in October 2018, highlights the need to take
dramatic action now to keep warming below 1.5°C and the potential
severe consequences if this is not achieved.
We calculate a Climate Value-at-Risk (Climate VaR) for each scenario
to assess the climate-related risks and opportunities under different
emission projections and associated temperature pathways. 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 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 and 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 tropical cyclones)
and chronic effects (e.g. 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. We also recognise that there is a
growing trend in climate-related litigation and have assessed its
potential exposure accordingly.
We also use a variety of other metrics to identify, measure, monitor,
manage and report alignment with global or national targets on
climate change mitigation and the potential financial impact on our
business. While recognising the limitations of the Climate VaR and
other metrics used (e.g. scope of coverage, data availability and
extended time horizons as well as the uncertainty associated with
some of the underlying assumptions), we believe they are still
valuable
risk
management.
in supporting our governance, strategy and
Green Assets – We track our green, low carbon and transition assets.
The previous definition of our green assets4 has been expanded this
year to include low carbon real estate and specific climate-related
funds as well as explicitly excluding external mandates.
1 Via our RE100 commitment. 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
2
renewable sources by 2025.
International Platform for Climate Finance to be created at Glasgow COP26 by the UN Climate Change Framework Convention Conference Presidency to help UN member states ensure that their public and private finance flows
become consistent with the pathway towards low greenhouse gas emissions and climate-resilient development set out within the Paris Agreement target.
3 We developed a dynamic tool that allows us to monitor our climate metrics and supports our risk management, governance and reporting processes.
4 Low carbon infrastructure debt and equity; such as Solar photovoltaics (PV), offshore & onshore wind, new energy centers reducing users’ demand for energy, waste to energy, green hydrogen generation, battery storage, low
carbon public transport & electric vehicle charging infrastructure and energy efficient buildings. Green bonds that meet Climate Bonds Initiative’s requirements, Social bonds and Sustainability bonds, Green loans and specific
climate-related funds (such as the Climate Transition fund range). To determine the scope of our green assets, we have used “our and our customers assets” this includes all shareholder, with-profits and unit linked assets but
excludes Aviva Investors’ third-party client mandates.
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Green Assets1. Source: Aviva.
£11.7 billion in Green Assets
2.2
3.8
3.2
3.8
1.3
3.2
7.2
Specific Climate-
related Funds
Green and
Sustainable
Bonds
Low Carbon
Infrastructure
(including Low
Carbon Real
Estate)
2019
(previous definition)
2020
(previous definition)
2020
(expanded definition)
Of the £11.7 billion in green assets, £7.2 billion are in low carbon
infrastructure (including £3.4 billion
low carbon real estate),
£3.2 billion in green and sustainable bonds and £1.3 billion in specific
climate-related funds.
Carbon foot-printing – We use weighted average carbon intensity
data to assess our investment portfolio’s sensitivity to an increase in
carbon prices and our progress to the Paris Agreement target.
Weighted average carbon footprint (tCO2e/$m sales) of Aviva’s
shareholder funds’ credit and equity investments as at 31 December
2020 compared to 2019. Source: Aviva/MSCI2.
Represents 24% of
shareholder funds
Represents 1% of
shareholder funds
156
72%
142
75%
176
92%
170
87%
158
73%
144
76%
100%
50%
140
70
s
e
l
a
s
m
$
/
e
2
O
C
t
2019
2020
2019
2020
2019
2020
Credit
Equities
Credit + Equities
Carbon foot-printing (tCO2e/€m sales)
Carbon intensity data coverage (%)
)
%
(
e
g
a
r
e
v
o
c
a
t
a
d
y
t
i
s
n
e
t
n
i
n
o
b
r
a
C
Our carbon foot printing intensity has reduced compared to last year
in line with our 25% NZAOA reduction target by 20253. The utilities
sector is the largest single contributor to the carbon intensity. Our
objective over time is to reduce the carbon intensity to align our
investment portfolio to the Paris Agreement target. To achieve this,
our first goal is to drive change in the companies we invest in through
direct engagement. We also reserve the right to reduce our exposure
to the intensive companies who are not making the transition to a
low carbon economy and move capital towards those who are.
Portfolio Warming Potential – We use a portfolio warming potential
metric to assess our shareholder funds’ credit, equity, real estate,
green assets and sovereign bond investments alignment with the
Paris Agreement target. This warming potential methodology
captures Scope 1, 2, 3 emissions4 and a cooling potential element, to
capture avoided emissions, based on low carbon patents and
revenues as well as company reported decarbonisation targets to
provide a forward-looking perspective.
Notre Dame University’s Global Adaptation Index (ND-GAIN) – We
use 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 to adapt to, and
mitigate, its effects by considering economic, governance and social
readiness. Aviva is predominantly exposed to sovereigns from
developed markets. We have no significant exposure to countries
highly vulnerable to the physical effects of climate change and our
exposure to moderately exposed countries is captured as part of our
risk management and monitoring of sovereign risk. We also have no
material exposure to sovereigns whose credit quality is reliant on oil
and gas production.
Weather-related losses – We build the possibility of extreme
weather events into our pricing to ensure it is adequate and monitor
actual weather-related losses versus expected 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 fully expect existing frameworks, tools and metrics will evolve
over time and improve in the light of new research, data and
emerging best practice. To this end, we are working collaboratively
with the UN Environment Programme Finance Initiative, peers,
academics, professional bodies, regulators, governments and
international agencies to build robust, comprehensive and effective
tools and approaches. These will enable the potential business
impacts of climate-related risks and opportunities to be assessed
and promote more informed understanding of climate-related risks
and opportunities by investors, lenders, insurance underwriters,
investment managers and others.
1 Low carbon infrastructure debt as at 30 September 2020, low carbon infrastructure equity as at 31 December 2020, green bonds as at 30 September 2020, UK direct low carbon real estate as at 3 December 2020, French direct
low carbon real estate as at 4 December 2020, climate specific funds as at 31 December 2020, AAO as at 31 December 2020.
2 Data has been taken from Aviva’s internal risk system used to monitor credit risk limits and as a source for Solvency II disclosures. Certain information ©2021 MSCI ESG Research LLC. Reproduced by permission. Although Aviva
Central Services UK Limited information providers, including without limitation, MSCI ESG Research LLC and its affiliates (the “ESG Parties”), obtain information (the “Information”) from sources they consider reliable, none of the
ESG Parties warrants or guarantees the originality, accuracy and/or completeness, of any data herein and expressly disclaim all express or implied warranties, including those of merchantability and fitness for a particular purpose.
The Information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for, or a component of, any financial instruments or products or indices. Further,
none of the Information can in and of itself be used to determine which securities to buy or sell or when to buy or sell them. None of the ESG Parties shall have any liability for any errors or omissions in connection with any data
herein, or any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
3 The target is set using carbon intensity by revenue metric (scope 1 and 2) covering credit, equities and direct real estate holdings.
4
In 2019, the methodology was based on scope 1 emissions.
Aviva plc Annual Report and Accounts 2020
63
Strategic report
Governance
IFRS financial statements
Other information
Governance
In this section
Chair’s Governance Letter
Our Board of Directors
Directors’ and Corporate Governance report
Nomination and Governance Committee report
Risk Committee report
Audit Committee report
Customer, Conduct and Reputation Committee report
Other statutory information
Directors’ Remuneration report
Remuneration Committee report
Remuneration in context
Directors’ Remuneration Policy
Annual report on remuneration
Page
65
66
68
76
79
82
87
89
93
93
96
98
104
Aviva plc Annual Report and Accounts 2020
64
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Governance
IFRS financial statements
Other information
Chair’s Governance Letter
Chair’s Governance
Letter
Governance at Aviva
Our Corporate Governance Report describes how the Board and its
Committees operated during 2020. The COVID-19 pandemic changed
how many of us worked during 2020, and the Aviva Board was no
different. We had to find new ways of working to continue governing the
Group for the benefit of our customers, our shareholders and our people.
For the Aviva Board this has resulted in tangible changes. We met
remotely and more frequently to understand and consider how the
pandemic was affecting our business operations, our risk and control
environment and the markets in which we operate. Our people moved
to homeworking, as did many of our customers, and our businesses had
to adapt. We monitored the financial markets’ response to the
pandemic, and the impact of those market movements on Aviva. Despite
this our operational and financial strength has meant that we have
continued to be there for our customers.
While 2020 has been a challenging year operationally, the Board
continued to focus on our strategy and how we deliver sustainable, long-
term growth for our shareholders. Following the appointment of
Amanda Blanc as Group CEO, we have reset our strategy to focus on our
three core markets − the UK, Ireland and Canada – and we are focused
on transforming our performance and ensuring our financial strength.
The Board played a key role in providing challenge and input into the
new strategy to ensure that the strategy promotes the long-term
sustainable success of the Company, generates value for shareholders
and contributes to wider society. The pandemic will not last forever, and
the Board has continued to set aside time to look to the future and not
just focus on the challenges of today, and our strategy will support Aviva
in the challenges we face in the years ahead.
Board Changes
The Board has seen several changes during the year. Sir Adrian Montague
retired as Non-Executive Chair on 27 May 2020 and retired from the Board
on 31 May 2020 after eight years on the Board (six as Chairman). I was
appointed Non-Executive Chair on 27 May 2020. Following my
appointment as Chair, Patrick Flynn was appointed as Senior
Independent Director, on 7 September 2020.
On 6 July 2020 the Board appointed Amanda Blanc as Group CEO
following Maurice Tulloch’s decision to step down from the Board.
Maurice first joined Aviva in 1992, and was appointed to the Board in
2017, before becoming Group CEO in March 2019. I would like to thank
both Sir Adrian and Maurice for their contribution to Aviva over the years.
With the appointment of Amanda and me to the Group CEO and Chair
roles respectively, we needed to replenish the Board membership. On 1
December 2020, Mohit Joshi and Jim McConville were appointed as
Independent Non-Executive Directors, with Jim also becoming Chair of
the Customer, Conduct and Reputation Committee. Subsequently on 1
January 2021, Pippa Lambert also joined the Board as an Independent
Non-Executive Director. Jim, Mohit and Pippa are great additions to the
Board, and I look forward to working with them. Details of the search and
selection process for all these appointments are set out in the Directors’
and Corporate Governance report.
Diversity and Inclusion
The Board is committed to having a diverse and inclusive membership
which provides a range of perspectives and insights and the challenge
needed to support good decision making. I am pleased that the Board
meets the Parker Review target to have at least one director from an
ethnic minority background and that women make up 40% of the
current Board. More information on diversity is set out in the Directors’
and Corporate Governance report and the Nomination and Governance
Committee report.
Culture
The Board assesses and monitors the Group culture. To support the
Board, a culture diagnostic has been developed, to provide the Board
with broader data on our culture. The culture diagnostic combines
employee sentiment with other employee and customer data to focus
on four cultural characteristics: customer focus; accountability; safe to
speak up and diversity of thought. This culture diagnostic is in addition
to our ‘Voice of Aviva’ employee survey and provides insight on progress
on culture measures and comparison to our peers. Action plans have
been developed from the culture data and the Board tracks progress
against these actions.
to withdraw
the decision
Dividend
The Aviva dividend is of course important to our shareholders, but on 8
April 2020, we announced
the
recommendation to pay the 2019
final dividend to ordinary
shareholders. This decision was taken in the wake of the unprecedented
challenges presented by COVID-19 and our regulators and other
supervisory bodies urging restraint on dividend payments. The Board
continued to keep the dividend under review as the year progressed,
both in terms of the COVID-19 pandemic and our strategy to focus on our
businesses in the UK, Ireland and Canada, and was pleased to declare a
2019 second interim dividend of 6.0p on 6 August 2020. On 26 November
2020 we announced a new dividend policy and capital framework
supported by the capital and cash generated in the core markets and a
2020 interim dividend of 7.0p. Then in March 2021, we announced a final
2020 dividend of 14p. The Board believes that the dividend policy and
capital framework announced is sustainable and will be resilient in times
of stress.
Preference Shares
On 26 October 2020 the FCA published the outcome of its investigation
into Aviva’s announcement on preference shares made in March 2018.
The FCA found that Aviva contravened certain provisions of the Listing
Rules and the Disclosure Guidance and Transparency Rules by failing to
take reasonable care to ensure that information in the announcement
was not misleading and did not omit anything likely to affect the import
of the information in the announcement. We have accepted the FCA
decision and lessons have been learned. We are sorry for the uncertainty
created by the March 2018 announcement and in July 2018 set up a
discretionary goodwill scheme for impacted Preference Shareholders.
Following the outcome, a committee of the Board instructed Allen & Overy
LLP to conduct a review of the remuneration decisions that had previously
been taken in light of the preference shares matter. The review concluded
that the adjustments the Remuneration Committee decided to apply to
the relevant executive directors' variable remuneration, which we
announced in 2019, were reasonable in the circumstances and that these
adjustments were applied after careful and thorough consideration by the
Committee. The review also confirmed that, taking into account the FCA’s
decision, there was no basis for further adjustments to be made to either
the executive or non-executive directors. Further detail is provided in the
Directors’ Remuneration report.
Code Compliance
We have complied with the 2018 UK Corporate Governance Code (the
Code) throughout the year, other than for a short period with provision
12 of the Code, when there was a period between the appointment of a
new Senior Independent Director and when I became Chair. A full
explanation is provided in the Directors’ and Corporate Governance
report. We set out how we have applied the principles of the Code in the
Directors’ and Corporate Governance report and describe how we have
performed our duties under s.172 of the Companies Act 2006 within the
Strategic report.
George Culmer
Chair
3 March 2021
Aviva plc Annual Report and Accounts 2020
65
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IFRS financial statements
Other information
Our Board of Directors
Our Board of
Directors
George Culmer ▲
Position: Chair
Nationality: British
Committee Membership: Nomination and Governance Committee
(Chair)
Tenure: 1 year 6 months. Appointed to the Board as a Non-Executive
Director on 25 September 2019, as Senior Independent Director on
1 January 2020 and as Chair on 27 May 2020
Skills and Experience: George brings significant board-level
exposure 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 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 keen
insight into the challenges that affect the insurance industry, Aviva’s
businesses, and the implications for shareholders, which makes him
well placed to lead the Board in driving the strategy, culture and
values of the Group.
External Appointments: Non-Executive Director of Rolls Royce plc.
Amanda Blanc ■
Position: Group Chief Executive Officer (CEO)
Nationality: British
Committee Membership: N/A
Tenure: 1 year 2 months. Appointed to the Board as a Non-Executive
Director in January 2020 and as CEO on 6 July 2020
Skills and Experience: Amanda started her career as a graduate at
one of Aviva’s ancestor companies, Commercial Union. Since then
she has held senior executive roles across the insurance industry.
Amanda was previously CEO at AXA UK & Ireland, and CEO, EMEA &
Global Banking Partnerships at Zurich Insurance Group. Amanda has
also held executive leadership positions at Towergate Insurance
Brokers, Groupama Insurance Company and Commercial Union.
Amanda was previously a management consultant at Ernst & Young,
working on transformational assignments. Amanda has served as
Chair of the Association of British Insurers; Chair of the Insurance
Fraud Bureau and President of the Chartered Insurance Institute.
Amanda’s broad executive experience in the insurance industry
makes her well qualified to continue to build Aviva as a high-
performing, innovative and customer-centric business.
External Appointments: Chair of the Welsh Professional Rugby
Board and a member of the UK Government’s Financial Services
Trade Advisory Group.
Jason Windsor ■
Position: Chief Financial Officer
Nationality: British
Committee Membership: N/A
Tenure: 1 year 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 Executive Committee. Jason has a proven track
record as CFO of the UK Insurance business and an in-depth
understanding of Aviva and its markets and brings a strong analytical
and commercial perspective to his role as Group CFO.
External Appointments: N/A.
Patricia Cross ▲
Position: Independent Non-Executive Director
Nationality: Australian
Committee Membership: Remuneration Committee (Chair), Audit
Committee, Nomination and Governance Committee
Tenure: 7 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 US Government working in foreign affairs, Patricia had
a long career in senior executive roles in large international banking
and investment management organisations.
External Appointments: Chair
the Commonwealth
Superannuation Corporation, and Ambassador for the Australian
Indigenous Education Foundation.
of
Patrick Flynn ▲
Position: Senior Independent Director
Nationality: Irish
Committee Membership: Audit Committee (Chair), Nomination and
Governance Committee, Remuneration Committee, Risk Committee
Tenure: 1 year 8 months. Appointed to the Board as a Non-Executive
Director on 16 July 2019 and as Senior Independent Director on
7 September 2020
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
and to support the Chair as Senior Independent Director.
External Appointments: Non-Executive Director of NatWest Group
plc.
Key: ■ Executive ▲ Non-Executive ◆ Group General Counsel and Company Secretary
Aviva plc Annual Report and Accounts 2020
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Strategic report
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Other information
Our Board of Directors continued
Belén Romana García ▲
Position: Independent Non-Executive Director
Nationality: Spanish
Committee Membership: Risk Committee (Chair), Audit Committee,
Customer, Conduct and Reputation Committee, Nomination and
Governance Committee
Tenure: 5 years 9 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 Bolsas y Mercados Españoles and a member
of the advisory board of the Foundation Rafael del Pino (non-profit
organisation) and TribalData 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: Customer, Conduct and Reputation
Committee, Nomination and Governance Committee, Remuneration
Committee, Risk Committee
Tenure: 7 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.
Mohit Joshi ▲
Position: Independent Non-Executive Director
Nationality: British
Committee Membership: Nomination and Governance Committee,
Risk Committee
Tenure: 3 months. Appointed to the Board in December 2020
Skills and Experience: Mohit is a President of Infosys, a global leader
in next-generation digital services and consulting. He heads the
Financial Services, Healthcare and Life Sciences business verticals for
the company and is the Chairperson for EdgeVerve, its Software
subsidiary. Mohit joined Infosys in 2000 after an initial career in
banking and has over 24 years of professional experience working
across the US, India, Mexico, and Europe. Mohit is an established
business leader in technology and transformation and this expertise
adds significantly to the skills and expertise of the board.
External Appointments: President of the Infosys Financial Services,
Insurance, Healthcare and Life Sciences business and Chairperson
for EdgeVerve, its software subsidiary.
Jim McConville ▲
Position: Independent Non-Executive Director
Nationality: British
Committee Membership: Customer, Conduct and Reputation
Committee (Chair), Audit Committee, Risk Committee, Nomination
and Governance Committee
Tenure: 3 months. Appointed to the Board in December 2020
Skills and Experience: Jim was previously Group Finance Director
of Phoenix Group, where he was responsible for all aspects of the
Group’s financial strategy and management, during which he led the
transition programme bringing Phoenix and Standard Life Assurance
together. Prior to that, he was Chief Financial Officer of Northern
Rock from 2010 to 2012, and prior to that he worked for Lloyds TSB
Group (now Lloyds Banking Group plc) in a number of senior finance
and strategy related roles. With Jim’s extensive experience he is well
placed to chair and strengthen the Customer, Conduct and
Reputation Committee. Jim’s expertise significantly adds to the
knowledge and expertise of the Audit Committee, Risk Committee
and Nomination and Governance Committee.
External Appointments: N/A.
Pippa Lambert ▲
Position: Independent Non-Executive Director
Nationality: British
Committee Membership: Remuneration Committee, Customer, Conduct
and Reputation Committee, Nomination and Governance Committee
Tenure: 2 months. Appointed to the Board in January 2021
Skills and Experience: Pippa was previously Global Head of Human
Resources at Deutsche Bank where she was responsible for leading
the development of a successful and progressive HR transformation
program, focused on improving the group’s culture, diversity and
inclusion and digital agendas. Prior to that, Pippa was Group Head of
Reward at the Royal Bank of Scotland from 2011 to 2013 where she
worked closely with the RBS Board on the redevelopment and
restructure of the bank’s compensation and benefit program. Pippa’s
skill set will contribute significantly to the Board in areas relating to
people and reward matters.
External Appointments: Trustee at Breast Cancer Haven and a
member of the Senior Salaries Review Board.
Kirstine Cooper ◆
Position: Group General Counsel and Company Secretary
Nationality: British
Committee Membership: N/A
Tenure: 10 years 3 months. Appointed as Company Secretary in
December 2010 and a member of the Executive Committee 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 Group investigations team. 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 Executive Committee
members are available online at www.aviva.com/about-us
Key: ■ Executive ▲ Non-Executive ◆ Group General Counsel and Company Secretary
Aviva plc Annual Report and Accounts 2020
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Governance
IFRS financial statements
Other information
Directors’ and Corporate Governance report
Directors’ and
Corporate
Governance report
The UK Corporate Governance Code
As a UK Premium Listed company, Aviva’s governance 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 the principles of and complied with the provisions of the
Code during 2020 are set out in this report and the Directors’
Remuneration report. The Board can confirm that the Company was
compliant with the Code throughout the financial year under review,
other than for a short period between the appointment of a new
Senior Independent Director and when George Culmer, the previous
Senior Independent Director, became Chair.
The Strategic report discloses information on our engagement with
our employees, suppliers, customers and other stakeholders. In line
with the Companies Act 2006 Regulations, further information on
how the directors have performed their duties under section 172 of
the Companies Act 2006 is also contained in the Strategic report.
Changes to the Board
There were several changes to the Board during 2020. Following a
thorough external and internal selection process, George Culmer was
appointed as Non-Executive Chair of the Company on 27 May 2020.
George succeeded Sir Adrian Montague, who retired from the Board
on 31 May 2020. Sir Adrian had been appointed to the Board in
January 2013 and became Senior Independent Director in May 2013,
and Chairman in April 2015. George was appointed as a Non-
Executive Director of the Company on 25 September 2019 and was
appointed as the Senior Independent Director with effect from
1 January 2020. George brings extensive experience in insurance and
broader financial services to the role.
On 6 July 2020, Maurice Tulloch stepped down as Group Chief
Executive Officer (CEO) and retired from his position on the Board.
Maurice joined Aviva in 1992 and held a number of senior positions
in the business during his time with the Company. He joined the
Board in 2017 and was appointed as Group CEO in March 2019. After
a rigorous search process, involving the assessment of highly
talented internal and external candidates, the Board unanimously
agreed to appoint Amanda Blanc as Group CEO. Amanda Blanc had
joined
on
2 January 2020. She was formerly CEO at AXA UK & Ireland, and CEO,
EMEA & Global Banking Partnerships at Zurich Insurance Group.
a Non-Executive Director
the Board
as
We were delighted to appoint two Non-Executive Directors to the
Board on 1 December 2020. Jim McConville has assumed the role of
Chair of the Customer, Conduct and Reputation Committee and is a
member of the Audit, Risk and Nomination and Governance
Committees. Mohit Joshi has become a member of the Risk and
Nomination and Governance Committees. Jim was previously Group
Finance Director of Phoenix Group, where he was responsible for all
aspects of the Group’s financial strategy and management and
during which he led the transition programme bringing Phoenix and
Standard Life Assurance together. Prior to that, he was Chief
Financial Officer of Northern Rock from 2010 to 2012, and prior to
that, he worked for Lloyds TSB Group (now Lloyds Banking Group
plc) in a number of senior finance and strategy related roles. Mohit is
the President of Infosys, a global leader in next-generation digital
services and consulting.
He heads the Financial Services, Healthcare and Life Sciences
business verticals for the company and is the Chairperson for
EdgeVerve, its software subsidiary. Mohit joined Infosys in 2000 after
an initial career in banking and has over 24 years of professional
experience working across the US, India, Mexico, and Europe.
and
strategies
services, people
We were also delighted to appoint a further Non-Executive Director
to the Board on 1 January 2021 with significant experience in global
financial
transformation
programmes. Pippa Lambert has become a member of the
Remuneration, Nomination and Governance and Customer, Conduct
and Reputation Committees. Pippa was previously Global Head of
Human Resources at Deutsche Bank where she was responsible for
leading the development of a successful and progressive HR
transformation programme, focused on improving the group’s
culture, diversity and inclusion, and digital agendas. Prior to that,
Pippa was Group Head of Reward at the Royal Bank of Scotland from
2011 to 2013 where she worked closely with the RBS Board on the
redevelopment and restructure of the Bank’s compensation and
benefits programme.
Patrick Flynn was appointed as Senior Independent Director on
7 September 2020. In the period between George Culmer becoming
Chair, and the formal appointment of Patrick as Senior Independent
Director, Patrick was available to act as an intermediary between the
Board members or shareholders, and Chair as required. Patrick has
extensive insurance experience, most recently as the Chief Financial
Officer of ING, the Netherland's largest financial services group. He is
also a Non-Executive Director of NatWest Group plc. Patrick is Chair
of the Audit Committee and is a member of the Risk, Remuneration
and Nomination and Governance Committees.
The Board
As at the date of this report the Board is comprised of the
Non-Executive Chair, two Executive Directors and seven 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.
The Board delegates clearly defined responsibilities to
its
committees and reports from the Audit; Customer, Conduct and
Reputation; Nomination and Governance; and Risk Committees are
contained in this report. A report from the Remuneration Committee
is included in the Directors’ Remuneration report.
Board diversity and inclusion
Diversity at Aviva includes, but is not limited to, gender and ethnicity,
and is inclusive of all strands of diversity including skills and
experience, geographic and social background, disability and sexual
orientation. 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
and Governance 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 and Governance
Committee which reviews the balance of skills, knowledge,
experience and diversity of the Board and leads on 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.
Aviva plc Annual Report and Accounts 2020
68
Strategic report
Governance
IFRS financial statements
Other information
Directors’ and Corporate Governance report continued
We are pleased to have met the Parker Review Committee’s target for
all FTSE 100 boards to have at least one director from an ethnic
minority background by 2021, making up 10% of the Board, in
addition to continuing to maintain our target of ensuring that women
make up at least 33% of the Board with women currently
representing 40% of the Board. 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
and Governance Committee report.
The charts below illustrate the diversity of the Board and senior
management as at the date of this report.
Board of Directors
Non-Executive
including Chair
Executive
Executive
Committee
Composition
Total
Gender
Male
Female
Experience and Skills1
Insurance
Asset Management
Finance
People
Risk
Legal & Regulatory
Customer
Technology, Digital & Operations
Strategy
International Experience1
Europe
Asia Pacific
The Americas
Middle East & Africa
Tenure
5-10 years
4 years
3 years
2 years
1 year
<1 year
Age
30-39
40-49
50-59
60+
8
5
3
7
7
7
5
4
6
4
5
7
8
3
3
0
3
—
—
—
2
3
—
1
3
4
2
1
1
2
1
2
2
2
2
2
1
2
2
1
1
1
—
—
—
—
2
—
—
1
1
—
14
9
5
10
6
10
3
7
7
5
2
7
13
6
3
4
3
—
—
2
5
4
0
8
5
1
1
Individual directors may fall into one or more categories
Board activities during 2020
Strategy and business plans
• Approved the revised strategic priorities for the Aviva Group, which
were announced in conjunction with our Interim Results on
6 August 2020. The three strategic priorities for the Group are: focus
the portfolio, transform performance and financial strength
• Implemented a new dividend policy and capital framework,
aligned with Aviva’s strategic priorities; to deliver further value to
shareholders by returning excess capital above 180% Solvency II
shareholder cover ratio1, once our target Solvency II debt leverage
target ratio1 has been reached
• Held an annual dedicated strategy session
in June 2020,
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
COVID-19
• Assessed the impact of the COVID-19 pandemic on our customers,
our people and the communities in which we operate
• Approved a rapid expansion of our remote working capability to
maintain strong levels of service for individual and commercial
customers
• Oversaw the provision of extensive support for our people through
the period of restrictions, focusing on wellbeing and mental health
support, as well as practical assistance for working at home
• Approved contributions
to Aviva’s communities
totalling
£43 million to support community partners
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 Code
• Discussed and approved changes to the Board committee
structure, and the designation of the Customer, Conduct and
Reputation Committee as a sub-committee of the Risk Committee
Significant transactions and expenditure
• Approved financial matters in line with the Group Funding Plan,
including capital
into regulated
subsidiaries, the sale of a majority shareholding in Aviva Singapore,
the entire shareholdings in Aviva Indonesia, Aviva Vietnam and
Aviva Vita and the issuance of C$450 4.000% million Dated Tier 2
Fixed Rate Notes due October 2030
injections where required
Financial reporting and controls, capital structure and dividend
policy
• Discussed reports provided by the Group Chief Financial Officer
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 and financial results,
withdrew and subsequently reintroduced dividend payments to
ordinary shareholders due to significant uncertainties presented
by COVID-19
• Assessed the Group’s capital and liquidity requirements, arising
from the Group’s strategy and Group Plan, in addition to the
challenges presented to the Group’s markets by COVID-19
• Reviewed and quantified the impact of COVID-19 on claims
expenses in our life and general insurance businesses
• Approved the full year results and Annual Report and Accounts,
and the Half-Year Report
People, culture, succession planning and Board effectiveness
• Oversaw the search process, reviewed candidates and approved
the appointment of George Culmer as Non-Executive Chair and
Amanda Blanc as Group CEO following recommendations from the
Nomination and Governance Committee
• Following
recommendations
the Nomination and
Governance Committee, approved the appointment of the two
Non-Executive Directors to the Board during 2020 and one
Non-Executive Director to the Board at the beginning of 2021
from
• Discussed the current Group culture, its alignment with strategy,
and how it has been further strengthened during the year
• Undertook an evaluation of the Board’s effectiveness, the
effectiveness of each committee and individual directors
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 within the Annual Report and Accounts.
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Stakeholder engagement
We report on our stakeholder engagement and other relevant
matters in the ‘Section 172 (1) statement 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 George Culmer as Non-Executive Chair and Amanda Blanc
as Group CEO, and in the appointment of three Non-Executive
Directors through their membership of the Nomination and
Governance Committee. MWM Consulting (MWM) undertook the
search and selection processes for the Board Chair, Non-Executive
Directors and Group CEO but had no other connections with the
Company or any individual director. In line with our succession
planning processes, and led by the Nomination and Governance
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 in
office at the time of the 2020 AGM were elected or re-elected in 2020.
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 while 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 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 control’s frameworks. It also seeks to maintain an
strategy and
appropriate dialogue with
remuneration.
shareholders on
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 Group Executive Committee
(ExCo), 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 chair 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.
During 2020 certain amendments were made to the structure and
defined responsibilities of our suite of Board committees. To further
align with our strategic priority to transform customer experiences
and provide excellent value for money, the Customer, Conduct and
Reputation Committee was designated as a sub-committee of the
Risk Committee. This is also aligned to our 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.
The new remits of the Committees are outlined below.
Committees’ purpose
Name of Committee
Committee Purpose
Nomination and Governance
Committee
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; and
Aviva’s subsidiary governance principles.
Risk Committee
Audit Committee
Customer, Conduct and Reputation
Committee
Remuneration Committee
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; ensuring due diligence appraisals are carried out
on strategic or significant transactions; and monitoring cyber strategy and compliance with
prudential regulatory requirements. Oversight of conduct risk topics through the alignment with the
Customer, Conduct and Reputation Committee reporting into the 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 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; recommending remuneration packages for the Non-Executive Chair
and ExCo; and remuneration approaches for the remuneration of regulated employees. 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.
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Board independence
During the year the Nomination and Governance Committee
assessed 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 2020 and 2021.
During 2020, 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 Chair, 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
role 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 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 and
Belén Romana García became a Non-Executive Director of Bolsas y
Mercados Españoles on 30 July 2020. The time commitment and
potential conflicts involved were assessed by the Nomination and
Governance Committee which determined that George and Belén
had sufficient time to commit to the Aviva Board and committee
appointments.
The Senior
commitment of the Chair.
Independent Director
(SID)
reviewed
the
time
According to the Board’s policy, Executive Directors may hold one
external directorship, subject to obtaining the prior consent of the
Board. Amanda Blanc is Chair of the Welsh Professional Rugby Board.
No other appointments are held.
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
Consistent with the Code and the Senior Managers and Certification
Regime (SMCR), role profiles for the Non-Executive Chair, SID, Group
CEO and Non-Executive Directors are all available at
www.aviva.com/about-us/roles.
The Non-Executive Chair 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 Chair 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 Chair 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 Chair held meetings with the Non-Executive
Directors without management present. Additionally, Patrick Flynn
as SID met with other Non-Executive Directors without the Chair
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 2020, the directors participated in
internal training sessions on subjects including our risk appetite,
climate change and directors’ duties. Further training sessions have
been incorporated into the Board and Committee plans for 2021. 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
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. Any
knowledge or skill enhancements identified during the directors’
regulatory application process would also be addressed through
their induction programme.
Board calendar
During 2020, 28 Board meetings were held, of which thirteen were
scheduled meetings and fifteen were additional meetings called at
short notice. The additional meetings were primarily called to
address the impact of the COVID-19 pandemic. In addition, the Board
delegated responsibility for certain items to specially created Board
committees, which met nine times to discuss these particular items.
If any Directors are unable to attend a meeting, they can
communicate their opinions and comments on the matters to be
considered via the Chair of the Board or the relevant committee
chair.
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The Board usually visits different markets each year, however, due to
the COVID-19 pandemic, no international visits were held during
2020. In June 2020, the Board held its annual strategy meeting via
teleconference to review progress against our strategic priorities
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, revised strategic priorities for
the Aviva Group were announced on 6 August 2020.
Board and Committee meetings attendance during 2020
Number of meetings held
Chair
George Culmer1
Sir Adrian Montague2
Executive Directors
Amanda Blanc3
Maurice Tulloch4
Jason Windsor5
Non-Executive Directors
Patricia Cross6
Patrick Flynn
Belén Romana García
Mohit Joshi7
Jim McConville8
Michael Mire9
Board
28
Audit
Committee
7
Customer,
Conduct and
Reputation
5
Nomination
and
Governance
13
Remuneration
Committee
12
Risk
Committee
11
27/28
15/15
28/28
17/17
26/28
27/28
28/28
28/28
1/1
1/1
28/28
5/5
1/1
4/13
2/11
4/4
4/5
3/3
11/11
6/6
7/7
7/7
7/7
12/12
8/8
12/13
13/13
13/13
5/5
11/11
11/11
1/1
1/1
4/5
13/13
12/12
11/11
1 George Culmer acted as a Non-Executive Director in the period 1 January 2020 until 27 May 2020 when he was appointed Chair. During this period George was recused from the Nomination and Governance Committee meetings
regarding his appointment. George was unable to attend one Board meeting due to illness and one Risk Committee due to a prior commitment.
2 Sir Adrian Montague acted as Chair until 31 May 2020 when he retired from the Board and the Nomination and Governance Committee. During this period Sir Adrian was recused from the the Nomination and Governance
Committee meetings regarding his succession
3 Amanda Blanc acted as Non-Executive Director from 2 January 2020 until 6 July 2020 when she was appointed as CEO.
4 Maurice Tulloch acted as Group CEO until 6 July 2020 when he retired from the Board.
5 Jason Windsor did not attend two Board meetings which concerned the CEO search process.
6 Patricia Cross was unable to attend one Board meeting and a Nomination and Governance Committee meeting due to a prior commitment.
7 Mohit Joshi was appointed to the Board as a Non-Executive Director on 1 December 2020.
8 Jim McConville was appointed to the Board as a Non-Executive Director on 1 December 2020.
9 Michael Mire was unable to attend one Customer, Conduct and Reputation Committee meeting due to a prior commitment.
Board priorities during 2020
The impact of the COVID-19 pandemic was the key focus for the Board
during 2020. As a consequence, the Board met remotely and more
frequently, initially weekly, to understand and consider how the
pandemic was affecting our business operations, our risk and control
environment and the markets in which we operate. The Board
monitored the move of our people to homeworking, the operational
challenges that presented, the financial markets’ response to the
pandemic and the impact of those market moves on Aviva.
While 2020 was a challenging year operationally, the Board continued
to focus on our strategy and how we deliver sustainable, long-term
growth for our shareholders. Following the appointment of Amanda
Blanc as Group CEO, we have reset our strategy to focus on our three
core markets − the UK, Ireland and Canada – and we are focused on
transforming our performance and ensuring our financial strength.
The Board played a key role in providing challenge and input into the
new strategy to ensure that the strategy promotes the long-term
sustainable success of
for
shareholders and contributes to wider society. The pandemic will not
last forever, and the Board has continued to set aside time to look to
the future and not just focus on the challenges of today, and our
strategy will support Aviva in the challenges we face in the years
ahead.
the Company, generates value
A new dividend policy and capital framework was put in place on
26 November 2020 aligned with Aviva’s strategic priorities. As we focus
the portfolio, we expect to build excess capital over time. We will
deliver further value to shareholders by returning excess capital above
180% Solvency II shareholder cover ratio1, once our Solvency II debt
leverage target ratio1 has been reached. The Board expects to exceed
the original target of £1.5 billion debt deleveraging by the end of 2022.
We understand that our financial plans can only be achieved through
being with people when it really matters, throughout their lives – to
help them make the most of life. Looking after our customers, people
and wider community has been a priority for Aviva during the
ongoing pandemic. The Board met 28 times during the year, focusing
on Aviva’s customers and assessing the impact of COVID-19 on them,
in addition to revising the strategic priorities for the Aviva Group.
During 2021, the Board’s agenda will focus on driving delivery of the
Group’s strategic priorities.
We will seek to ensure that we successfully simplify Aviva’s portfolio,
transform our performance and improve our efficiency. 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 uncertain external economic and social environment; including
those related to the ongoing impact of COVID-19. 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 2020 which will support
our new dividend policy and capital framework and our goal of
delivering further value to shareholders. Our Board strategy session
in June 2021 will be used to review our three-year strategic plan and
to set out strategic priorities for the year ahead.
Culture will also 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 also remain an
area of focus for both the Board and the Nomination and Governance
Committee.
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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. The
Board decided that the 2020 evaluation be undertaken through an
internal questionnaire prepared in conjunction with Lintstock, with
the outcomes reported in January 2021. Lintstock also provides
evaluations to other operating subsidiaries in the Aviva Group.
Lintstock is an independent provider of Board evaluations and has
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
2019 Board evaluations and 2020 actions are outlined in the table
below.
Outcomes from the 2019 Board evaluation and steps taken in 2020
Focus area
Strategy oversight
Theme
Enhanced
to
support the Board’s strategy
implementation activities
information
Performance
reporting
Developing and enhancing the
information the Board receives
on key performance Indicators
Subsidiary
operations oversight
Review the breadth of the
Board’s oversight of subsidiary
operations
Feedback/actions
The Board’s reporting schedule was revised to increase the frequency of Strategy
and Transformation agenda items. These changes supported the Board with its
discussion of strategic matters and early input into associated proposals during the
strategic review. The Board created a Group Chief Operating Officer (COO) role with
responsibility for supporting strategy implementation and providing associated
updates to the Board.
We made certain changes to the performance reporting received by the Board,
including the introduction of more granular market reporting and external
perspectives and benchmarks. These changes further support the Board’s insight
into potential issues facing our operating subsidiaries in their markets.
A framework has been implemented that reinforces the engagement of the Board’s
Non-Executive Directors with the chairs of subsidiary boards. The chairs of key
subsidiary entities have become standing attendees at Board meetings further
enhancing the flow of information between the Board and subsidiaries. The
Group’s Subsidiary Governance Principles were also enhanced to include greater
focus on items for escalation from the subsidiary boards to the Aviva plc Board.
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, Customer,
Conduct and Reputation 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.
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 59.
Internal controls
Internal controls facilitate effective and efficient operations, the
development of robust and reliable
internal reporting and
compliance with laws and regulations. Group reporting manuals in
relation to IFRS and Solvency II reporting requirements and a
Financial Reporting Control Framework (FRCF) are in place across
the Group. The FRCF relates to the preparation of reliable financial
reporting, covering both IFRS and Solvency II reporting activity.
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The FRCF process follows a risk-based approach, with management
identification,
testing),
remediation (as required), reporting and certification over key
financial reporting related controls.
(documentation
assessment
and
During 2020 the Aviva Group has continued its focus on operational
resilience by completing its annual programme of disaster recovery
testing, including those applications hosted in the Cloud, the
strengthening of its cyber security controls and regular programme
of Red Team testing. Aviva’s successful response to the COVID-19
pandemic has also been used to inform the Group’s preparation for
the
for which
enhancements to Aviva’s Operational Risk Management Framework
have been made (going live in 2021), alongside the categorisation
and resilience prioritisation of its important business services.
Further analysis and testing of Aviva’s most important business
services will take place during 2021. Further information can be
found in the Audit and Risk Committee reports.
forthcoming Operational Resilience regulation
First line – management monitoring
The Group Executive Committee 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, Customer Conduct
and Reputation 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, Customer, Conduct and Reputation and Risk Committees,
market audit committees and the Board. Further information can be
found in the Audit Committee report.
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
RMF, and the methodology in determining
liquidity
capital
the Group’s
risk
requirements.
Ensures
management
in
setting remuneration policy. Oversight of
conduct risk through reporting from the
Customer, Conduct
Reputation
Committee (CCRC).
is properly considered
that
and
and
The Customer, Conduct and
Reputation 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.
During 2020 the CCRC was designated as a
sub-committee of the Risk Committee.
The Audit Committee
the Board
for assisting
Works closely with the Risk Committee and is
responsible
in
discharging its responsibilities for the integrity
financial statements, the
of the Group’s
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.
the annual assessment process. During 2020, this has been
supported by the application of the Group’s Operational Risk &
Control Management (ORCM) 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.
Assessment of effectiveness of risk management
With the exception of business units where Aviva disposed of the
majority of its shares, 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 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 Management framework.
There has been regular reporting to the committees throughout the
year to ensure that outstanding areas of improvement are both
identified and remediated. While there has been substantial progress
during the year there remains a number of areas where significant
work is still required.
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Other information
Directors’ and Corporate Governance Report continued
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 remediation progress has been made in 2020, such as
cyber security, risk management through major change and financial
crime prevention; and the need to continue to make further
improvement in a number of other areas, such as data management,
controls testing (including cyber), risk culture and model risk
management. Specific areas for improvement were also identified in
Canada and France. The Risk Committee, working in conjunction
with the Audit Committee, on behalf of the Board, will continue to
monitor progress throughout 2021.
The risk management framework of a small number of our joint
ventures and strategic equity holdings can differ from the RMF
outlined in this report but with a strong focus on local regulatory
compliance. We continue to work with these entities to ensure
appropriate management of risks 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 Chair met several of the Group’s
major shareholders during 2020. At these meetings a range of issues
were discussed within the constraints of information already made
public, to understand shareholders’ perspectives. On 26 November
2020 we streamed a presentation to update investors and analysts
on our strategy and financial objectives in conjunction with our third
quarter announcement. Shareholders’ views are
regularly
communicated to the Board through the Group CEO’s, and Group
Chief Financial Officer’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.
2021 AGM
The 2021 AGM will be held on Thursday 6 May 2021 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. Shareholders are invited to ask questions
related to the business of the meeting at the AGM and a presentation
will be given on the Group’s performance. Further details on the AGM
are provided in the Shareholder Services section of this report.
Due to the restrictions associated with the COVID-19 pandemic, it
was not possible to hold our usual AGM arrangements for the 2020
AGM, but we filmed an event with the Chair and Group CEO
answering questions submitted by shareholders to ensure our
engagement with shareholders continued as far as possible in the
circumstances.
Aviva plc Annual Report and Accounts 2020
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Other information
Nomination and Governance Committee report
Nomination and
Governance
Committee report
Committee focus during 2020
I am pleased to present the Nomination and Governance Committee
(the Committee) report for the year ended 31 December 2020.
During the year, the Committee led the selection process for my
appointment as Non-Executive Chair with effect from 27 May 2020,
the appointment of Amanda Blanc as the Group Chief Executive
Officer (Group CEO) with effect from 6 July 2020 and the appointment
of Patrick Flynn as Senior Independent Director (SID) with effect from
7 September 2020. The Committee also led the process for the
appointment of Mohit Joshi, Jim McConville and Pippa Lambert as
Independent Non-Executive Directors. Mohit Joshi and Jim
McConville joined the Board on 1 December 2020 and Pippa Lambert
joined on 1 January 2021. The Committee also considered a range of
governance matters, including the implementation and embedding
of the Group Governance Framework for the oversight of the Group’s
subsidiaries.
Committee membership
Sir Adrian Montague retired from the Committee on 27 May 2020 and
Amanda Blanc retired from the Committee on 6 July 2020 following
her appointment as Group CEO. I would like to thank them both for
their contribution. The members of the Committee as at
31 December 2020 are shown in the table below. I was appointed as
Chair of the Committee on 27 May 2020. Mohit Joshi and Jim
McConville joined the Committee on 1 December 2020 and Pippa
Lambert joined the Committee on 1 January 2021. 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
George Culmer (Chair)
Patricia Cross
Patrick Flynn
Belén Romana García
Mohit Joshi
Jim McConville
Michael Mire
Member since
25/09/2019
01/12/2013
16/07/2019
26/06/2015
01/12/2020
01/12/2020
12/09/2013
Years on the
Committee
1
7
1
5
<1
<1
7
Committee Purpose
The main purpose of the Committee is the 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
identifying and
opportunities and challenges. To assist
nominating candidates for the Board, the Committee monitors the
succession plans for the Executive and Non-Executive Directors. The
Committee also oversees talent development for the wider Group
and diversity and inclusion initiatives. During the year, the Board and
Committee’s remit and responsibilities were reviewed. With effect
from 1 January 2020 the Committee changed its name to the
Nomination and Governance Committee and expanded
its
responsibilities
include oversight of governance and
organisational change.
to
in
More information on the Board and Committee’s structure can be
found in the Directors’ and Corporate Governance report.
Board and executive succession planning
The 2018 UK Corporate Governance Code (the Code) places an
emphasis on succession planning and the Committee has built on its
existing processes to strengthen 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.
Non-Executive Directors
Following five years as Non-Executive Chairman and seven years in
total on the Board, Sir Adrian Montague retired as Non-Executive
Chairman and as Chair of the Nomination and Governance
Committee on 27 May 2020, and from the Board on 31 May 2020. The
Committee initiated a process to identify a successor as Chair after
Sir Adrian had indicated in January 2020 that he intended to retire. I
expressed an interest in becoming Chair, and accordingly recused
myself from the selection and recruitment process. The Committee
agreed that Amanda Blanc, at that time another Independent Non-
Executive Director, lead the recruitment. The Committee approved
the search criteria for the role and engaged MWM to identify suitable
potential candidates. The role criteria focused on individuals who
had undertaken a successful executive career; had significant
insurance or financial services experience; FTSE 100 Board Chair or
Senior
of
transformation and demonstrable leadership ability. The Committee
considered a longlist of candidates and assessed these against the
candidate profile. A shortlist of two candidates was produced
following this process. The Committee interviewed both candidates,
and recommended my appointment as Chair, with effect from
27 May 2020. The appointment was approved by the Financial
Conduct Authority (FCA) and the Prudential Regulatory Authority
(PRA).
Independent Director
experience;
experience
Patrick Flynn was appointed as SID on 7 September 2020. Patrick has
been a member of the Board and the Committee since July 2019 and
brings significant experience of both retail financial and insurance
services. I had previously served as SID from 1 January 2020 until my
appointment as Chair.
During the year, the Committee reviewed the Board skills matrix and
capability gaps identified and agreed on the areas of experience
which would be beneficial to the composition of the Board. With the
appointment of Amanda Blanc as Group CEO, and my appointment
as Chair, the Board required replenishment. MWM was engaged to
undertake an extensive external search based on the role
specifications 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 Mohit Joshi, Jim McConville and Pippa Lambert to
the Board. Jim and Mohit were appointed to the Board on
1 December 2020 and Jim has assumed the role of Chair of the
Customer, Conduct and Reputation Committee. Jim and Mohit bring
significant experience in retail financial services and operational and
IT transformation to the Board. Pippa was appointed to the Board on
1 January 2021 and has significant experience in global financial
services, people strategies and transformation programmes.
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Other information
Nomination and Governance Committee report continued
Executive Directors
The Committee conducted the process for the recruitment of a new
Group CEO, leading to the appointment of Amanda Blanc on 6 July
2020. The Committee approved the search brief and engaged MWM
to identify suitable candidates. The brief included finding candidates
with deep 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. Amanda Blanc expressed an interest in being considered for
the role and recused herself from the Committee discussions on the
CEO appointment process. A diverse longlist of candidates was
reviewed by the Committee and the Chair met the internal and
external candidates on the resulting shortlist. The successful
candidate met with the FCA and the 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
and Governance Committees were mindful of shareholder views
when considering the remuneration package for the role. Having
considered her skills, experience and personal attributes the
Committee unanimously agreed to recommend Amanda Blanc as
Group CEO. Amanda was formerly an Independent Non-Executive
Director of the Company and was first appointed to the Board on
2 January 2020.
MWM undertook the search and selection processes for the Board
Chair, Non-Executive Directors and Group CEO but had no other
connections with the Company or any individual directors.
Talent management
The Committee monitors the development of the Group Executive
Committee (ExCo) to ensure that there is a diverse supply of senior
executives and potential future Executive Board members with the
appropriate skills and experience. The appointment of the new
Group CEO in July 2020 brought renewed focus to ensuring that the
Company has the best leaders and an optimal organisational
structure. During 2020, the Committee received updates from the
Chief People Officer on the development plans and talent profiles of
the ExCo in line with the Group’s succession plans. The Chief People
Officer also provided strategic workforce planning updates in
response to the challenges presented by COVID-19.
The Committee considers the development plans designed to
prepare successors for ExCo roles and internal talent development
and developing a pipeline of potential future leaders has continued
to receive Committee focus during the year, despite the unexpected
challenges of COVID-19, with programmes being adapted and
redesigned for virtual delivery.
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 the ongoing Accelerating Leadership from the Inside Out
(ALIO) and ALIO Ethnic Minorities programmes to support the
development of future female and ethnic minority leaders.
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 ethnicity, and is inclusive of all strands of diversity
including skills and experience, geographic and social background,
disability and sexual orientation. The Board is pleased to have met
the Parker Review Committee’s target for all FTSE 100 boards to have
at least one director from an ethnic minority background by 2021.
The Company also ranks as number 45 on the Stonewall UK
Workplace Equality Index.
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 33% in March 2020 to 40%. We actively
support women advancing into senior roles, with the Group CEO
being a 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 ExCo and further details on gender
diversity in the workforce and wider senior leadership population
can be found in the Strategic report.
In August 2020, 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,
at
www.aviva.com/corporate-governance.
the Company’s website
available on
is
Conflicts of interest and independence
During 2020, 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 of a director’s independence consideration was also
given to other external appointments held by each director.
independence
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. The Committee determines a
Non-Executive Director’s independence in line with Provision 10 of
the Code and satisfied itself that the Non-Executives met the criteria
for independence and that the Chair of the Board met the criteria on
appointment to that role.
Governance
The Committee monitors the Group’s compliance with the 2018 UK
Corporate Governance Code and other areas of regulation and
guidance. The Group Company Secretary provides updates to the
Committee on governance matters, legal and litigation risks which
have the potential to impact the reputation of the Group.
for material
The Committee considers succession planning
subsidiaries around the Group and, where appropriate, approves
changes to the composition of the material subsidiary boards. The
Committee also reviews the outcomes of the board evaluations
completed by subsidiaries across the Group and monitors the action
plans developed by subsidiary boards to reflect those outcomes.
During 2020, the Committee focused on the implementation and
embedding of the Group Governance Framework for the oversight of
the Group’s subsidiaries and updates continued to be received and
approved by the Committee relating to the Subsidiary Governance
Principles, the effectiveness of the Company’s subsidiary boards and
the Group Conflicts of Interest policy.
Committee effectiveness review
The Committee undertakes a review of its effectiveness annually.
More information can be found in the Directors’ and Corporate
Governance report.
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Other information
Nomination and Governance Committee report continued
2021 priorities
In 2021 the Committee will continue to focus on succession planning
at the Board and senior management level to develop a strong and
diverse talent pipeline. The Committee will also continue to further
strengthen its oversight and engagement with the governance
arrangements of our subsidiary entities.
George Culmer
Chair of the Nomination and Governance Committee
3 March 2021
and
Committee activities during 2020
Evaluation and annual assessment
• Assessed the Non-Executive Directors’ independence
• Considered
recommended
the
election/re-election of each continuing director ahead of their
election/re-election by shareholders at the Company’s 2020 AGM
• Reviewed and made recommendations to the Board in respect of
each director’s actual, potential or perceived conflicts of interests
• Reviewed the external appointments and time commitments of
Board
the
to
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 appointment of the new
Non-Executive Chair, Group CEO, SID and three Non-Executive
Directors
• Considered specific steps to be taken in relation to diversity in
Board and executive succession planning, including meeting the
Parker Review Committee’s target for all FTSE 100 boards to have
at least one director from an ethnic minority background by 2021
Succession planning
• Continued to focus on succession planning arrangements at both
Board and Executive Director level, against a specification for the
role and the capabilities required. Considered the succession plans
for each Executive Committee member,
talent
development below the ExCo level
including
Talent pipeline
• Reviewed the career and development plans for the Executive
Committee members 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
Governance
• Monitored the Group’s compliance with the 2018 UK Corporate
Governance Code and other areas of regulation and guidance
• Assessed the embedding of an enhanced Group Governance
Framework for the oversight of the Group’s subsidiaries
• Reviewed and made recommendations to the Board for revisions
to the Subsidiary Governance Principles to enhance the
effectiveness of the Company’s subsidiary boards
• Reviewed and made recommendations to the Board for revisions
to the Group Conflicts of Interest policy to further articulate
requirements for the management of conflicts for both board
Directors and employees
• Reviewed and where appropriate approved changes to the
composition of the material subsidiary boards
• Discussed the outcomes of the 2020 subsidiary board effectiveness
reviews
• Considered succession planning for material subsidiary boards
around the Group
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Other information
Risk Committee report
Risk Committee
report
Committee focus during 2020
I am pleased to present the Risk Committee (the Committee) report
for the year ended 31 December 2020.
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 held additional meetings to focus on
the COVID-19 global pandemic and received regular updates on the
developing risks including the broader view of risk coverage by
business units response, the prioritisation decisions around risk
management, the Company’s scenario planning and the impact on
the Group’s capital and liquidity. The Committee also spent
significant time on the ongoing volatility of interest rate risk exposure
and financial stability risk arising from the clearing and settlement
considerations connected to the UK’s exit from the European Union
(EU).
The Committee held joint sessions with the Customer, Conduct and
Reputation Committee (CCRC) in order to further support the
oversight of conduct risk management. In November 2020, the
Committee further assessed its role again, and concluded that the
oversight of conduct risk topics would be enhanced if the CCRC
became a sub-committee of the Risk Committee. This further aligned
the oversight of conduct risks with other operational risks.
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 2020, a review of the Terms of Reference was carried out to
provide greater clarity to the role and responsibilities between the
Committee and CCRC to support appropriate oversight of conduct
risk issues. As a result, the Committee held joint meetings with the
CCRC to further assist co-ordination between the two Committees
when assessing Conduct Risk matters, particularly when monitoring
the impact of COVID-19 on customers and markets. This co-
ordinated approach to oversight was formalised through the CCRC
becoming a sub-committee of the Risk Committee to bring together
committee oversight of all operational risk matters into one area. The
Committee Terms of Reference were also clarified in respect of
oversight of operational controls, with the Audit Committee
overseeing controls over financial reporting, and the Risk Committee
overseeing all other operational risk controls. The Committee also
works closely with the Remuneration and Audit Committees. The
cross membership between these Committees promotes a good
understanding of issues and efficient communication.
COVID-19
During the year the Committee spent a substantial amount of time
on the impact of COVID-19 and the operational, economic and
insurance exposure. The Committee met on a more regular basis and
held additional meetings to receive updates on the solvency position
of the Group; the balance sheet and capital related management
actions that were being taken; the operational readiness of the
Group; the insurance risk exposure; and engagement with the
regulators.
The Committee continued to review and oversee the strengthening
of the Group’s operational risk profile and control environment,
supported by the development of the operational risk dashboard.
During 2020 there was significant market volatility and changing
government stimulus and the overall recovery analysis continued to
adapt to these changes.
The operational resilience pilot exercise supported the Group’s
approach to COVID-19 resilience activities, for example exceptions
on provision of devices and alternate mobile working. This ensured
that a strong internal communications cascade was in operation
with full colleague support being provided. As part of operational
readiness, the Group made the decision that new business was de-
prioritised in order for staff to deal with existing and vulnerable
customers and in particular claims. The Committee focused on the
safety of employees, particularly those with underlying health
conditions and ensured that management had plans in place to
protect employees, and accommodate working from home, while
ensuring that all critical services were maintained.
The Committee considered the overall impact of COVID-19 on the
Group strategy and the consequences and trade offs made over the
period, structural change and customer behaviour. The Committee’s
working scenario for COVID-19 was considered more prudent than
the scenario devised by the Monetary Policy Committee of the Bank
of England. The Committee welcomed that customer actions taken
by the Group in response to COVID-19 had been positive and were
generally ahead of the regulatory agenda.
Committee membership
George Culmer and Amanda Blanc stepped down from the
Committee on 27 May 2020 and 6 July 2020 when they became Chair
and Chief Executive respectively. The members of the Committee as
at 31 December 2020 are shown in the table below. Jim McConville
and Mohit Joshi joined the Committee on 1 December 2020 and
bring significant experience
financial services and
operational and IT transformation. Details of members’ experience,
qualifications and attendance at Committee meetings during the
year are shown within the Directors’ and Corporate Governance
report.
in retail
Name
Belén Romana García (Chair)
Patrick Flynn
Mohit Joshi
Jim McConville
Michael Mire
Member since
26/06/2015
16/07/2019
01/12/2020
01/12/2020
12/09/2013
Years on the
Committee
5
1
<1
<1
7
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
RMF. The Committee reviews 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.
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Risk Committee report continued
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.
In regard to cyber resilience, the Committee requested regular
updates on the people, education, training and cultural aspects of
the cyber programme to support the overall cyber risk and control
environment. The Committee recognised that progress had been
made, including an improvement in cyber resilience maturity.
The Committee also received deep dive sessions into the Company’s
cloud model and associated opportunities
including cloud
governance, controls and assurance, the developing regulatory
position and the Group’s Cyber position in order to provide a holistic
view of the risks and opportunities to the Group.
During 2020, the Committee encouraged the development of the
enterprise risk dashboard, specifically to include categorisation of
risks across our different markets, risk appetites and focus on regular
updates on key developments. This aligned to the financial risk
appetite chart requested by the Committee, with the inclusion of
updates on the operational risk and control environment and route
to Green plans. During the most critical first wave of the COVID-19
period the dashboard was refreshed every two weeks to consider
current and emerging risks on a regular basis.
The Committee requested horizontal deep dives, which included
change management and the governance of the global change
portfolio and material change programmes for 2020. The Committee
welcomed the enhanced reporting and requested that further
change updates were provided throughout the year with enhanced
risk reporting against each completed and in-flight programme, a
clearer risk landscape in respect of change and a risk assessment of
first line programme success measures and objectives.
The Committee also received a deep dive session on France and its
capital position and sensitivity to interest rate risk volatility. As part
of this the Committee discussed the risk appetite based on the
current strategy, the actions and plans taken during 2020 and
currently underway, contractual commitments both to customers
and our commercial partner and other strategic options. As part of
the review of France the Committee focused on the misapplication
of regulatory rules which had taken place and requested an overview
of the additional validation work that was conducted in response.
requested updates on
The Committee
risk
environment, insurance risk and learnings on GI policy wordings and
control processes. The Committee challenged the processes to
ensure they were leading to the right customer outcomes.
the Canadian
Global Climate Change
During the year the Committee received an emerging risk deep dive
on global climate change,
the current context,
interconnected risks, alternative scenarios and the work being
undertaken in Aviva to address the issue of climate change as part of
Aviva’s new climate strategy. The Committee also considered the
regulatory expectations and data assurance processes that would be
part of the climate related financial disclosure.
including
Committee effectiveness review
The Committee undertakes a review of its effectiveness annually.
More information can be found in the Directors’ and Corporate
Governance report.
2021 priorities
The Committee will continue to monitor the impacts and associated
risks as a result of COVID-19, the regulatory landscape and the UK’s
exit from the European Union. There will continue to be a focus on
including
strengthening
mobilisation of a Risk Improvement Delivery Programme over the
next two years.
risk and control environment,
the
In addition, I will continue to ensure a strong dialogue between the
Group Risk Committee and our equivalent subsidiary
level
committees and the new reporting structure of the CCRC into the
Committee.
Belén Romana García
Chair of the Risk Committee
3 March 2021
Committee activities during 2020
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
• Received regular updates on the global COVID-19 pandemic and
associated developing 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
• Approved recommendations made by the Group CRO in his 90 day
observations
• Approved mobilisation of
the Risk
Improvement Delivery
Programme in 2021
Group capital and liquidity, financial plan and stress testing
• Approved the 2020 Group Capital and Liquidity Plan and
subsequent updates
• Reviewed capital and liquidity projections including the Group’s SII
shareholder cover ratio1 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 2021-2023 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
• Reviewed the findings from France actuarial model review
undertaken by Ernst & Young
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 within the Annual Report and Accounts.
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Risk Committee report continued
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 UK’s exit from the EU
• 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 (OSRA)
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 SII 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 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
2020 Group Risk and Control Goal
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Audit Committee report
Audit Committee
report
I am pleased to present the Audit Committee (the Committee) report
for the year ended 31 December 2020.
The primary purpose of the Committee is to provide oversight of the
process to ensure our half and full year financial statements and
quarterly operating updates are suitable for publication. The
Committee provides the Board with assurance as to the integrity of
the Group’s financial reporting and, together with the Risk
Committee, monitors the effectiveness of our internal control
environment. The Committee monitors
the adequacy and
effectiveness of our system of control over financial reporting and 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 full in its Terms of Reference.
Committee focus during 2020
During the year the Committee closely monitored the impact of
COVID-19 on the Finance and Internal Audit functions, the financial
control environment and on the Group financial results.
The Committee also discussed the merits of more regular reporting
to update the market on Group performance, and following the
agreements of the Board, supported the process to move to
quarterly operating updates. The Committee dedicated a substantial
amount of time to reviewing the Group’s half and full year financial
statements, supported by detailed reviews of the judgements
applied in preparation of the financial statements, including Life and
General
the COVID-19
pandemic. This included the review of technical provision models,
particularly in France following the misapplication of regulatory
rules.
technical provisions given
Insurance
The Committee also focused on the Group’s financial reporting, our
system of internal controls over financial reporting and Financial
Reporting Control Framework (FRCF), and the performance of the
internal and external auditors.
The Committee had commenced a competitive tender process for
the external auditor, however as a result of COVID-19 the Committee,
following approval by the Financial Reporting Council (FRC), agreed
to defer the external audit tender, by two years, until 2022, as the
requirement to have an open, transparent process could not be met.
The Committee assessed the potential impact of new International
Financial Reporting Standards (IFRS), particularly the new insurance
accounting standard (IFRS 17) on the Group’s financial operations.
Committee membership
George Culmer retired from the Committee when he became Chair
with effect from 27 May 2020. Jim McConville was appointed to the
Committee on 1 December 2020 and brings significant experience of
financial services. The members of the Committee as at 31 December
2020 are shown in the following table. 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 Flynn (Chair)
Patricia Cross
Belén Romana García
Jim McConville
Member since
16/07/2019
01/12/2013
05/07/2019
01/12/2020
Years on the
Committee
1
7
1
<1
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). I as Committee Chair, Belén Romana
García and Jim McConville, fulfilled both the Code and the DTR
requirements for financial expertise and experience. The Committee
as a whole has competence relevant to the insurance and broader
financial services industry.
Committee purpose
In January 2020 the Committee’s Terms of Reference were reviewed
and updated to further clarify the delineation of oversight of internal
controls with the Risk Committee and the Committee operated
under the revised terms of reference throughout 2020. The
Committee is responsible for overseeing internal controls over
financial reporting while the Risk Committee is responsible for the
oversight of other areas of internal control. The Committee acts
independently of management and works closely with the
Remuneration and the Risk Committees. The cross-membership
between these Committees supports a good understanding of areas
of concern and facilitates efficient communication.
Effectiveness reviews
The Committee undertakes a review of its effectiveness annually.
More information can be found in the Directors’ and Corporate
Governance report.
Evaluations of the External Auditor and Internal Audit function are
also conducted on behalf of the Committee each year.
The 2020 External Audit Effectiveness review was undertaken
through completion of a questionnaire by the Committee, subsidiary
company audit committees, senior management, and members of
the Group’s finance teams. The review focused on the effectiveness
of the audit team, expertise and resources and interaction with audit
committees. Overall feedback was positive and where opportunities
for improvement were identified, PwC was asked to take account of
that feedback in 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 2021 AGM.
The Company has complied with the Statutory Audit Services for
(Mandatory Use of
Large Companies Market
Competitive
Committee
Responsibilities) Order 2014 for the year ended 31 December 2020.
Investigation
and
Processes
Tender
Audit
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. The Committee concluded that for 2020 the function
performed well and remained effective.
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Other information
Audit Committee report continued
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 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.
2021 priorities
In 2021, in addition to carrying out its principal function, the
Committee will continue to monitor the impact of COVID-19 on key
internal functions and any impact on reported financial results. The
in the external audit
Committee will also monitor changes
environment following the Brydon, Kingman and Competition and
Market Authority reviews of audit in the UK. The Committee will
continue to support the development of the ORCM framework in
relation to internal controls over financial reporting and monitor the
implementation of the new IFRS 17 standard, ahead of its scheduled
introduction from 1 January 2023.
Patrick Flynn
Chair of the Audit Committee
3 March 2021
Activities performed during 2020
Financial statements and accounting policies
• Recommended to the Board for approval the Quarter 1 update,
2020 half year, Quarter 3 update and full year financial statements
• Approved the IFRS and SII technical provisions with the 2020 half
and full year financial statements
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 2020 Audit Plan
and progress against plan and reports on the review and audit of
the 2020 half and full year results, respectively, including key
assumptions used and outcomes of the work performed and
‘Agreed upon Procedures’ in respect of the Quarter 1 and Quarter 3
operating performance updates.
• Agreed to defer the external audit tender by two years.
Internal audit
• Reviewed reports from the Chief Audit Officer (CAO)
• Reviewed and approved changes to the Internal Audit Charter and
Business Standard
• Reviewed and approved the 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 the FRCF and
rectification of controls
• Recommended to the Board for approval the SII Solvency and
• 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
Financial Condition Report
• Reviewed and challenged the technical provisions relating to the
Group Life and General Insurance operations particularly in the
context of the COVID-19 pandemic
• Reviewed and challenged the correction of mis-applied rules in the
French actuarial model and the resulting impact on solvency
• Reviewed the findings from France actuarial model review
undertaken by Ernst & Young and group-wide actuarial model
assurance performed by PwC
• Reviewed and challenged the treatment and recoverability of
goodwill and other intangible assets particularly in the context of
the COVID-19 pandemic
• Reviewed the Group Chief Financial Officer’s reports which
included:
judgements;
IFRS and SII key assumptions and
accounting developments including the new IFRS; and overview of
internal control and risk management over financial reporting
• Reviewed and challenged the going concern assumptions for 2020
and the principles underpinning the Longer-Term Viability
Statement
• Reviewed the Group Chief Actuary’s report on significant issues
related to the technical provisions of SII and IFRS
• Assessed that the Annual report was considered fair, balanced and
understandable particularly in the context of the transparency of
disclosures during the COVID-19 pandemic and the importance to
shareholders of understanding the Group’s position
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Audit Committee report continued
Key matters considered during 2020
The significant matters that the Committee considered during the year are set out in the table below.
Matter considered
Context
IFRS and Solvency II Life
technical provisions
The Committee reviews IFRS and Solvency II (SII) technical provisions and the impact of those technical
provisions on IFRS Shareholders’ Net assets and SII surplus used for the quarterly operating updates, and 2020
Half Year and Full Year financial statements. The Committee reviews the underlying assumptions as these involve
complex judgements and changes can have a significant impact on reported results.
Committee’s response
Technical Provisions. The Committee reviewed and challenged the assumptions used in the calculation of the Best Estimate Liability
component of the technical provisions required under SII, and the expense impacts on SII reserves across our life and general insurance
businesses.
The Committee reviewed and challenged the longevity, expense and credit default assumptions used for the quarterly operating updates,
and 2020 half year and full year financial statements. The process 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 2020, the Committee
worked closely with the Audit Committee of the Group’s UK Life subsidiary, Aviva Life Holdings UK Ltd, to review the detailed analysis and 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 change reflecting recent experience in the UK market. Following assessment of the
proposed assumption changes the Committee considered and noted proposed changes and their expected impact on the financial
statements.
Technical Provision Models. The Committee reviewed management’s assessment of the Group’s Technical Provision models, including
details of additional controls that were being implemented to increase the level of confidence in the output of these models. This included a
review of the key French life business unit actuarial models and the impact of low or negative interest on the model following an extended
period of historical low interest rates. This review included the correction of mis-applied regulatory rules which resulted in a reduction in
solvency, together with benefits from better modelling in a negative interest rate environment, and the resulting impacts on solvency.
COVID-19 assumptions. The Committee also reviewed the assumptions proposed for the setting of Technical Provisions in respect of the
COVID-19 pandemic. This included the impact of the pandemic on future mortality, credit spreads and property growth as well as the impact
on general insurance claims.
Review of controls associated with the SII and IFRS Life reserving process. The Committee reviewed the sign-off procedures and control
framework for movements in IFRS reporting and SII results.
Matter considered
Context
IFRS and SII key
accounting judgements
and disclosures
The Committee reviews and recommends to the Board Quarterly. Half Year and Full Year disclosures and the
impact of accounting judgements on those disclosures. The Committee reviews and recommends to the Board
the Annual Solvency and Financial Condition Report.
Committee’s response
Estimates and judgements for IFRS and SII reporting bases. The Committee challenged and recommended approval of IFRS judgements
including those in respect of goodwill and intangible asset impairment reviews, assets classified as held for sale and the valuation
assumptions for certain mark to model assets and liabilities.
Impact of exit from the European Union. The Committee reviewed the size and continuation of 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 (EU). The Committee reviewed the allowance
introduced following the EU referendum in 2016, and subsequent release of the allowance in the context of broader long-term assumption
setting.
Alternative Performance Measures (APMs). The Committee reviewed and approved the clarification and treatment of certain items within
the Group’s Alternative Performance Measures (APMs) to further improve the transparency and consistency of reporting of APMs.
Product Governance provisions. The Committee also assessed two provisions in respect of product governance issues for heritage book
customers in the UK Life business. The first was in respect of advice to customers transferring from defined benefit pension to personal
pension arrangements. The second related to past communications to a specific sub-set of policyholders that may not have adequately
informed them of switch-in options into with-profits funds that were available to them.
Impact of COVID-19. The Committee reviewed the impact of COVID-19 on the Group financial results, and in particular disclosures around
the impact of the pandemic on Business Interruption insurance and motor collision frequency in the General Insurance business, and the
impact on General Insurance reserves including the operation of reinsurance arrangements. The Committee also reviewed the impact on
investment assets valuations. The Committee reviewed the maintenance of allowances for potential future downgrades to corporate bonds
introduced in 2020 and the subsequent release of these allowances at 31 December 2020.
Fair, Balanced and Understandable. The Committee reviewed the Quarterly, Half Year and Full Year results to support the Board conclusion
that taken as a whole, these reports were fair, balanced and understandable and provided the information necessary for shareholders to
assess the Group’s position and performance, business model and strategy. This assessment was particularly significant in the context of the
transparency of disclosures during the COVID-19 pandemic and the importance to shareholders of understanding the Group’s position during
this time.
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Audit Committee report continued
Matter considered
Context
Internal Controls
The Committee provides oversight of the system of internal control over financial reporting.
Committee’s response
Review of the effectiveness of the Operational Risk and Control Management (ORCM) system. The Committee reviewed a number of
reports to allow the evaluation of the effectiveness of controls and any failings or weaknesses. The Committee continued to challenge and
drive the ongoing implementation and how this supports a risk aware culture and strong internal control framework.
Review of internal controls. The Committee reviewed reports on the effectiveness of the internal controls over financial reporting to gain
assurance that these remained in tolerance with no control weaknesses which could have a material impact on the financial results. The
Committee met with individual business unit leaders to reinforce the importance of further improving performance of the internal control
environment within the business units and provide challenge where progress was considered to be insufficient.
Impact of COVID-19 on the control environment and finance function. The Committee reviewed the impact of COVID-19 on the internal
control environment and finance operations. This included reporting on ORCM to ensure operational risks within the Finance function
remained within tolerance, and where necessary, agree the reduction or deferral of work in other areas of activity to ensure core financial
operations continued.
Legal and regulatory reports. The Committee received quarterly reports on current and emerging legal and regulatory matters and any
potential impact on Aviva’s financial statements.
Matter considered
Context
Internal Audit
The Committee has responsibility for overseeing the work, effectiveness and independence of the Internal Audit
Function.
Committee’s response
Annual Plan and Budget. The Committee reviewed and approved the 2020 Internal Audit plan and budget and monitored progress against
this plan. In May 2020 the Internal Audit Plan was revised to take account of the impact of COVID-19 on the work of the Internal Audit Function
and on the operations and business subject to review. Progress against the Internal Audit plan was closely monitored to ensure completion
of the plan by year end.
Quarterly Reports. The Committee also received quarterly control reports from the Internal Audit function and challenged management on
the actions being taken to improve the effectiveness of the governance and risk and control framework of the organisation. The quarterly
Internal Audit reports contain control environment metrics including: the status of Internal Audit opinions that are rated as unsatisfactory or
where major improvement is needed; key issues identified, emerging trends and their impacts on the organisation’s risk profile; and the
status of management actions to resolve issues identified. During 2020 the Committee has met with market CEOs where the status of the
control environment and metrics was considered to require focus.
Matter considered
Context
External Audit
The Committee has responsibility for monitoring the External Auditor PricewaterhouseCoopers LLP’s (PwC)
independence and objectivity and the effectiveness of the external audit process.
Committee’s response
External Audit Plan and Budget. The Committee reviewed and approved the 2020 audit plan presented by PwC and progress against the
plan.
Audit related and non-audit services. The Committee monitors the External Auditor Business Standard to ensure no firm, other than PwC
undertakes audit and audit-related services other than in exceptional circumstances. The Committee also monitors non-audit services
(including audit-related and other assurance services) provided by PwC.
In 2020 the Group paid PwC £21.2 million (2019: £21.2 million) for audit and audit-related assurance services. PwC were paid £3.4 million
(2019: £0.8 million) for other services, giving a total fee to PwC of £24.6 million (2019: £22.0 million). This included a fee of £2.4 million to
undertake a ‘reasonable assurance’ review of the Solvency II Partial Internal Model following the correction of the misapplication of regulatory
rules in our French actuarial models. In addition to these fees, audit fees payable to PwC in respect of investment funds consolidated in the
Group financial statements were £2.7 million (2019: £2.4 million). These fees are borne directly by the unitholders of the funds and are not
borne by the Group. Further details are provided in note 13 of the financial statements.
Request for Additional Actuarial Models Assurance. The Committee requested that PwC undertake additional assurance activity in relation
to the French life asset and liability management actuarial model following the correction of the misapplication of regulatory rules which
resulted in a reduction in solvency. The Committee reviewed and agreed the scope of additional assurance work. The scope of this assurance
work included performing an independent baselining review to check the validity of certain models and validate the operating effectiveness
of the associated controls.
Tender of External Audit. Under Competition and Markets Authority regulations, Aviva is required to tender for the provision of the external
audit every 10 years. PwC was appointed for the first time for the 31 December 2012 financial year end and therefore a mandatory re-tender
was required for the year ending 31 December 2022. The Committee initiated the external audit tender process during 2020, which had
anticipated a series of meetings and direct engagement with potential external audit candidates, however COVID-19 restrictions had inhibited
this tender process. The Committee agreed to request a two-year extension to PwC’s appointment to 2022. The FRC approved the request
for the two-year extension.
Audit Partner. The Committee reviewed the process to select Alex Bertolotti to replace Andrew Kail as lead PwC audit partner, including
interviewing potential candidates and validated that he was an appropriate replacement.
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Other information
Audit Committee report continued
Matter considered
Context
Longer Term
Viability Statement
(the Statement) and
Going Concern
Assessment
Committee’s response
The UK Corporate Governance Code requires the Board to assess the Company’s current position and principal
risks and state whether it has a reasonable expectation the Company will be able to continue in operation and
meet its liabilities as they fall due over the period of their assessment. The Committee supports the Board in
making that assessment.
The Committee reviewed the principles underpinning the Statement for 2020 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 recommended to the Board the Statement and
going concern statement to the Board. More information on these statements can be found in the Other Statutory Information section of the
Directors’ and Corporate Governance report. The Committee continues to consider it appropriate that the Statement covers a three-year
period. The Committee also considered the additional guidance issued by the FRC in June 2020 on going concern considering the COVID-19
pandemic including the Group’s specific circumstances, current and potential cash resource and access to existing and new financial
facilities. At half year 2020 the Committee reviewed the outcome of a series of stress testing exercises undertaken though 2020 taking account
of the impact of COVID-19 on markets, Group solvency, business unit remittances and central liquidity.
Matter considered
Context
Implementation
of IFRS 17
IFRS 17 is a new insurance accounting standard issued by the International Accounting Standards Board (IASB)
due to take effect on 1 January 2023. IFRS 17 is expected to have a significant impact on reporting of the Group’s
financial performance.
Committee’s response
The Committee continued to monitor preparedness of the implementation of new IFRS standards, but most significantly in respect of IFRS 17.
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 the financial reporting process, the operation of new internal financial tools to be used for financial
forecasting and planning purposes, and the calculation of insurance liabilities under the new standard. The Committee monitored updates
on the planning and implementation activities for IFRS 17 including development of a series of ‘dry runs’ ahead of the effective date of
1 January 2023.
Matter considered
Context
COVID-19 impact
The Committee assessed the potential increase in uncertainty as a result of COVID-19.
Committee’s response
The Committee received updates on the impact of the COVID-19 pandemic on Aviva’s businesses and the implications on Aviva’s reserves
and capital requirements. In addition, the Committee reviewed disclosures made for the impact of COVID-19 pandemic on Aviva’s financial
performance in its publication of quarterly operating updates and half-year and full year financial statements.
The Committee monitored the impact of COVID-19 on the control environment and for the performance of control assurance activity. The
Committee continued to engage with the regulator to seek clarification on the balance sheet disclosures, including treating COVID-19 as a
“major development” as per SII Directive.
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Other information
Customer, Conduct and Reputation Committee report
Customer, Conduct
and Reputation
Committee report
Committee focus during 2020
I am pleased to present the Customer, Conduct and Reputation
Committee (the Committee) report for the year ended 31 December
2020.
With effect 1 January 2020, the Committee revised its remit to focus
on the oversight of customer, conduct and reputation issues.
Consequently, the Committee changed its name to the Customer,
Conduct and Reputation Committee (previously the Governance
Committee) and in November 2020 the Committee became a sub-
committee of the Risk Committee.
During the year, the Committee considered and monitored a range
of matters including the treatment of our customers during COVID-19
(including vulnerable customers) and, the progress of our corporate
responsibility strategy.
Committee membership
I joined the Board on 1 December 2020 and assumed the role of Chair
of the Committee. George Culmer was the interim Committee Chair
from 6 July 2020, following Amanda Blanc’s appointment as CEO.
The members of the Committee as at 31 December 2020 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. On 1 January 2021,
Pippa Lambert also joined the Committee.
Name
Jim McConville (Chair)
Michael Mire
Belén Romana García
Member
Since
Years on
the Committee
01/12/2020
12/09/2013
26/06/2015
<1
7
5
Committee purpose
The main purpose of the Committee is to assist the Board in
overseeing our customer and conduct obligations, the development
of our reputation, our regulatory engagement on conduct matters,
shaping the culture and ethical values of the Group and our
approach to corporate responsibility.
During 2020, a review of the terms of reference was carried out, in
order to provide greater clarity to the Committee’s role and to allow
the Committee to focus on the material conduct, customer and
reputation matters across the Group. It was agreed that the
Committee should act as the custodian of the Aviva purpose on
behalf of the Board and oversee the development of metrics to give
insight on how Aviva was performing against the purpose.
The review also clarified the role and responsibilities between the
Committee and the Risk Committee to support appropriate oversight
of conduct risk issues.
COVID-19 response
During 2020, the Committee focused on supporting customers and
the wider community through the global COVID-19 pandemic. The
Committee provided oversight of Aviva’s response to customer
demand during the pandemic across the Group. Service levels
remained stable across all markets largely due to employees working
from home with the stability of customer service remaining a key
priority. The Committee received and assisted in the development of
structured management information (MI) data to support its
oversight of the impact on our customers.
The Committee reviewed reports on the conduct risks generated by
COVID-19 across Aviva markets, the response of local regulators, and
the support provided to the communities in which we operate. Aviva
through charitable
supported customers and communities
donations and additional support for essential workers and those
who were vulnerable. This included payment deferrals for customers
in the UK, donations to the NHS and British Red Cross, a €149 million
pledge to support the economy in France, free life insurance cover
for key workers in Poland and a range of actions to support
customers in our businesses in Italy, Ireland and Canada.
The Committee also monitored how the Group co-ordinated a
response across international markets and engaged the workforce.
Internally, there was regular communication with leaders and
colleagues to provide guidance and support, and internal surveys for
employees to provide feedback to ensure that employees felt
supported and well informed.
Customers
During 2020, the Committee had oversight of the customer strategy
and operations. This included the creation of an enhanced customer
dashboard to provide the Committee with a greater overview of key
customer metrics, data and insights. The customer team worked
across the business to create a monitoring framework that balanced
commercial and customer outcomes and further enhanced putting
the customer at the heart of the business. As part of the roll out of the
new framework, governance, reporting and escalation mechanisms
would continue to be reviewed and further improvements made
where necessary. A set of Customer Principles was developed and
designed to enhance great customer outcomes, with a focus on the
most frequent customer journeys so that related simplification and
improvement activities benefitted the greatest number of customers.
The Committee recognised the importance of the identification and
fair treatment of vulnerable customers, and throughout the year the
first line continued to receive training in identifying and providing
additional support to vulnerable customers.
The Committee continued to emphasise the importance of further
developing a proactive approach to conduct topics in order to
support action to prevent
instances of customer detriment
occurring.
Data
During 2020 the Committee continued to review the development
and delivery of data governance particularly in respect of customer
data and records management within the Group. The Group Data
Operations team worked with each business unit to review and
enhance oversight and reporting arrangements.
Reputation
The Committee monitored developments in the Group’s reputation
and reputational risk position. Key areas of focus included the
response to the COVID-19 pandemic and the treatment of our
customers, particularly
in vulnerable categories. The
Committee also monitored the response to our announcements on
strategy and in changes to the composition of the Board.
those
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Customer, Conduct and Reputation Committee report continued
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.
2021 priorities
In 2021, the Committee will continue to focus on the impact of
COVID-19 on our customers and the wider customer and conduct
agenda. The Committee will also oversee the further development of
our purpose and monitor reputational risks to the Group.
Jim McConville
Chair of the Customer, Conduct and Reputation Committee
3 March 2021
Committee activities during 2020
Customer and conduct 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 and Sustainability
• Continued to drive the corporate responsibility agenda and
monitored compliance with the Group’s corporate responsibility
strategy
• Reviewed the ‘Better Tomorrow’ corporate responsibility strategy
for 2020-2025
• 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
Regulatory and financial crime
• Regularly reviewed updates from the Group Compliance and
Operational Risk Director
• Reviewed potential financial crime risks and any actions required
in response
• Reviewed the implementation of the data governance and data
privacy framework
• Reviewed the Group’s relationship and interaction with regulatory
bodies and actions taken in respect of regulatory developments
The Committee oversaw the establishment of a Conduct Governance
and Reporting shared service team, which would strengthen best
practice amongst the Group. The Committee considered and
approved the refresh of the Conduct Risk Policy, which had been
substantially updated to provide a framework which monitored both
customer, regulatory and market exposures, as well as the key drivers
of conduct risk. The Committee is overseeing the implementation
and embedding of the framework across the Group.
Through the implementation of the Conduct Risk Policy, conduct risk
reporting across the business units is also being further developed
and aligned to the new conduct framework. This is being used as the
reporting framework for the Committee’s conduct reports ensuring
appropriate oversight and escalation across the Group’s conduct risk
exposures.
The Committee received updates from UK Life and UK General
Insurance Conduct Committee Chairs, to provide an update on
progress on conduct governance in the UK and the future direction
of travel. The UK Life and UK General Insurance CEOs also attended
Committee meetings in order to contribute to the discussion on
conduct matters in their respective businesses. The UK Life and UK
General Insurance Committee Chairs are now standing attendees at
Committee meetings.
Corporate responsibility and Sustainability
The Committee continued to monitor our approach to corporate
responsibility and sustainability.
The Committee reviewed and contributed to the corporate
responsibility strategy for 2020-25, the ‘Better Tomorrow Plan’ which
had been developed through feedback from Aviva’s stakeholders
and across the business. Climate change consistently emerged as
one of the most important issues in the feedback and the greatest
threat to our customers, the planet and our business. Aviva has a long
history of action in this area through disclosure; policy influence;
environmental, social and governance (ESG) engagement and
reducing our operational impact, and the Better Tomorrow Plan
builds on these achievements.
The Committee also continued to monitor and support our
community investment and the activities of the Aviva Foundation,
which was established to distribute the proceeds of our share
forfeiture programme to good causes.
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
integrated
wider stakeholders. Further
responsibility and sustainable business approach can be found on
the Company’s website at: www.aviva.com/social-purpose.
information on our
Committee effectiveness review
The Committee undertakes a review of its effectiveness annually.
More information can be found in the Directors’ and Corporate
Governance report.
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Other information
Other statutory information
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 2020.
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 energy consumption
and greenhouse gas emissions in line with the Streamlined Energy
and Reporting (SECR) framework
• 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 2020 are disclosed in note 65.
The management report required under Disclosure Guidance 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 note 4 and certain other disclosures
referred to in this Directors’ and Corporate Governance report. This
Directors’ and Corporate Governance report, together with the
Directors’ Remuneration Report, fulfils the requirements of the
corporate governance statement under Disclosure Guidance and
Transparency Rule 7.2.1.
Our policy on hedging
The hedging policy is disclosed in note 60.
Related party transactions
Related party transactions are disclosed in note 62 which is
incorporated into this report by reference.
Dividends
Dividends for ordinary shareholders of Aviva plc are as follows:
• Paid second interim dividend for 2019 of 6 pence per ordinary
share (2019: nil pence)
• Paid interim dividend for 2020 of 7 pence per ordinary share
(2019: 9.25 pence)
• Proposed
final dividend of 14 pence per ordinary share
(2019: nil pence)
• Total ordinary dividend of 21 pence per ordinary share
(2019: 15.5 pence)
• Total cost of ordinary dividends paid in 2020 was £236 million
(2019: £1,184 million)
Subject to shareholder approval at the 2021 AGM, the final dividend
for 2020 will become due and payable on 14 May 2021 to all holders
of ordinary shares on the Register of Members at the close of business
on 9 April 2021 (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
In light of our 2020 performance and resilient capital and liquidity,
the Board has declared a final dividend of 14 pence per share
(2019: nil), bringing the full year dividend in respect of 2020 financial
year to 21 pence per share (2019: 15.5 pence per share). On
26 November 2020, Aviva announced a new dividend policy and
capital framework that align with the Group’s strategic priorities. We
aim to deliver a sustainable pay-out ratio and grow dividend per
share by low to mid-single digits. This level of dividend is sustainable
and resilient to stress, and is covered by the capital and cash
generated from the core markets of UK, Ireland and Canada.
‘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 typically 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
2015
2016
2017
2018
2019
2020
Interim
dividend
per share
(pence)
6.75
7.42
8.40
9.25
15.502
7.00
Interim
Dividend
per share
(cents)1
Final
dividend
per share
(pence)
Final
dividend
per share
(cents)1
N/A
N/A
9.50
10.25
17.35
7.75
14.05
15.88
19.00
20.75
0.003
14.00
N/A
18.71
21.77
24.12
0.00
–
1 Euro dividend rate per share
2
Interim dividend in respect of 2019 paid in September 2019, second interim in respect of 2019 paid in
September 2020
3 On 8 April 2020 the Board withdrew its recommendation to pay the 2019 final dividend, referencing the
unprecedented challenges COVID-19 presents for businesses, households and customers and the adverse
and highly uncertain impact on the global economy
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Other information
Other statutory information continued
to cover
reserves sufficient
Distributable reserves
Under UK company law, dividends can only be paid if a company has
distributable
the dividend. At
31 December 2020, Aviva plc itself had sufficient distributable
reserves to support the paid and proposed dividends during the
period. 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 2020 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, 7,361,275 ordinary shares were allotted to satisfy
amounts under the Group’s employee share and incentive plans. At
31 December 2020 the:
• issued ordinary share capital totalled 3,928,490,420 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 2021 AGM, shareholders will be asked to
renew the directors’ authority to allot new securities. Details are
contained in the Notice of 2021 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 2020 AGM, shareholders renewed the Company’s
authorities to make market purchases of up to 392 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 2020. At the 2021 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 2020 and 3 March 2021. 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
At 31 December 2020
At 3 March 2021
Notified
holdings
Nature of
holding
Notified
holdings
Nature of
holding
Above 5%
Indirect
Above 5%
Indirect
1 Holding includes holdings of subsidiaries.
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Other information
Other statutory information continued
Directors
The directors as at the date of this report, together with their
biographical details and details of Board appointments, resignations
and retirements are shown earlier in the report.
The rules regarding the appointment and removal of directors are
contained in the Company’s Articles. Under the Articles, the Board
can appoint additional directors or appoint a director to fill a casual
vacancy. The new director must retire at the first AGM following their
appointment and can only continue as a director if they are elected
by shareholders at the AGM.
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 59
on risk management.
Political donations
Aviva did not make any political donations during 2020.
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 2021 AGM of the Company will be held on Thursday 6 May 2021
at St Helen’s, 1 Undershaft, London EC3P 3DQ at 2pm. 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 Proximity voting, must be received by our
Registrar, Computershare Investor Services PLC, by no later than
2pm on Tuesday 4 May 2021. 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 and longer-term viability
A detailed going concern and longer-term viability review has been
undertaken as part of the 2020 reporting process. 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, along with the Group’s approach to risk and risk
management. In addition, the
‘Financial statements’ sections
include notes on the Group’s borrowings (note 52); its contingent
liabilities and other risk factors (note 55); its capital management
(note 57); management of its risks including market, credit and
liquidity risk (note 59); and derivative financial instruments (note 60).
The going concern and longer-term viability review
includes
consideration of the Group’s current and forecast solvency and
liquidity positions over a three-year period through management’s
2021-2023 business plan and evaluates the results of stress and
scenario testing. The Group’s stress and scenario testing considers
the Group’s capacity to respond to a series of relevant financial,
insurance or operational shocks should future circumstances or
events differ from the current assumptions in the business plan,
focussing on the impacts on Group solvency, cash remittances and
liquidity. The range of scenarios allow for the potential impacts of
COVID-19 both directly on the claims and operations of the Group,
and also on the wider macroeconomic environment, and considers
the potential risks associated with the UK’s negotiations with the
European Union on their future relationship.
Even in severe downside scenarios, no material uncertainty in
relation to going concern and longer-term viability has been
identified, due to the Group’s strong solvency and liquidity positions
providing considerable resilience to external shocks, underpinned by
the Group’s approach to risk management (see note 59).
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 under the Solvency II
regulatory framework.
In response to the COVID-19 pandemic, the Group has reduced
exposure to equity and interest rate risk, credit spread and
counterparty default risk across all our major markets and actions
are being taken to further reduce the sensitivity to economic shocks.
In the event of major new risks emerging, the Group has a number of
management actions available to maintain or restore key capital,
liquidity and solvency metrics to within the Group’s approved risk
appetites over the planning period.
Going concern
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.
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Other information
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
the Directors’
ensure
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.
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, 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 IFRS adopted pursuant to Regulation
(EC) No 1606/2002 as it applies in the European Union (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:
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 3 March 2021.
Amanda Blanc
Chief Executive Officer
Other statutory information continued
Longer-term viability statement
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. 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 to 31 December 2023.
is
taken as a whole,
Fair, balanced and understandable
To support the directors’ statement below that the Annual Report
and Accounts,
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 Financial Controller 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 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.
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 adopted pursuant to Regulation (EC) No 1606/2002 as it
applies in the European Union (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 IFRS adopted pursuant to Regulation (EC)
No 1606/2002 as it applies in the European Union (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.
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Other information
Directors’ Remuneration Report > Remuneration Committee 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 2020.
Shareholders will be asked to vote on two remuneration resolutions
at the 2021 Annual General Meeting (AGM):
• The Directors Remuneration Policy (Policy), which outlines the
remuneration framework that will apply to our Executive Directors
(ED), Non-Executive Directors (NED), and the Chair of the Board
following approval; and
• Our Annual Report on Remuneration, summarising remuneration
outcomes for 2020 and intended operation of the Policy in 2021.
Policy review
During 2020 the Committee conducted a comprehensive review of
the current Policy.
The Committee recognises the opportunity and importance of
ensuring that our remuneration framework for all colleagues
supports our strategic agenda, while also being aligned with our
purpose and values as an organisation.
The Policy review highlighted that on the whole our framework
remains fit for purpose and has operated as intended, in terms of
performance and quantum. Our Policy and our Annual Report on
Remuneration have also been well-received by our stakeholders over
the last seven years. As such, we are not proposing any major
changes to the Policy, nor the overall construct of reward at Aviva. We
are however, making some revisions to the metrics used under the
annual bonus and Long Term Incentive Plan (LTIP), with three
objectives in mind:
• Reinforce our desire to reduce complexity;
• Ensure colleagues are focused on areas which can transform
performance; and
• Support
our
responsibilities.
environmental,
social
and
governance
In addition, we are proposing some minor amendments to other
elements of the Policy to ensure continued alignment with corporate
governance best practice in areas including pension, post-cessation
shareholding requirements and malus and clawback provisions.
Throughout the review process, shareholders have provided
constructive and helpful feedback on the proposals and I would like
to thank them on behalf of the Committee.
Annual bonus
The annual bonus is intended to align reward outcomes with the
achievement of key annual goals, enacted by cascading the
scorecard down into the business. While the review suggested on the
whole the bonus framework works effectively, it highlighted that the
assessment process is overcomplicated, with potential for overlap in
some areas.
To provide a clearer, more transparent and simpler structure, we are
proposing the removal of non-financial modifiers and, where
appropriate, incorporating them into the metrics to ensure their
impact is retained. Specifically:
• Employee engagement – A highly engaged workforce is one that
is more productive, accountable and motivated to deliver for our
customers and we aim for our people to achieve their potential
within a diverse, collaborative and customer-focused organisation.
Therefore we are introducing employee engagement as a primary
metric to reflect our focus in this area;
• Customer trust – Customers are at the heart of everything we do
at Aviva and we are retaining Relationship Net Promoter Score
(RNPS) and Transactional Net Promoter Score (TNPS) as primary
metrics. The Committee is satisfied with the removal of the
customer trust modifier to reduce duplication; and
• Risk and controls – The introduction of percentage Risks Inside
Tolerance (RIT) as a primary metric for 2020, reinforced the
fundamental importance of controlling, measuring and assessing
our risk performance across the business. However, the Committee
views the risk modifier as complicated and duplicative. It is
proposed to remove the modifier and instead to measure RIT and
risk and controls quality, together with an additional assessment
to give a fuller picture of how we are performing across our risk
profile. The Committee is comfortable with this since it retains
overall discretion to adjust outcomes should they not align with
underlying performance or wider business circumstances.
Individual performance will continue to be assessed and act as a
modifier on the scorecard outcome as the Committee recognises the
critical importance of individual accountability.
In terms of the financial metrics, the overall weighting will remain at
70%. We are taking the opportunity to move from Solvency II
operating capital generation (SII OCG)1 to Solvency II operating own
funds generation (SII OFG)1. The latter more directly captures the
value created in a period, providing closer alignment to our growth
strategy, and is also the numerator in our Solvency II return on equity
(SII RoE)1 measure, creating alignment across incentive plans. The
other metrics, annual cash remittances and Group adjusted
operating profit, remain unchanged, although we are adjusting some
weightings to retain an appropriate balance between growth and
cash/capital measures.
Long Term Incentive Plan (LTIP)
The LTIP is intended to (i) incentivise and reward senior executives
for delivering Aviva’s long-term objectives, (ii) align them with the
interests of shareholders, and (iii) encourage a focus on value growth.
The current metrics of SII RoE1 (with a SII shareholder cover ratio1)
and relative Total Shareholder Return (TSR) measured against a
group of key peers remain key measures of our long-term success
and are therefore being retained.
To complement these metrics, we are proposing two changes to
ensure that the LTIP supports delivery of our strategy. The first
change is the inclusion of a new long-term cumulative cash
remittance metric to the financial element of the LTIP. The focus on
longer-term sustainable cash generation becomes fundamentally
important as we execute on our strategic priorities to focus the
portfolio and transform performance. This has been reflected in
shareholder feedback, which has emphasised the importance of
delivering on our long-term dividend ambitions whilst balancing
short term cash delivery and investment in the business to drive
sustainable growth. Cumulative cash remittances are established
performance measures for the Group and have been targeted
externally on a cumulative basis for a number of years. It is therefore
proposed, that the existing SII RoE1 financial measure be balanced by
the inclusion of cumulative cash remittances1.
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 within the Annual Report and Accounts.
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Directors’ Remuneration Report > Remuneration Committee report continued
Secondly, we believe we can make our Environmental, Sustainability
and Governance (ESG) agenda a key differentiator for Aviva. Two key
parts are our environmental and diversity and inclusion goals.
• Climate change is an existential challenge and we would like to
take a more prominent role in helping to solve these issues, for the
benefit of our customers, shareholders and society. Through our
investment strategy we can significantly influence the biggest
carbon emitters, and are putting in place a comprehensive climate
strategy, including our announcement in March 2021 that we plan
to become a Net Zero carbon emissions company by 2040
• Creating a diverse, inclusive organisation is a fundamental part of
living up to our purpose to ensure we represent the communities
we serve and make decisions that reflect their needs
To recognise the importance of getting our approach right in these
areas, for 2021 we are proposing to focus 10% of the LTIP on an ESG
agenda. This will be split across three metrics:
• % reduction in CO2 intensity of shareholders’ assets
• % of women in senior leadership roles in UK, Ireland and Canada
• % of ethnic minority employees in senior leadership roles in the UK
We are proposing to retain the flexibility of the current Policy for up
to 20% of the LTIP to be based on strategic performance metrics
although would engage with shareholders before changing the
weighting in future years.
Other changes
Additionally, we are proposing minor changes to the Policy to ensure
continued alignment with best practice and to incorporate actions
the Committee took last year.
• Pension – Formalise the current practice whereby ED provision is
aligned with that available to the majority of the UK workforce
• Shareholding requirements – To increase alignment we are
increasing the Group Chief Financial Officer (CFO)’s shareholding
requirement from 200% to 225% of salary (the Group Chief
Executive Officer (CEO)’s requirement is unchanged at 300%)
• Post-cessation shareholding requirement – EDs will be required
to hold their full shareholding requirement for two years following
cessation
• Malus and clawback provisions – Strengthen the provisions to
bring them into line with those in our internal policy
2020 Company performance
Whilst COVID-19 has disrupted a large portion of the industry, our
results demonstrate the fundamental resilience of our businesses
and demonstrate our disciplined and effective response during a
period of extreme uncertainty. We are proud of the hard work and
commitment of our colleagues during this unprecedented period,
helping ensure that we continue to provide our customers with
outstanding service and support.
Our initial response to the pandemic was one of prudence,
senior
suspending dividend payments
management salary increases in April 2020. Dividend payments were
subsequently re-instated in August and we are proud to say no UK
Aviva colleagues were furloughed or made redundant as a result of
the pandemic during the year.
and withdrawing
Nevertheless, the impact of COVID-19 is seen in a number of areas
across the business, including business interruption claims, reduced
customer activity in life businesses, lower asset values, additional
expenditure on operational readiness, and risk management
initiatives. Our financial performance has been very resilient, despite
the direct and indirect impact of COVID-19 and we made good
progress in reducing our expenses, though more needs to be done.
Remuneration outcomes for 2020
While COVID-19 caused disruption and uncertainty for our business,
no adjustments to performance metrics were made for any annual
bonus or LTIP awards during the year.
2020 Annual bonus
The Committee carefully considered Group, business unit and
individual performance during 2020 and decided that the bonus
scorecard should be capped at 100% to reflect shareholder
experience during the year and wider societal factors caused by
COVID-19.
It noted the impact of the global pandemic and the decision to
suspend the dividend in April, a decision based on prudence
following conversations with regulators, rather than a question of
affordability. Consequently, the initial formulaic outcome against the
2020 bonus scorecard prior to any adjustments was determined to
be 116.55% (out of a maximum of 200%).
The Committee conducted an extensive analysis of the quality of
earnings, noting recommendations by the Audit Committee and the
Risk Committee, and:
• Approved management’s proposal to cap the mechanical
outcome of RIT to ‘on target’ (a 9.75% reduction) as it was a more
balanced view of risk resolution across 2020. This adjusted the
bonus scorecard from 116.55% to 106.8%
• Made upward adjustments to the scorecard of 5% for employee
engagement and 5% for customer trust to recognise strong
achievements under challenging conditions
• Made a 5% downward adjustment to the scorecard for risk and
controls. This recognised that while significant improvements had
been made over the course of 2020, further work is required
This resulted in an adjusted scorecard outcome of 111.8% which has
been capped at 100%.
Since being appointed Group CEO in July 2020, Amanda Blanc has
shown strong, decisive leadership and driven numerous significant
actions in a short space of time. We have made a good start on the
new strategy and there are clear signs that we are heading in the right
direction. Jason Windsor steered the Group through the economic
challenges of 2020 taking early and proactive action and provided
critical support to the new Group CEO and Chair. Table 8 provides
further detail on individual performance.
As a result, annual bonuses for Amanda and Jason were 120% and
100% of salary respectively.
2018-20 LTIP
As a result of our performance over 2018-20, the 2018 LTIP lapsed in
full. This reflected below threshold performance against both the
adjusted operating earnings per share (EPS)1 and the relative TSR
targets.
Discretion
• Discretion was applied in determining the annual bonus outcome,
notably the decision to cap the bonus scorecard at 100% to align
with the shareholder experience
• LTIP – No discretion regarding the vesting outcome was exercised
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.
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Appointment of new Group Chief Executive Officer
Amanda was initially appointed as a NED to the Aviva plc Board in
January 2020 and subsequently appointed as Group CEO in July. She
brings her extensive insurance industry knowledge gained from a
long and successful career in the insurance sector.
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.
Taking into account our Policy and shareholder expectations, and
reflecting Amanda’s significant executive experience in the insurance
sector, the Committee determined Amanda’s remuneration as
detailed below.
• A salary of £1 million per annum
• Reimbursement of costs associated with renting suitable
accommodation in London, up to an after-tax maximum of £2,500
per month during the first 18 months of employment
• Our standard benefits package for EDs, including private family
medical insurance, life insurance, and reasonable travel benefits
• Pension allowance of 14% of salary, aligned with the rate available
to the majority of our UK workforce
• A maximum annual bonus opportunity of 200% of salary, delivered
one-third in cash and two-thirds in shares deferred over three years
• For 2021, an award under the LTIP of 300% of basic salary
• Amanda is also subject to a shareholding requirement of 300% of
salary, which will continue for two years post-cessation
Departure of Maurice Tulloch
Maurice stepped down as Group CEO with effect from 6 July 2020 in
good leaver circumstances (as determined by the Committee in its
discretion) for his outstanding awards under the Annual Bonus Plan
(ABP) and LTIP.
Maurice will be required to retain his shares held on departure for two
years following cessation of employment and is subject to post-
activity restrictions which allow the Committee to reduce or recover
awards if certain employment is taken elsewhere.
While he remained eligible for a 2020 annual bonus in respect of the
period up to and including 5 July 2020, when he left active service
with Aviva, the Committee determined, taking all factors into
account including Aviva’s performance for the first half of 2020,
shareholder experience during that period and the wider economic
context, that Maurice would not receive a 2020 annual bonus.
Shareholder consultation
In addition to the AGM and consultation with shareholders
specifically on the Policy, the Chair and EDs meet with institutional
shareholders during the year and a shareholder newsletter is
published quarterly on aviva.com. Topics raised included the
suspension of dividend, the updated dividend policy and the Policy,
which are covered elsewhere in this letter.
Committee changes during the year
In May 2020, George Culmer succeeded Sir Adrian Montague as Chair
and therefore retired from the Committee. Patrick Flynn joined the
Committee in June 2020, bringing with him significant experience in
financial services. Pippa Lambert joined the Committee in January
2021. Pippa has significant experience in global financial services as
a HR professional and has an excellent record of delivery across a
range of people strategies and transformation programmes.
Remuneration in 2021
Salary
Although 2021 salary budgets were increased by 1.5% for junior
colleagues, this did not apply to Aviva senior management. Amanda
and Jason, therefore, did not receive salary increases in 2021.
2021 Annual bonus and 2021-23 LTIP
Award opportunities for 2021 are unchanged:
Group CEO
CFO
Target opportunity
100%
100%
Annual bonus
Maximum opportunity
200%
150%
LTIP opportunity
300%
225%
The LTIP opportunities are lower than the scheme maximum which
is 350%.
Proposed changes to the performance metrics and assessment
process for both plans are outlined above. A graphical summary and
further details are shown in table 25. These changes will ensure that
the framework remains fit for purpose and best-placed to drive
performance against our key financial and non-financial goals.
is
2021 Focus areas
2021 promises to be another busy year for the Committee, the focus
of which
reviewing our workforce demographics. While
considerable efforts have been made in diversity and inclusion, we
are particularly focussed on two priorities, gender and diversity. We
are determined to keep challenging ourselves to do more to build a
workplace and society that works for all.
Conclusion
In what has been a difficult year, Aviva has responded well and
delivered resilient results against a challenging external backdrop. As
a Committee, we have sought to make decisions which effectively
drive and support this progress, while continuing to align with UK
best practice remuneration and governance expectations.
I hope that you find this report clear and informative, and that the
Committee has your support for our Policy and Annual Report on
Remuneration at our forthcoming AGM.
Patricia Cross
Chair of the Remuneration Committee
3 March 2021
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Directors’ Remuneration Report > Remuneration in context
Remuneration in context
In determining the Policy for EDs, the Committee seeks to put in
place arrangements that support the execution of our strategy and
the delivery of sustainable long-term shareholder value.
The Committee also takes into account a wide range of other factors,
including legal and regulatory requirements, shareholder guidance
and best practice, and also the views and experiences of our wider
stakeholders, including our colleagues. The following sections
provide further context.
How does the proposed Policy align with Aviva’s strategic
priorities?
The Committee firmly believes that performance measures used in
the Policy should be linked to the Group’s Key Performance
Indicators (KPIs) and other strategic priorities.
Group KPIs /
strategic
priorities
Financial KPIs focusing on economic value
Shareholder
value creation
Non-financial goals
Annual cash
remittances1
SII OFG1
Group
adjusted
operating
profit2
SII RoE1
Long-term
cumulative
cash
remittances1
SII
shareholder
cover ratio1
TSR
RIT and risk
controls
quality
Employee
engagement
Customer NPS
Carbon
emissions
reduction
Diversity and
inclusion
Annual bonus
30%
25%
15%
LTIP
22.5%
22.5%
Underpin
45%
5%
5%
15%
5%
5% RNPS
5% TNPS
Annual Bonus & LTIP metric aims
The annual bonus metrics are comprised of a balanced set of
financial and non-financial measures aligned to the key annual goals
supporting our strategy. The financial metrics underpin our dividend,
measure the value created in the period as well as our profitability,
and the non-financial metrics complement the delivery of broader
strategic goals.
The LTIP metrics support delivery of sustained performance and
value growth, aligned to our strategic priorities and the interest of
shareholders. The financial metrics measure longer term value
creation, and underpin our sustainable dividend policy.
The inclusion of a cumulative cash remittance measure emphasises
the importance of delivering on our long-term dividend ambitions
whilst balancing short term cash delivery and investment in the
business to drive long-term growth. TSR directly measures the value
we create for shareholders and the non-financial metrics will enable
Aviva take a more prominent role in society by focusing on climate
change issues and diversity and inclusion.
UK Corporate Governance Code
The Committee is mindful of the UK Corporate Governance Code’s
six principles when it determines remuneration policy.
The Committee’s view is that the framework at Aviva is well-aligned
with these areas.
Clarity
• Our remuneration framework is structured
to support the financial and strategic
objectives of the Company, aligning the
those of
interests of our EDs with
shareholders
Simplicity
• We operate a simple
remuneration
framework, comprising fixed pay elements,
along with short- and long-term variable
elements
• This structure provides clear line of sight
• We are
to
committed
transparent
communication with all our stakeholders,
including shareholders – further details of
our engagement process for the Policy are
set out under the consideration of wider
colleague pay and shareholder views
section
for both executives and shareholders
• The annual bonus and LTIP are focused,
key
rewarding performance against
measures of success for the business
Predictability
• The Policy sets out the possible future
value of remuneration which EDs could
receive, including the impact of share price
appreciation of 50% – see under the
illustration of the Policy for further details
Proportionality
• There is clear alignment between the
performance of the Company and the
rewards available to EDs
• Incentive elements are closely aligned to
our strategic goals,
transparent and
robustly assessed, with the Committee
having full discretion to adjust outcomes
to ensure they align with overall Aviva
performance
Risk
• Our
reward structure aligns with
the
Company’s risk management framework
• Long-term alignment is achieved through a
including three-year
number of means,
deferral under the annual bonus, the
two-year holding period on LTIP awards, and
our
post-employment
within-
shareholding guidelines
and
• Both plans also
incorporate
robust
performance targets, malus and clawback
provisions, and overarching Committee
discretion to adjust formulaic outcomes,
providing shareholders with comfort that
any risk events are appropriately reflected in
remuneration outcomes
Alignment to culture
• We are committed to effective stakeholder
and colleague engagement
• As part of this, the Committee regularly
reviews data relating to pay and broader
employment conditions in the workforce,
and
into account when
considering executive remuneration
these
takes
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 within 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.
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Shareholder views
In its ongoing dialogue with shareholders and proxy advisory bodies,
the Committee actively seeks their views, ensuring that feedback
received is discussed at Committee meetings, and ultimately feeds
into, and guides, development of new proposals. Shareholders were
consulted extensively during the recent Policy review, and the
Committee is grateful for their feedback and challenge.
Our colleagues’ views
The Committee has sight of colleague views on remuneration
through the colleague opinion survey (Voice of Aviva) and colleague
forums, input from the People function during Committee meetings
and the Evolution Council, chaired by the Chair. The Evolution
Council consists of a diverse group of high calibre leaders from across
the business who discuss a range of topics related to the Group
strategy and input into final decisions. When determining the Policy
and arrangements for EDs, the Committee also reviews:
• Pay and employment conditions elsewhere in the Group to ensure
levels of
reward structures are suitably aligned and that
remuneration remain appropriate as set out below table 18. Other
considerations include:
– Changes in remuneration (salary, benefits and bonus) of UK
employees with that of Directors (see table 14);
– The ratio of CEO pay to that of employees (see table 17 and 18);
– Spend on pay compared with, for example operating profit,
dividends (see table 19); and
– Gender pay gap. We released our third gender pay gap review in
January 2021, along with details of actions we are taking to drive
change and close the gap. The report can be found at
www.aviva.com/gpgr
• Any material changes to benefit and pension provision for
colleagues more widely
How we pay our colleagues
As a company, we aim to ensure all colleagues are motivated and
rewarded fairly for their performance. We work hard to recognise the
individual needs of colleagues and in this context, we are proud of
our reward, benefits and overall support offering and apply
principles consistent with how we pay our EDs:
• We aim for transparency and a fair cascade of remuneration
throughout the Group by sharing our pay ranges with our
colleagues. We decided to increase salary budgets for 2021 by 1.5%
for junior grades as we believed that allowed leaders to deliver
remuneration fairly, while balancing the need for prudence at a
time of economic uncertainty
• We regularly review our salary ranges to maintain competitiveness
to market rates, and we move everyone who may be below a band
to at least the minimum of that range each year
• We have a structured salary progression for our frontline
colleagues, providing incremental salary increases over the first
few years in role as individuals develop and gain experience. As
well as being a Living Wage employer, this demonstrates our
commitment to improving the salaries of the least well-paid people
in Aviva
• We have a market-leading benefits offering:
– Carers – We continue to provide colleagues up to 35 hours paid
leave per year to help balance caring responsibilities with work.
Over 600 UK colleagues used this scheme in 2020; and
– Parental leave – We offer up to 12 months’ parental leave in the
UK, including 26 weeks at full pay regardless of parent gender.
We are proud that 97% of new dads at Aviva took more than two
weeks’ leave, with an average of five months. We also provide
half a day’s leave when a child is starting a new school.
• Our competitive pension scheme provides an employer
contribution of 14% of salary (subject to the level of colleague
contribution)
• We ensure that colleagues can share in the success of the business,
variable
through performance-based
where appropriate,
remuneration
• UK colleagues are eligible to participate in our Aviva Savings
Related Share Option Scheme 2020 (SAYE) and All Employee Share
Ownership Plan (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
How we support our colleagues
We recognise that 2020 was clearly a difficult year in many respects;
although all our colleagues felt the impact of COVID-19 in their
personal and professional lives, they continued to provide our
customers with outstanding service and commitment. We felt that it
was important to recognise that our colleagues have gone above and
beyond for our customers during a challenging period. Therefore, in
addition to the regular annual bonus, and in direct recognition of the
impact of COVID-19, Aviva rolled out a series of initiatives to
recognise colleagues’ hard work during the challenges due to
COVID-19, including a festive thank-you voucher of £100 for UK
colleagues.
A range of tools is also available to assist our colleagues through
challenging times such as:
• DigiCare+, a smartphone app to help detect, manage and prevent
is available free to
physical and mental health problems,
colleagues
• Free access to wellbeing apps, Headspace and Thrive that help
build overall resilience
• #backtobest, a wellbeing campaign where colleagues can earn
points for doing things that are good for them, like being active or
meditating
• Flexible working available for all our people. Since the first
lockdown we have paid, and will continue to pay, all our people in
full, regardless of the hours they are able to work
We will continue to help and support our colleagues, and ensure that
they feel valued, motivated, and rewarded over the course of 2021
and beyond.
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Directors’ Remuneration Report > Directors’ Remuneration Policy
Directors’
Remuneration Policy
The proposed Remuneration Policy for directors is set out in
accordance with the requirements of the Companies Act 2006 (as
amended) and the Large & Medium Sized Companies and Groups
(Accounts and Reports) Regulations 2008 (as amended) and is
subject to shareholder approval at the 2021 AGM on 6 May 2021. If
approved, it will apply immediately, for up to three years.
The key changes between this Policy and the current Policy as
approved at the 2018 AGM are detailed below.
• LTIP – The current Policy provides for up to 20% of the LTIP to be
based on strategic performance metrics. For 2021, ESG metrics will
comprise 10% of the LTIP (we would engage with shareholders
before changing the weighting in future years)
• Pension – The Policy formalises the current position whereby ED
provision is aligned with that available to the majority of the UK
workforce (14% of salary)
• Shareholding requirements – To promote alignment we are
increasing the CFO’s shareholding requirement from 200% to 225%
of salary (the CEO’s requirement is unchanged at 300%)
• Post-employment shareholding requirements – From 2021, EDs
will have to hold their full shareholding requirement for two years
following departure
• Post-activity restrictions – Retirees are subject to post-activity
restrictions which mean LTIP and deferred bonus awards can be
reduced or recovered if certain employment is taken elsewhere
• Malus and clawback – Malus and clawback triggers have been
strengthened to include events which lead to corporate failure,
aligning the provisions with those of our internal malus and
clawback policy
Alignment of Group strategy with executive remuneration
The Committee considers that alignment between Group strategy
and the remuneration of its EDs is critical. The 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 within- and post-
employment shareholding requirements 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. Remuneration
payments to directors can only be made if they are consistent with
the approved Policy.
Table 1 below provides an overview of the Policy for EDs. For an
overview of the Policy for NEDs, see table 3.
Table 1 Key aspects of the Remuneration Policy for Executive Directors
Element
Basic salary
No changes
proposed
Annual bonus
No changes
proposed
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
Purpose
To reward EDs for achievement against the Company’s strategic
objectives and
for demonstrating the Aviva values and
behaviours.
Deferral provides alignment with shareholder interests and aids
retention of key personnel.
Operation
Awards are based on performance in the year. Targets are
normally 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 and 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.
Maximum opportunity
There is no maximum increase within the Policy. However, basic salary
increases take account of the average basic salary increase awarded to
the broader employee population. Different levels of increase may be
agreed in certain circumstances at the Committee’s discretion, such as:
• An increase in job scope and responsibility
• Development of the individual in the role
• A significant increase in the size, value or complexity of the Group
Assessment of performance
Any movement in basic salary takes account of the performance of the
individual and the Group.
Maximum opportunity
200% of basic salary for Group CEO
150% of basic salary for other EDs
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
See notes to this table.
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Element
Long-term
incentive plan
Changes
proposed
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.
Maximum opportunity
350% of basic salary.
Performance measures
Awards will vest based on a combination of financial, TSR and
strategic performance metrics. The Policy provides for a minimum
aggregate weighting of 80% for financial metrics and TSR and for up
to 20% to be based on strategic performance metrics. We would
engage with shareholders before changing metrics or weighting in
future years.
For the 2021 awards the measures and weightings will be:
• 22.5% Solvency II RoE1
• 22.5% Cumulative cash remittances1
• 45% TSR against a comparator group
• 10% ESG measures
Vesting at threshold
Threshold vesting for all metrics is 20%.
Discretion
See notes to this table.
Maximum opportunity
If suitable employee contributions are made, the Company contributes
14% of basic salary for all EDs, aligned to the rate available to the
majority of the UK workforce.
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.
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, in the light of all applicable circumstances.
Pension
Changes
proposed
Purpose
To give a market competitive level of provision for post-
retirement income.
Benefits
No changes
proposed
Relocation and
mobility
No changes
proposed
Shareholding
requirements
Changes
proposed
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.
Purpose
To assist with mobility across the Group to ensure the
appropriate talent is available to execute strategy locally.
Operation
EDs who are relocated or reassigned from one location to
another receive relevant benefits to assist them and their
dependants in moving home and settling into the new location.
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 225%
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).
Post-cessation shareholding requirements also apply to EDs
being the lower of 300% of basic salary for the Group CEO and
225% for other EDs, or the holding on termination of
employment, for two years post-cessation.
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Notes to the table:
Performance measures
For the annual bonus, performance measures are chosen to align to
the Group’s KPIs and include financial, strategic, risk, employee and
individual strategic
customer measures. Achievement against
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 is
performed 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
Financial Controller 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 Financial Controller 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 (as defined by the Board) 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;
• A scenario or event which causes material corporate failure;
• Any regulatory investigation or breach of laws, rules or codes of
conduct;
• 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) or summary
termination of employment;
• Failure to meet appropriate standards of fitness and propriety;
• A material error (as defined by the Board) in the calculation of a
financial or non-financial performance metric used to determine
the outcome of variable pay, or any other error or material
misstatement that results in overpayment to employees;
• Any circumstances determined by the Board that mean the
underlying financial health of the Group or member of the Group
has significantly deteriorated, resulting
financial
constraints which preclude or limit the ability to fund variable pay;
• Any other circumstance required by local regulatory obligations or,
in the Board’s opinion, justifies the reduction or repayment of
variable pay.
in severe
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. In relation to the outcomes
under these plans, the Committee has unfettered discretion to adjust
upward or downward (including to nil) the mechanical outcome
where it considers that:
• The outcome does not reflect the underlying financial or non-
financial performance of the participant or the Group over the
relevant period;
• The outcome is not appropriate in the context of circumstances
that were unexpected or unforeseen at the award date;
• There exists any other reason why an adjustment is appropriate;
and/or
• It is appropriate to do so, taking into account a range of factors,
including the management of risk and good governance and, in all
cases, the experience of shareholders.
Other discretions include, but are not limited to, the ability to set
additional conditions and the discretion to change or waive those
conditions. 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 date
of grant 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.
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Directors’ Remuneration Report > Directors’ Remuneration Policy continued
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 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 3,
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
indicative maximum
remuneration, assuming a notional LTIP vesting at maximum and
share price appreciation of 50% on the LTIP.
increase –
Amanda Blanc
Potential earnings
by pay element
£m
7
6
5
4
3
2
1
0
£3.7
40%
27%
33%
£1.2
100%
£6.2
48%
32%
20%
2021
Minimum
2021
Target
2021
Maximum
Jason Windsor
Potential earnings
by pay element
£7.7
58%
26%
16%
2021
Maximum
with 50%
share price
appreciation
£2.2
34%
30%
36%
2021
Target
£3.3
46%
30%
24%
2021
Maximum
£0.8
100%
2021
Minimum
£4.1
56%
25%
19%
2021
Maximum
with 50%
share price
appreciation
Fixed
Annual Bonus
LTIP
Fixed
Annual Bonus
LTIP
Notes to the charts
The charts are illustrative only and the actual value EDs could earn is subject to business performance and share price movement to the date of vesting of the LTIP and of the deferred share element of the annual bonus.
Fixed pay consists of basic salary, pension as described in table 1, 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 2021, which would vest in 2023, subject to the satisfaction of performance conditions. The shares would then be subject to a further two-year holding period.
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Other information
Directors’ Remuneration Report > Directors’ Remuneration Policy continued
Employment contracts and letters of appointment
ED employment contracts and NED letters of appointment are
available for inspection at the Company’s registered office during
normal hours of business, and at the place of the Company’s 2021
AGM on 6 May from 1.45pm until the close of the meeting.
Table 2 Executive Directors’ key conditions of employment
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.
Policy
Provision
Notice period
By the ED
By the Company
Termination
Payment
6 months.
12 months, rolling. No notice or payment in lieu of notice to be paid where the Company terminates for cause.
Pay in lieu of notice up to a maximum of 12 months’ basic salary.
Any payment is subject to phasing and mitigation requirements. An ED would be expected to mitigate the loss of office by
seeking alternative employment. Any payments in lieu of notice would be reduced, potentially to zero, by any salary received
from such employment.
The operation of the annual bonus and LTIP is at the Company’s discretion.
Reimbursement of expenses reasonably incurred in accordance with their duties.
Remuneration and
Benefits
Expenses
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
Amanda Blanc
Jason Windsor
Date current contract commenced
6 July 2020
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, and retirees are subject to post-activity restrictions which
allow the Committee to reduce or recover awards if certain
employment is taken elsewhere. 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.
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
on 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 trade union, Your Forum and the Evolution
Council to discuss remuneration; and
• In its ongoing dialogue with shareholders, the Committee seeks
shareholder views and takes them into account when any
remuneration
significant changes are being proposed
arrangements and when formulating and implementing the Policy.
to
For example, there has been detailed engagement with our largest
shareholders regarding the proposed Policy during 2020, continuing
into 2021.
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Other information
Directors’ Remuneration Report > Directors’ Remuneration Policy continued
Non-Executive Directors
The table below sets out details of our Policy for NEDs.
Table 3 Key aspects of the Policy for Non-Executive Directors
Element
Chair and NEDs’ fees
Purpose
To attract individuals with the required range of skills and
experience to serve as a Chair 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 Chair 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 Chair 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.
Maximum opportunity
The Company’s Articles of Association provide that the total
aggregate remuneration paid to the Chair 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.
Chair’s Travel Benefits
Purpose
To provide the Chair with suitable travel arrangements for him to
discharge his duties effectively.
The Chair 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.
NED Travel and
Accommodation
Purpose
for appropriate business travel and
To reimburse NEDs
accommodation, including attending Board and committee
meetings.
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 a business event, the Company will meet
these costs. The Company will meet any tax liabilities that
may arise on such expenses.
The NEDs, including the Chair of the Company, have letters of appointment which set out their duties and responsibilities. The key terms of
the appointments are set out in the table below.
Table 4 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 Chair, 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 Chair of the Company.
As set out in table 24.
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
George Culmer
Patricia Cross
Patrick Flynn
Belén Romana García
Mohit Joshi
Pippa Lambert
Jim McConville
Michael Mire
Nomination and
Governance
Customer, Conduct and
Reputation
Audit
Remuneration
Risk
Appointment date1
Appointment end date2
Committee appointments
C
✓
✓
✓
✓
✓
✓
✓
✓
C
✓
✓
C
✓
✓
✓
✓
✓
C
✓
25 September 2019
1 December 2013
16 July 2019
26 June 2015
1 December 2020
1 January 2021
1 December 2020
12 September 2013
✓
C
✓
✓
✓
AGM 2021
AGM 2021
AGM 2021
AGM 2021
AGM 2021
AGM 2021
AGM 2021
AGM 2021
Key
C Chair of Committee
✓ Committee
1 The dates shown below 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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Other information
Directors’ Remuneration Report > Annual report on remuneration
Annual report on
remuneration
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.
This section of the report sets out how Aviva has implemented its
Policy for EDs during the course of 2020. This is in accordance with
the requirements of the Large & Medium Sized Companies and
Groups (Accounts and Reports) Regulations 2008 (as amended).
During the year, Deloitte LLP were paid fees totalling £184,850 and
Tapestry Compliance Limited were paid fees totalling £17,504 for
their advice to the Committee on these matters. Fees were charged
on a time plus expenses basis.
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.
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.
Committee membership
The members of the Committee are shown below. George Culmer
joined the Committee in January 2020 and retired in May following
his appointment as Chair of the Board. Patrick Flynn joined the
Committee in June 2020.
Patricia Cross1
Michael Mire
George Culmer2
Patrick Flynn
Member Since
01/12/2013
14/05/2015
01/01/2020
15/06/2020
Years on the
Committee
7
5
1
1
1 Chair from 19 February 2014.
2 George Culmer retired from the Committee on 27 May 2020
The Committee met 12 times during 2020, of which 5 were scheduled
meetings and 7 were additional meetings outside of the normal
timetable. Details of attendance at Committee meetings are shown
in the ‘Our Board of Directors’ section and the Directors’ and
Corporate Governance report.
The Group Chair 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 CFO;
• the Group Chief People Officer;
• the Group Reward and Performance Director;
• the Chief Financial Controller;
• 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
by the Committee and appointed as their advisers 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’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
its
During 2020, the Committee undertook an evaluation of
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 2020
Governance, regulatory issues and reporting policy
• Reviewed updates from external advisers on the regulatory
environment and on benchmarking the Company’s remuneration
policies and practices against industry best practice
• Formulated and developed a new proposed Policy to be put
forward for shareholder approval at the 2021 AGM, taking into
account the views of shareholders
• Focused on the alignment of the remuneration policy with Aviva’s
overall strategy, risk culture and appropriate ESG metrics
• Engaged with key institutional shareholders on financial and non-
financial metrics for 2021 annual bonus and 2021-2023 LTIP
• Considered and agreed the remuneration packages for the
incoming CEOs, and approved associated
departing and
regulatory disclosures
• Reviewed and approved the Company’s annual remuneration
regulatory reporting and disclosures
• 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
• Agreed on the withdrawal of Executive Committee (ExCo) salary
increases following the pausing of dividend payments. Dividend
payments were subsequently reinstated
• Determined appropriate levels of discretion to be applied to EDs
and ExCo remuneration outcomes, including in response to the risk
and control environment
• Reviewed engagement with shareholders on 2020 annual bonus
targets, including customer and trust metrics as strategic progress
measures
• Discussed and approved the annual bonus targets for 2020
• Reviewed and approved the proposed individual remuneration for
each member of the ExCo in relation to their performance
• Agreed an appropriate approach to a remuneration package for
incoming and outgoing EDs and ExCo members
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Other information
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.
Directors’ Remuneration Report > Annual report on remuneration continued
• Reviewed wider workforce pay and employment conditions
elsewhere in the Group
• Reviewed the Risk and Internal Audit 2020 Performance Opinion in
relation to remuneration
Discussed and approved the overall maximum bonus pool
available to senior managers for the 2020 performance year, taking
into account metrics on culture and risk as well as on financial
performance
Share plan operation and performance testing
• Reviewed performance testing of all existing LTIP awards, and
approved targets for the 2020 LTIP awards
• Approved vesting of the 2017 LTIP and noted the interim testing for
the 2018, 2019 and 2020 awards
• Reviewed the proposed changes to future LTIP grants
• Reviewed and approved any application of malus and clawback
• Approved the terms of the SAYE and the Aviva Ireland Save as You
Earn Scheme, the Ireland Profit Share Scheme, and the invitation
terms for eligible employees
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
Terms of reference, policies and guidelines
Control and assurance
Terms of Reference
Overarching policy
Supporting policies
Internal guidelines and
non-Remuneration
Committee approved
policies (examples)
Remuneration Committee terms of reference
Sets out the Committee’s scope and responsibilities, including authorities which may
be delegated but which still retain Committee oversight
Subsidiary board remuneration committee terms of reference
Sets out the subsidiary remuneration committee’s scope and responsibilities
Global Remuneration Policy
Approved by the Committee, applies
to all employees in entities within
Aviva Group
Directors’ Remuneration Policy
Approved by the shareholders, applies to
the Directors of Aviva plc
Identification of
remuneration
regulated staff
Variable pay and risk
adjustment
(includes bonus, LTIPs, buy-out,
retention, recognition awards
and funding)
Malus and clawback
New hires
Terminations
Buyouts
Retention plans
Recognition awards
Global mobility
Remuneration
business
standard
Assurance
framework to
attest reward
operations are
conducted
within the
Global
Remuneration
Policy, Directors’
Remuneration
Policy and
supporting
policies
Reward
Approvals
Matrix
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
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Other information
Directors’ Remuneration Report > Annual report on remuneration continued
Single total figures of remuneration for 2020
The table below sets out the total remuneration for 2020 and 2019 for each of our EDs.
Table 5 Total 2020 remuneration – Executive Directors (audited information)
Basic Salary1
Benefits2
Pension3
Total Fixed Pay
Annual bonus4
LTIP5
Total Variable Pay
Total
Amanda Blanc6
Jason Windsor7
Maurice Tulloch8
Total emoluments of
Executive Directors9
Executive Directors
Former Executive Directors
2019
£000
—
—
—
—
—
—
—
—
2020
£000
675
42
83
800
675
—
675
1,475
2019
£000
177
10
22
209
178
82
260
469
2020
£000
502
470
62
1,034
—
—
—
1,034
2019
£000
946
443
138
1,527
886
384
1,270
2,797
2020
£000
1,666
590
196
2,452
1,262
—
1,262
3,714
2019
£000
1,123
453
160
1,736
1,064
466
1,530
3,266
2020
£000
489
78
51
618
587
—
587
1,205
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 and Jason this also includes benefits resulting from the UK
HMRC tax-advantaged SAYE plan, in which they participate on the same basis as all eligible employees. All numbers disclosed include the tax charged on the benefits, where applicable. Amanda’s benefits include taxable
relocation assistance (£34,000), car benefits (£26,000) and advisor fees (£12,000) in relation to legal assistance. 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 2020, a further £69,000 of this allowance was used
reflecting, ongoing residential accommodation. This is included as £132,000 in the table above, grossed-up for tax. Other benefits include: Private medical insurance (£10,000), taxable travel and subsistence (£283,000, of which
£281,000 is the grossed-up tax value of flights), car benefits (£24,000) and advisor fees (£19,000) in relation to tax assistance. Travel costs were higher than 2019, reflecting the increased cost of safe international travel during
COVID-19.
3 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.
4 Bonus payable in respect of the financial year including any deferred element at the face value at the date of award. EDs are required to defer two-thirds of any bonus awarded into Aviva shares. The deferred element is made
under the ABP and will vest in equal tranches on the first, second and third anniversary of the award date, subject to continued employment. ABP awards will be granted to EDs after the 2021 AGM so will be made under the
proposed Policy. The grant will be made using the same share price as if they were granted in March, in line with other employees.
5 For Maurice, the value of the LTIP for 2020 relates to the 2018 award, which had a three-year performance period ending 31 December 2020. 0% of the award will vest in March 2021. The LTIP amounts shown in last year’s report
in respect of the LTIPs awarded in 2017 were calculated with an assumed vesting share price of 411.20 pence. The actual share price at vesting was 268.5 pence, and the table has been updated to reflect this change. The estimated
value of the awards for the EDs was £670,000; the actual value was £466,000 (decrease of £204,000). Jason, prior to becoming an ED, was granted Restricted Stock Unit (RSU) awards. These awards do not have performance
conditions. In accordance with the regulations a pro-rated amount for 2019 is shown in respect of qualifying services during the year, using the share price at grant to determine the value of the award.
6 Amanda was appointed as Group CEO on 6 July 2020.
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 Maurice stepped down from the Board on 6 July 2020; values for 2020 relate to the period while he was an ED. Details of Maurice’s leaving arrangements and bonus are set out in the Remuneration Committee Report under the
heading Departure of Maurice Tulloch and in this Annual Report on Remuneration under Payments for loss of office (after table 12).
9 Year on year increase is primarily due to 2019 figures only reflecting part-year remuneration for Jason, although offset by nil vesting of the 2018 LTIP.
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.
Preference shares
As referenced in the Chairs’ Governance letter, in line with the comments made at the 2018 AGM, in October 2020 a committee of the board,
consisting of the Chair, senior independent NED and the Group CEO, instructed Allen & Overy LLP to conduct a review of the remuneration
decisions that had previously been taken in light of the preference shares matter. The scope of the review included a review of all relevant
documentation and discussions with key individuals involved in the decisions.
Allen & Overy’s review has concluded that the adjustments the Committee decided to apply to the relevant EDs variable remuneration, which
we announced in 2019, were reasonable in the circumstances and that these adjustments were applied after careful and thorough
consideration by the Committee. The review has also confirmed that, taking into account the FCA’s decision, there was no reasonable basis
for further adjustments to be made to the relevant EDs variable remuneration in relation to the preference shares matter. In addition, it
concluded that there was no basis for Aviva to make any adjustments to the fees of the relevant NEDs in light of the preference shares matter.
The Committee has discussed, considered and accepted the findings of the review.
Aviva plc Annual Report and Accounts 2020
106
15%
IFRS Operating
Profit1,2
25%
Cash remittances2
30%
SII OCG2
7.5%
RNPS
7.5%
TNPS
15%
RIT
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
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Directors’ Remuneration Report > Annual report on remuneration continued
2020 Annual bonus outcomes
The chart below summarises how our annual bonus operates for 2020.
Step I – Bonus scorecard
Step II – Non-financial performance modifiers
Employee
engagement
Customer trust
Risk and controls
assessment
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 and 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.
Table 6 2020 performance against bonus scorecard for Executive Directors’ bonuses (audited information)
Measure
Financial measures (70% of total)
Group adjusted operating profit1
Cash remittances2
SII OCG2
Total financial measures
Strategic measures (30% of total)
RNPS
TNPS
RIT
Total strategic measures
Scorecard outcome
Weighting
15.0%
25.0%
30.0%
70.0%
7.5%
7.5%
15.0%
30.0%
100.0%
Minimum
(50%)
Target
(100%)
Maximum
(200%)
Actual
Outcome
£2,450m
£1,825m
£1,730m
—
£2,650m
£1,975m
£1,880m
—
£2,850m
£2,125m
£2,030m
—
£3,098m
£1,500m
£1,932m
—
8
38
92.5%
—
13
41
95%
—
18
44
97%
—
11.5
44
96.3%
—
30.0%
0.0%
40.4%
70.4%
6.4%
15.0%
15.0%3
36.4%
106.8%
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 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 within the Annual Report and Accounts.
3 The Committee approved management’s proposal to cap the mechanical outcome to ‘on target’ as it considered this to be a more balanced view of risk resolution across 2020; this reduced the outcome from 24.75% to 15.0%.
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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.
Table 7 2020 non-financial modifiers relating to bonus scorecard
Modifier
Employee
Employee engagement.
Customer
Performance against trust.
Risk and controls
Aviva’s reward strategy includes specific risk and control
objectives for all employees. The aim is to help drive and
reward effective risk management and a robust control
environment across the Group.
Assessment
In 2020 our global employee opinion survey, the Voice of Aviva, showed another
solid uplift in engagement, with 80% of colleagues saying they would
recommend Aviva as a great place to work. The rise was driven by stronger belief
in the Aviva strategy (up 12 points) and greater trust in senior leaders (up seven
points). This shows colleagues are clear about how they contribute to the
business’ success.
in speed of
Feedback on Aviva’s culture shows strong
decision-making and on customer and risk-focused behaviours. Three in four
colleagues are having performance conversations quarterly or more often. This
is an important lead indicator of wider leadership behaviour – listening to,
coaching, recognising and supporting teams.
improvements
The Committee recognised employee engagement was achieved under
challenging conditions with an upward adjustment of 5%.
Customer Trust has shown robust improvement on the baseline measurement
and against the competitor benchmark where Aviva has improved from a
position that lagged competition by two points to one that now exceeds by
seven points. This reflects actions taken to improve customer outcomes, as
mirrored in RNPS and TNPS scores, and is underpinned by improvements across
the majority of businesses and in the context of a challenging 2020 trading year.
The Committee felt an upward adjustment of 5% was appropriate given the
circumstances.
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 2020, it was concluded that further
work is required to improve the overall control environment. As a result, and to
provide a clear statement of the focus on continual improvement across 2021
the Committee considered a downwards adjustment of 5% in respect of the
risks and controls non-financial performance modifier appropriate for the year.
The impact of the assessment of non-financial modifiers is shown in the table 8.
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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.
Amanda Blanc
Jason Windsor
Amanda was appointed Group CEO on 6 July 2020 having previously
been a NED of Aviva plc since 2 January 2020. Since being
appointed, Amanda has provided strong leadership across the
Group with many significant achievements:
• Establishment and implementation of a new strategy for the
Group, announced on 6 August 2020, based on three clear
priorities of focusing the portfolio, transforming performance and
improving financial strength;
• Moved at pace to focus the portfolio by focusing on the core
markets of the UK, Ireland and Canada and actively managing the
continental Europe and Asian markets for long term shareholder
value. Since 6 August the Group has completed the sale of
Singapore and Indonesia, and announced the sale of Aviva Vita
(Italy) and Vietnam which are both expected to complete in the
first half of 2021;
• Reinvigorated the senior leadership team with 7 appointments to
the Group ExCo including three external appointments; CEO UK
Life, CEO International and Chief Brand and Corporate Affairs
Officer;
• Established a new dividend policy aligned to core business of the
UK, Ireland and Canada and clearly articulated a capital
framework for excess capital deployment, both of which were
communicated on 26 November 2020;
• Delivered robust financial results, including record trading levels
across the UK business, while continuing to enhance the financial
strength of the group; and
• Led the business in a highly visible way during the COVID-19 global
pandemic; sustaining high customer service levels and enhanced
employee engagement.
Jason was appointed as CFO and as an ED in September 2019, with
2020 reflecting his first full year in role. Jason’s contribution enabled
Aviva to move forward with a new strategy, underpinned by a robust
financial performance, through a challenging year. Notable
achievements included:
• Strong visible and engaging
leadership across the Group
throughout the COVID-19 global pandemic particularly during the
first half of the year, including chairing the Group Operational Risk
Committee;
• Providing critical transitional support to the new Group CEO and
Chair ensuring continuity during these changes;
• Developing, communicating and implementing the new Group
strategy with the Group CEO. He has established detailed plans
across the business, and driven significant M&A activity completing
the sales of Singapore and Indonesia, and announcing the sales of
Aviva Vita (Italy) and Vietnam;
• The Group SII shareholder cover ratio1 remained well above the
target range in 2020 despite market and economic volatility due to
early and proactive action and the financial performance was
robust, with SII OCG1 and Group adjusted operating profit2 being
ahead of plans and cash remittances1 to centre being robust at
£1.5 billion;
• Delivery of £180 million of cumulative efficiency savings, ahead of
plan, despite incremental expenditure on IT to allow our colleagues
to work remotely during COVID-19;
• Design and implementation of the dividend policy and capital
framework aligned to the new Group strategy; and
• Improvements to the risk and control environment throughout
2020, including taking personal accountability to address the
impacts of changes to the French life model.
The Committee carefully considered the individual performance of each ED. Details of the individual adjustments are reflected in table 8.
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 within 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.
Table 8 2020 bonus outcomes for Executive Directors1
Bonus scorecard (0% – 200%)
Non-financial modifiers
Sub-total (pre-discretion)
Committee discretion
Sub total
Individual adjustment
Final outcome
Target opportunity
Maximum opportunity for 20202
Final bonus outcomes
% of salary3
% of maximum
£ amount4
Amanda Blanc
Jason Windsor
106.8%
5%
111.8%
(11.8%)
100%
20%
120%
106.8%
5%
111.8%
(11.8%)
100%
0%
100%
100% of salary 100% of salary
200% of salary 150% of salary
120%
60%
£586,956
100%
67%
£675,000
1 Commentary regarding the bonus outcome for Maurice is provided in the Payments for loss of office section.
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 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.
4 This outcome is pro-rated to reflect the time served as Group CEO.
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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, although the Committee is of the view that these outcomes appropriately reflect the overall performance of
Aviva during the year, the outturn (before any individual adjustments) should be capped at 100% to align with the experience of shareholders
and reflect wider societal factors caused by the global pandemic.
2018 LTIP vesting in respect of performance period 2018-2020
The Operating EPS1 and TSR2 outcome for the 2018 LTIP are detailed in the table below. 0% of the award will vest in March 2021. No discretion
regarding the vesting outcome of the 2018 LTIP was exercised by the Committee.
Table 9 2018 LTIP award – performance conditions
Operating EPS1
Relative TSR2 Performance
Weighting
Threshold
(10% vest)
Maximum
(100% vest)
50% 4.0% p.a.
50%
10.0% p.a.
Median Upper quintile and above
Outcome
3.7%
10.5/14
Vesting
(% of
maximum)
0%
0%
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 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 – 2020 remuneration decisions
The Committee discussed those items that impacted the overall results in 2020 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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Table 10 Awards granted during the year (audited information)
Share and option awards granted to EDs during the year are set out below.
Amanda Blanc
Jason Windsor
Former Directors3
Maurice Tulloch
Date of Award
06 Aug 2020
23 Mar 2020
23 Mar 2020
Award
Type1
LTIP
LTIP
ABP
Face Value
(% of basic
salary)2
147%
225%
43%
Face Value
(£)2
£1,470,000
£1,518,750
£292,396
23 Mar 2020
23 Mar 2020
LTIP
ABP
300%
61%
£2,925,000
£590,875
Threshold
Performance
(% of face
value)
Maximum
Performance
(% of face
value)
End of
performance period
End of vesting/
holding period
20%
20%
N/A
20%
N/A
100%
100%
31 Dec 2022
31 Dec 2022
100%
31 Dec 2022
23 Mar 2025
23 Mar 2025
23 Mar 2023
23 Mar 2025
23 Mar 2023
1 ABP and LTIP awards have been granted as conditional share awards. The LTIP is a conditional right to receive shares which vest at the end of a three-year performance period, with an additional two-year holding period. ABP
represents the portion of the 2019 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.
2 Face value for the awards granted on 23 March 2020 and 6 August 2020 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 229.00 pence.
3 Maurice stepped down from the Board on 6 July 2020.
At the point the 2020 LTIP awards were due to be made in March 2020, the impact of COVID-19 was causing significant volatility in the wider
market and the Aviva share price. As it was not clear when more normal conditions would resume, the Committee decided to grant the 2020
LTIP award at the normal opportunity for our EDs, but committed to review the outcome at vesting to determine whether there had been
windfall gains as a result of the award being made at an artificially depressed share price. The award documentation was drafted to provide
the Committee with the discretion to make an adjustment should it be considered appropriate.
We recognise the wish from shareholders and proxy advisory bodies for companies to be clear about how the use of discretion would be
assessed and exercised in practice. For these purposes, the Committee has agreed that factors to be considered in making the assessment
will include:
• The relationship between the 2020 grant price and those used in previous years, and the resultant impact on the number of shares under
award;
• The extent to which COVID-19 continues to have an impact on market valuations and volatility.
• An analysis of share price performance prior to and following grant, with a focus on:
– Performance vs. the broader market;
– Performance vs. other Insurance firms; and
– Share price growth over the 2020 LTIP performance period vs. that for prior LTIP awards.
• Broader performance context, including financial and non-financial results, and progress against strategic and operational priorities.
Full details of the outcome of the assessment will be provided in our 2022 DRR.
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 within the Annual Report and Accounts.
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Solvency II RoE1 targets for awards made in 2020
Solvency II RoE1 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 2020 targets are provided below.
Table 11 2020 LTIP SII RoE1 targets (audited information)
Achievement of SII RoE1 targets over the three-year performance period
Percentage of shares in award that vests based on achievement of SII RoE1 targets
Less than 11.0%
11.0%
Between 11.0% and 13.0%
13% and above
0%
10%
Pro-rata between 10% and 50% on a straight line basis
50%
Any vesting of the SII RoE1 element of the LTIP is subject to a SII shareholder cover ratio1 that meets or exceeds the minimum of the stated
working range (in 2020, this was 160% to 180% and remains the target as announced in the Q3 operating update).
TSR targets for awards made in 2020
Relative TSR performance determines the vesting of the other 50% of the LTIP award. For the 2020 grant, Aviva’s TSR performance will be
assessed against that of the following companies: Aegon, Allianz, Assicurazioni Generali, AXA, Direct Line Group, Intact, Legal & General, Lloyds
Banking Group, M&G, Phoenix, RSA, Standard Life Aberdeen and Zurich Insurance.
The performance period for the TSR performance condition is the three years beginning 1 January 2020. 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.
Table 12 TSR vesting schedule for the 2020 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)
Glyn Barker retired from the Board as a NED on 31 December 2019. In 2020 he received a retirement gift with a grossed up value of £5,345.
Payments for loss of office (audited information)
We announced on 6 July 2020 Maurice Tulloch would step down as Group CEO and retire as a Director of the Company with immediate effect.
• Maurice was placed on garden leave from 6 July 2020 until the end of his six-month notice period on 5 January 2021. During this period, he
continued to receive his contractual salary and benefits. For the period 6 July to 5 January 2021 these totalled £574,311
• The Committee exercised its discretion to treat Maurice as a good leaver under the ABP and LTIP by reason of his retirement
– Maurice’s outstanding deferred share awards under ABP will continue to vest on the normal vesting dates
– Maurice’s 2018, 2019 and 2020 LTIP awards will continue to vest, pro-rated for the time from the date of grant to his leave date and
subject to satisfaction of the relevant performance conditions. The two-year holding period will continue to apply
– All outstanding awards under the ABP and LTIP will remain subject to malus and clawback
• Maurice will be required to retain the necessary amount of shares from departure for two years following cessation of employment, in line
with the Employment Shareholding Policy and is subject to post-activity restrictions which allow the Committee to reduce or recover
awards if certain employment is taken elsewhere
• While Maurice remained eligible for a 2020 annual bonus in respect of the period up to and including 5 July 2020, when he left active service
with Aviva, the Committee determined, taking all factors into account including Aviva’s performance for the first half of 2020, shareholder
experience during that period and the wider economic context, that Maurice would not receive a 2020 annual bonus
• In line with the Policy, Maurice was entitled to a capped contribution of £10,000 (excluding VAT) towards legal fees incurred in connection
with his departure. In addition, assistance with filing tax returns in the UK and Canada with an appropriately qualified tax advisor will be
provided to ensure Maurice’s and the Company’s compliance requirements for trailing income are met. The total value of this benefit is
anticipated to be £39,562
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 within the Annual Report and Accounts.
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Table 13 Total 2020 remuneration for Non-Executive Directors (audited information)
The table below sets out the total remuneration earned by each NED who served during 2020 for Group-related activities.
Chair
George Culmer2
NEDs
Patricia Cross
Patrick Flynn
Belén Romana García
Mohit Joshi3
Jim McConville3
Michael Mire
Former Chair4
Sir Adrian Montague
Former NED5
Amanda Blanc
2020
£000
392
141
171
165
9
15
128
229
68
Fees
2019
£000
29
128
55
139
—
—
118
550
—
Total emoluments of NEDs
1,318
1,019
Benefits1
2019
£000
2020
£000
5
—
2
8
—
—
1
36
1
53
2
—
2
15
—
—
3
88
—
110
Aviva plc total
Subsidiaries fees
Group total
2020
£000
2019
£000
2020
£000
397
141
173
173
9
15
129
265
69
2019
£000
31
128
57
154
—
—
121
638
—
2020
£000
397
201
173
217
9
15
129
265
69
2019
£000
31
188
57
198
—
—
121
638
—
1,475
1,233
—
60
—
44
—
—
—
—
—
104
—
60
—
44
—
—
—
—
—
1,371
1,129
104
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 George Culmer was appointed as Chair on 27 May 2020 after being on the Board since 25 September 2019.
3 Mohit and Jim were appointed to the Board 1 December 2020.
4 Sir Adrian retired from the Board on 31 May 2020.
5 Amanda retired from the Board as a NED on 5 July 2020. Amanda was subsequently appointed as Group CEO on 6 July 2020.
The Aviva plc total amount paid to NEDs in 2020 was £1,371,000 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:
• Patricia Cross received an additional fee of £60,000 (2019: £60,000) in respect of her duties as Senior Independent Director of Aviva Investors
Holdings Limited. Patricia subsequently stepped down on 31 December 2020
• Belén Romana García received an additional fee of €49,538 (2019: €50,000) in respect of her duties as a Board member of Aviva Italia Holding
S.p.A., and as a committee member of the Audit and Risk Committees. Belén subsequently stepped down on 17 December 2020
Percentage change in remuneration of the Directors
The table below sets out the increase in the basic salary, bonus and benefits of each of the Directors 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.
Table 14 Percentage change in remuneration of the Directors
% change in salary/ fees 2019-2020
% change in bonus 2019-2020
% change in benefits 2019-20206
Group CEO1
Amanda Blanc
Maurice Tulloch
CFO1
Jason Windsor
Chair1
George Culmer
Sir Adrian Montague
Non-Executive Directors2
Patricia Cross
Patrick Flynn1, 3
Belén Romana García
Mohit Joshi4
Jim McConville4
Michael Mire
All UK-based employees5
—
0.0%
0.0%
263.6%
0.0%
10.4%
44.8%
18.9%
—
—
9.6%
3.3%
—
(100)%
(0.6)%
—
—
—
—
—
—
—
—
0.5%
—
44.6%
11.1%
(26.3)%
0.0%
—
(39.4)%
(47.9)%
—
—
(82.8)%
10.7%
1 Salary, annual bonus and benefit amounts for the EDs, Chair and Patrick have been annualised where applicable to reflect what they would have been over a full 12-month period to aid comparison. The increase in benefits for
EDs reflects relocation and taxable travel and subsistence. The increase in George’s fees is a result of his appointment as Chair on 27 May 2020.
2 The increase in fee levels for NEDs are mainly driven by increases in fees effective July 2020, as set out in table 24.
3 Patrick was appointed as Senior Independent Director of Aviva plc and a Remuneration Committee member on 15 June and 7 September 2020 respectively.
4 Mohit and Jim were appointed to the Board 1 December 2020 therefore no comparison available.
5 The increase in benefits for UK based employees has been mainly driven by the increase in the cost of private medical insurance. Without this, benefits would have increased by 2.3%.
6 The reduction in benefits for NEDs compared to 2019 is largely reflective of reduced taxable travel and subsistence costs due to COVID-19.
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Historical TSR performance and Group CEO remuneration outcomes
Table 15 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 12.
Table 15 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
300
250
200
150
100
50
0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
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.
Table 16 Historical Group CEO remuneration outcomes
Group CEO
Amanda Blanc1
Maurice Tulloch2
Mark Wilson3
Andrew Moss4
Amanda Blanc
Maurice Tulloch
Mark Wilson
Andrew Moss
Amanda Blanc
Maurice Tulloch
Mark Wilson
Andrew Moss
Annual bonus payout
(as a % of maximum
opportunity)
LTIP vesting
(as a % of maximum
opportunity)
Group CEO single figure
of remuneration
(£000)
2011
2012
2013
2014
2015
2016
2017
2018
—
—
—
81.0%
—
—
—
81.7%
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
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
3,477
554
—
—
—
—
—
—
2019
—
48.1%
—
—
—
50.0%
—
—
—
2,352
—
—
2020
60%
0%
—
—
—
0%
—
—
1,205
1,030
—
—
1 Amanda was appointed Group CEO on 6 July 2020.
2 Maurice was appointed Group CEO on 4 March 2019. Maurice stepped down as Group CEO and retired from the Board on 6 July 2020.
3 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.
4 Andrew resigned from the Board with effect from 8 May 2012 and left the Company on 31 May 2012.
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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.
Table 17 CEO Pay ratio table
Year
2020
2019
Method
Option A
Option A
P25 (lower
quartile)
80:1
90:1
P50(median)
56:1
63:1
P75 (upper
quartile)
34:1
37:1
We would highlight the following in terms of the approach taken.
• In calculating the Group CEO data for 2020, we have aggregated the amount shown in the single figure table of £1,029,794 for Maurice in
respect of his services as Group CEO from 1 January to 5 July and the amount shown in the single figure table of £1,204,967 for Amanda in
respect of her services from 6 July to 31 December 2020
• Similar to prior years, we have provided an additional ratio below, calculated on a full-year basis using total target remuneration due to
changes in Group CEO during the year
• In 2019, the single figure for Maurice was aggregated with the pro-rata fees for Sir Adrian 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 shareholder 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 decrease in the ratio reflects the fact that:
• 2020 remuneration outcomes for the Group CEO include a lower aggregate bonus figure than 2019 and nil LTIP vesting, compared to 50%
in 2019
• Although offset by the role of Group CEO being occupied by an ED for all of 2020, compared with an Executive Chairman and an ED in 2019
Whilst the CEO pay ratio has decreased, the salary and total remuneration for each quartile employee has also remained broadly flat
(although median salary has increased 2.7% and median total compensation increased 2.3%).
Table 18 provides further information on the total remuneration figure for each quartile employee, and the salary component within this.
Table 18 Salary and total remuneration used in the CEO pay ratio calculations
Year
2020
Pay element
Salary
P25 (lower
quartile)
P50 (median)
P75 (upper
quartile)
£22,922
£32,457
£51,229
Total remuneration
£27,677
£39,773
£66,209
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 2020 was an unusual year for Aviva resulting in a Group CEO pay ratio which is likely to be lower than
we might typically expect. Shareholders may find it helpful to consider what the ratio might have been in a more normal year, recognising
that the ratio may well vary significantly from year-to-year. Specifically, we have considered the ratio if Amanda had been employed for the
full year 2020 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).
Year
2020 (illustrative based on a notional ‘target’ package)
P25 (lower
quartile)
135:1
P50 (median)
P75 (upper
quartile)
94:1
57:1
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
• 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
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Relative importance of spend on pay
Table 19 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.
Table 19 Relative importance of spend on pay
Group adjusted operating profit1
Dividends paid2
Share buy-backs
Total staff costs3
2019
£m
3,184
1,184
—
1,944
2020
£m
3,161
236
—
1,857
%
change between
2019 – 2020
(1)%
(80)%
—
(5)%
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 29,079 (2020) and 30,189 (2019).
Statement of directors’ shareholdings and share interests
EDs share ownership requirements
Under our Employment Shareholding Policy applicable to 2020, 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. The post-cessation guideline is 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
• EDs are required to retain shares vesting from incentive plans within the Company-sponsored nominee account, and are not permitted to
transfer them e.g. into their own brokerage accounts, unless otherwise agreed by the Committee. In this manner, the Committee is able to
retain oversight of the shares and is comfortable that this provides it with the ability to enforce the post-cessation guidelines in practice
Table 20 Executive directors – share ownership requirement (audited information)
Executive Directors
Amanda Blanc
Jason Windsor
Maurice Tulloch
Unvested and
subject to
performance
conditions2
641,921
663,209
2,282,929
Shares held
Unvested and
subject to
continued
employment3
—
317,302
431,698
Unvested and
subject to
continued
employment4
Options held
Vested but
not exercised
6,338
6,338
—
—
Owned outright1
352,226
495,587
625,001
Shareholding
requirement
(% of salary)
Current
shareholding5
(% of salary)
Requirement
met
300
200
300
115%
239%
208%
No
Yes
No
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 22.
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 2020 of 325.2 pence. The closing middle-market price of an ordinary share of the Company during the year ranged from
211 pence to 423.6 pence.
There were no changes to the EDs interests in Aviva shares during the period 1 January 2021 to 3 March 2021.
Table 21 Non-Executive Directors’ shareholdings1 (audited information)
George Culmer
Patricia Cross
Patrick Flynn
Belén Romana García
Mohit Joshi
Jim McConville
Michael Mire
Former Chair2
Sir Adrian Montague
Former NEDs3
Amanda Blanc
1 January
2020
31,276
30,574
—
10,223
—
—
50,000
31 December
2020
31,276
31,192
—
19,418
—
—
50,000
58,553
58,553
—
—
1 This information includes holdings of any connected persons.
2 Sir Adrian retired from the Board on 31 May 2020.
3 Amanda retired from the Board as a NED on 5 July 2020. Amanda was subsequently appointed as Group CEO on 6 July 2020.
There were changes to the NEDs interests in Aviva shares during the period 1 January 2021 to 3 March 2021. Belén Romana García acquired
a further 351 shares and Mohit Joshi acquired 7,618 shares. There have been no further changes.
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Share awards and share options
Details of the EDs who were in office for any part of the 2020 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 22. 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 5, 10 and 21 (and SAYE options are included in table 22). More information around HMRC tax-
advantaged plans can also be found in note 34. EDs are restricted from entering into any form of hedging arrangement or remuneration and
liability-related insurance policies which might undermine the risk alignment features of share awards (such as delivery in shares,
performance conditions, malus and clawback provisions).
Table 22 LTIP, ABP and options over Aviva shares (audited information)
At
1January 2020
(number)
Options/awards
granted during year1
(number)
Options/awards
exercised/vesting
during year
(number)
Options/awards
lapsing during year
(number)
At
31 December 2020
(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
Amanda Blanc
LTIP3,4
2020
Jason Windsor
LTIP
20175
20185
20195
20203,4
ABP
2017
2018
2019
2020
SAYE7
2019
Maurice Tulloch6
LTIP3,4
2017
2018
2019
2020
ABP
2017
2018
2019
2020
SAYE7
2019
—
641,921
—
—
641,921
297.50
77,358
83,333
73,634
—
9,361
22,222
32,310
—
6,338
286,091
310,863
694,774
—
85,564
110,529
94,717
—
—
—
—
663,209
—
—
—
127,684
92,8708
—
—
—
11,2388
12,6608
11,5978
—
0
—
—
—
—
1,277,292
—
—
—
258,024
171,7298
—
—
—
102,7228
—
33,9968
—
6,338
—
—
—
—
—
—
—
—
—
—
—
—
83,333
73,634
663,209
—
11,111
21,540
127,684
523.00
494.10
409.00
211.00
523.00
494.10
409.00
211.00
6,338
—
143,046
—
—
—
—
—
—
—
—
—
310,863
694,774
1,277,292
—
110,529
63,145
258,024
523.00
542.60
409.00
211.00
523.00
494.10
409.00
211.00
6,338
—
—
—
—
—
—
—
—
—
—
—
284.00
—
—
—
—
—
—
—
—
—
—
284.00
—
Mar-23
268.50
—
—
—
268.50
—
—
—
Mar-20
Mar-21
Mar-22
Mar-23
Mar-20
Mar-21
Mar-22
Mar-23
— Dec-22 – May-23
268.50
—
—
—
268.50
—
—
—
Mar-20
Mar-21
Mar-22
Mar-23
Mar-20
Mar-21
Mar-22
Mar-23
— Dec-22 – May-23
1 The aggregate net value of share awards granted to the EDs in the period was £6.8 million (2019: £8.0 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 2017: 530 pence, 2018: 504 pence
2019: 421 pence and 2020 229 pence.
3 For the 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. For the 2020 LTIP, the TSR comparator group is: Aegon, Allianz, Assicurazioni Generali, Axa, Direct Line Group, Intact, Legal
& General, Lloyds Banking Group, M&G, Phoenix, 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 Maurice stepped down from the Board on 6 July 2020. The LTIP awards will be time prorated to reflect the number of days worked from the date of grant to the final date of service.
7 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.
8 The shares comprised in these vested awards include shares issued in lieu of dividends accrued during the deferral period.
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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 2020.
Governance Regulatory Remuneration Code
Aviva Investors and two small ‘firms’ (as defined by the FCA) within the UK Life 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 2020 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 2020 AGM in respect of the 2019 Directors’ Remuneration report is set out in table 23.
The Committee was pleased with the level of support received from shareholders for the resolution.
Table 23 Results of votes at 2020 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%
95.84%
Against
2.87%
4.16%
For
Against
Votes withheld
2,809,661,298
2,426,163,368
83,164,398
105,081,885
3,970,718
2,308,589
Approach to NED fees for 2021
NED fees are reviewed annually and the Committee Chair and membership fees were increased with effect from 1 July 2020, the first such
increase since 1 April 2014. This recognised the increased time commitment and regulatory burden for NEDs over the past six years, and to
maintain competitiveness within the financial services sector.
Table 24 Non-Executive Directors’ fees
Role
Chair of the Company1
Board membership fee
Additional fees are paid as follows:
Senior Independent Director
Committee Chair (inclusive of committee membership fee):
• Audit
• Customer, Conduct and Reputation
• Remuneration
• Risk
Committee membership:
• Audit
• Customer, Conduct and Reputation
• Nomination and Governance
• Remuneration
• Risk
1
Inclusive of Board membership fee and any committee membership fees, and committee chair of the Nomination and Governance Committee.
Fee from
1 January 2021
Fee from
1 January 2020
£550,000
£75,000
£550,000
£75,000
£35,000
£35,000
£55,000
£40,000
£40,000
£55,000
£20,000
£15,000
£10,000
£15,000
£20,000
£45,000
£35,000
£35,000
£45,000
£15,000
£12,500
£7,500
£12,500
£15,000
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Directors’ Remuneration Report > Annual report on remuneration continued
Table 25 Implementation of Policy in 2021
Subject to the approval of the Policy at the 2021 AGM, its implementation will be consistent with that outlined in table 1.
2021
2022
2023
2024
2025
2026
1/3rd paid
in cash
2/3rd deferred into shares vesting in
three equal tranches over three years
Released
after 1 year
Released
after 2 years
Released
after 3 years
Key Element
Phasing
Salary1
Bonus2
LTIP
2 year holding period
Award
released
Implementation in 2021
• Group CEO – £1,000,000 per annum
• CFO – £675,000 per annum
• Group CEO – 200% of salary
• CFO – 150% of salary
• One-year performance assessed against financial and non-financial
performance measures
• The SII OCG4 measure has been replaced by SII OFG4 and in respect of the
non-financial measures, the modifiers have been removed and a formal
employee engagement measure has been incorporated into the framework:
– Financial measures (70% of total)
• 15% – Group adjusted operating profit3
• 30% – Annual cash remittances4
• 25% – SII OFG4
– Non-financial strategic measures (30% of total)
• 5% – RNPS
• 5% – TNPS
• 5% – Employee Engagement
• 15% – RIT and risk controls quality, with an adjustment process to
capture any wider considerations
• A quality of earnings assessment will be undertaken by the Committee to
provide assurance that bonus payouts appropriately reflect underlying
performance and the shareholder experience
• The Committee have reviewed performance targets attached to the awards and
are comfortable they are stretching and deliver appropriate payout levels
• Personal performance during the year will be taken into account
• Group CEO – 300% of salary
• CFO – 225% of salary
• Performance assessed over three years against financial and non-
financial performance measures
• Financial metrics aim to balance longer-term value creation (SII RoE4)
and medium-term dividend coverage (cumulative cash remittances)
Performance measures
• 22.5% – SII ROE4 subject to a SII shareholder cover ratio4
• 22.5% – Cumulative cash remittances4, subject to a SII shareholder
cover ratio4
• 45% – relative TSR against a comparator group5
• 10% – Environmental and diversity and inclusion measures
For the 2021 awards, the SII shareholder cover ratio4 is to meet or exceed the
minimum of the stated working range (currently 160% to 180%).
Target
Vesting Levels for all metrics
Metric
SII RoE 4
Cumulative cash remittances 4
TSR 5
Environmental
Reduction in CO2 intensity of shareholders' assets
Diversity and Inclusion
Females in senior leadership roles 6
Ethnic minority employees in senior leadership roles 7
Weighting
22.5%
22.5%
45%
Threshold
9%
£5.1bn
Median
Maximum
11%
£5.6bn
Upper Quintile
5%
2.5%
2.5%
10%
36%
7.5%
15%
40%
12.5%
Outturn
Below Threshold
Threshold
Between threshold
and maximum
Above maximum
Vesting Level
0%
20%
20-100% straight line
100%
Share Ownership guidelines
• Group CEO – 300% of salary Other EDs – 225%
• To be built up over a period not exceeding 5 years
• Post-cessation shareholding requirements also apply to EDs being the guideline or the holding on termination of employment, for two years post-cessation.
1 No changes in salary in 2021.
2 The target ranges are considered by the Board to be commercially sensitive and disclosure of these would put the Company at a disadvantage compared to its competitors. Target ranges will be disclosed in the 2021 DRR.
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 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 within the Annual Report and Accounts.
5 2021 LTIP Comparator Group: Aegon, Allianz, Assicurazioni Generali, Axa, Direct Line Group, Intact, Legal & General, Lloyds Banking Group, M&G, Phoenix, Zurich Insurance Group. LTIP awards will be granted to EDs after the 2021
AGM so will be made under the proposed Policy. The grant will be made using the same share price as if they were granted in March, in line with other employees.
6 Senior leadership in the UK, Ireland, Canada and Group Functions.
7 Senior leadership in the UK.
Approval by the Board
This Directors’ Remuneration report was reviewed and approved by the Board on 3 March 2021.
Patricia Cross
Chair, Remuneration Committee
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IFRS financial statements
Other information
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
4
5
6
7
8
9
Changes to comparative amounts
Significant events in the current reporting period
Exchange rates
Strategic transactions
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
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
121
130
144
144
145
146
148
149
150
151
151
152
152
156
161
162
163
163
164
166
166
167
168
169
171
171
173
174
175
176
177
177
178
185
186
187
189
192
192
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
193
Pension surpluses, other assets, prepayments and
accrued income
194
Assets held to cover linked liabilities
194
Ordinary share capital
194
Group’s share plans
196
Treasury shares
197
Preference share capital
197
Direct capital instrument and tier 1 notes
198
Currency translation and other reserves
198
Retained earnings
199
Non-controlling interests
199
Contract liabilities and associated reinsurance
Insurance liabilities
201
Insurance liabilities methodology and assumptions 206
209
Liability for investment contracts
211
Financial guarantees and options
212
Reinsurance assets
214
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 agreements and similar
arrangements
Related party transactions
Organisational structure
Related undertakings
Subsequent events
215
215
216
217
223
226
227
227
228
228
230
231
245
246
248
249
250
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
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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 2020 and of the Group’s profit, the
Company’s loss and the Group’s and Company’s cash flows for the year then ended;
• have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies
Act 2006; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
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 2020;
• 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 financial statements; and
• the notes to the financial statements, which includes other explanatory information.
Our opinion is consistent with our reporting to the Audit Committee.
Separate opinion in relation to international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies
in the European Union
As explained in note the accounting policies to the Group financial statements, the Group, in addition to applying international accounting
standards in conformity with the requirements of the Companies Act 2006, has also applied international financial reporting standards
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.
In our opinion, the Group financial statements have been properly prepared in accordance with international financial reporting standards
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.
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.
Other than those disclosed in note 13 to the financial statements, we have provided no non-audit services to the Group in the period under
audit.
Our audit approach
Overview
In addition to forming this opinion, in this report we have also provided information on how we approached the audit, how it has changed
from the previous year and details of the significant discussions that we had with the Audit Committee.
COVID-19 has meant that substantially all of our interactions were undertaken virtually, including those between engagement teams, with
our component audit teams and Aviva board members, management and staff.
Audit scope
• Our audit scope has been determined to provide coverage of all material financial statement line items.
• We have performed audit procedures that have assessed the extent of the impact of COVID-19, in particular on the valuation of insurance
contract liabilities, the Group’s ability to continue meeting regulatory solvency capital requirements, and the Group’s financial
performance, as well the ability of the Group to continue as a going concern.
Key audit matters
• Valuation of life insurance contract liabilities (Group)
– Annuitant mortality assumptions (Group)
– Credit default assumptions for illiquid assets, specifically: commercial mortgages and equity release mortgages (Group)
– Expense assumptions (Group)
• Valuation of non-life insurance contract liabilities (Group)
• Valuation for hard to value investments (Group)
• Risk of error arising from the implementation of new Bulk Purchase Annuities ("BPA") actuarial model (Group)
• Impact of COVID-19 (Group and Company)
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Materiality
• Overall Group materiality: £157,900,000 (2019: £158,000,000) based on 5% of three-year average of the Group adjusted operating profit
before tax attributable to shareholders’ profits.
• Overall Company materiality: £61,250,000 (2019: £47,800,000) based on 0.5% of net assets.
• Performance materiality: £118,425,000 (Group) and £45,937,500 (Company).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In
particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that
involved making assumptions and considering future events that are inherently uncertain.
Capability of the audit in detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined in the Auditors’ responsibilities for the audit of the financial statements section, to detect material misstatements
in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is
detailed below.
Based on our understanding of the group and industry, we identified that the principal risks of non-compliance with laws and regulations
related to breaches of UK and European regulatory principles, such as those governed by the Prudential Regulation Authority and the
Financial Conduct Authority, and we considered the extent to which non-compliance might have a material effect on the financial statements.
We also considered those laws and regulations that have a direct impact on the preparation of the financial statements such as the
Companies Act 2006. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements
(including the risk of override of controls), and determined that the principal risks were related to management bias in accounting estimates
and judgmental areas of the financial statements as shown in our “Key Audit Matters”. The Group engagement team shared this risk
assessment with the component auditors so that they could include appropriate audit procedures in response to such risks in their work.
Audit procedures performed by the Group engagement team and/or component auditors included:
• Discussions with the Board, management, Internal Audit, senior management involved in the Risk and Compliance functions and 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;
• Meeting with the Prudential Regulation Authority (“PRA”) periodically and reading key correspondence with the PRA 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, Audit, Remuneration and Disclosure Committees;
• Identifying and testing journal entries based on risk criteria;
• Designing audit procedures to incorporate unpredictability around the nature, timing or extent of our testing;
• Testing transactions entered into outside of the normal course of the Group and Company’s business;
• Reviewing the Group’s register of litigation and claims, Internal Audit reports, and Compliance reports in so far as they related to non-
compliance with laws and regulations and fraud; and
• Attendance at Audit and Risk Committee meetings
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance
with laws and regulations that are not closely related to events and transactions reflected in the financial statements. 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.
The risk of error arising from the implementation of new BPA actuarial model and the impact of COVID-19 are new key audit matters this year.
Valuation of specific UK Life provisions, which was a key audit matter last year, is no longer included because of the reduction in the
magnitude and related uncertainty of the provisions held in relation to product governance as a result of the progress made to determine
and settle amounts due. Otherwise, the key audit matters below are consistent with last year.
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Key audit matter
How our audit addressed the key audit matter
Valuation of life insurance contract liabilities (Group)
Refer to the Audit Committees’ report, Accounting policy (L) Insurance and participating investment contract liabilities – Long-term business provisions and note 42 Insurance liabilities (b) Long-term business liabilities.
For UK Life insurance contract liabilities, the Directors’ valuation of the
provisions for the settlement of future claims, involves complex and
subjective judgements about future events, both internal and external
to the business, for which small changes in assumptions can result in
material impacts to the valuation of these liabilities.
The work to address the valuation of the life insurance contract
liabilities included the following procedures:
• Understood and evaluated the process and controls in place to
determine the insurance contract liabilities;
• Tested the design and operating effectiveness of controls in place
over insurance contract liabilities, including those covering the
approval of assumptions and completeness and accuracy of data
used;
• Using our actuarial specialist team members, applied industry
knowledge and experience and compared the methodology,
models and assumptions used against recognised actuarial
practices. This included consideration of the reasonableness of
assumptions against actual historical experience and the
appropriateness of any judgements applied;
• Tested the key judgements over the preparation of the liabilities,
including manually calculated components focussing on the
consistency in treatment and methodology period-on-period
and with reference to recognised actuarial practice;
• 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
• Assessed the disclosures in the financial statements.
As part of our consideration of the entire set of assumptions, we
focused particularly on annuitant mortality, credit default for
illiquid assets 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.
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 42 Insurance liabilities methodology and assumptions (b) Long-term business
liabilities.
Annuitant mortality assumptions used to value insurance contract
liabilities for 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 the external Continuous Mortality Investigation
(CMI) tables for individual annuities and Club Vita 3 (CV3) tables for
BPA, 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 uncertainty over how life expectancy will change in the
future and the lack of available data to support judgements made in
respect of this
Management have adopted the most recent CMI 2019 model and
dataset in setting this assumption with specific parameters for the long
term rate of improvement and tapering at older ages and adjustments
to reflect the profile of their portfolio. This reflects their views on the
rate of mortality improvement.
In addition, a margin of prudence is applied to these assumptions.
In respect of the annuitant mortality assumptions we performed
the following:
• 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 base tables and the adoption of the CMI
2019 model and dataset for improvements and the margin for
prudence;
• Assessed the results of the experience investigations carried out
by management for the annuity business to determine whether
they provided support for the assumptions used;
• Compared the mortality assumptions selected by management
against those used by their peers; and
• Considered alternative assumptions that could be used in the
CMI 2019 model such as the smoothing factor and used externally
published information to validate the choice management made.
Based on the work performed and the evidence obtained, we
consider the assumptions used for annuitant mortality to be
appropriate.
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Key audit matter
How our audit addressed the key audit matter
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 42 Insurance liabilities methodology and assumptions (b) Long-term
business liabilities.
UK Life has substantial holdings in illiquid asset classes with significant
credit risk.
Management takes an active approach to setting the associated credit
default assumptions on these illiquid assets. A long term deduction for
is made from the current market yields and a
credit default
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:
• 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
• 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.
Expense assumptions (Group)
Refer to the Audit Committee report, Accounting policy (L) Insurance and participating investment contract liabilities – Long term business provisions and note 42 Insurance liabilities methodology and assumptions (b) Long-term business
liabilities.
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 inforce 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:
• 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; and
• We tested that the assumptions appropriately reflect the
expected future expenses for maintaining policies in force at the
includes consideration of the
balance sheet date, which
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 – Long-term business provisions and note 42 Insurance liabilities methodology and assumptions (c) General insurance
and health liabilities.
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 2020, 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, Canada General
Insurance and France General Insurance components.
We assessed the calculation of the nonlife insurance liabilities by
performing the following procedures:
• Understood and tested the governance process in place to
determine the insurance contract liabilities, including testing the
associated financial reporting control framework;
• Tested the underlying data to source documentation on a
sample basis;
• Using our actuarial specialist team members, 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, 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 evaluated the methodology and
assumptions applied, or performed a diagnostic check to identify
and investigate any anomalies; and
• 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.
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Key audit matter
How our audit addressed the key audit matter
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 mortgage loans (UK Life);
• Infrastructure loans (UK Life); and
• Structured bond-type investments (France Life).
We assessed the Directors’ approach to valuation of hard to value
investments by performing the following procedures:
• Tested data inputs used in the valuation models to underlying
documentation on a sample basis;
• 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;
• Tested the operation of data integrity and change management
controls for the valuation models;
• Using our valuation experts, performed independent valuations
for a sample of infrastructure loans and structured bonds; and
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.
Risk of error arising from the implementation of new Bulk Purchase Annuities (“BPA”) actuarial model (Group)
UK Life have introduced a new model for the valuation of £4.3 billion of
Bulk Purchase Annuities during the year.
The key risk in relation to any new model is the risk of error in the
implementation or the functionality of the model. This model is being
used to value large BPA schemes written during the year and we have
assessed the risk of error in relation to the BPA model to be significant
given its complexity and the magnitude of the contracts that it will be
used to value.
Impact of COVID-19 (Group and Company)
Refer to the Audit and Risk Committee Reports and note 2 Significant events in the current reporting period.
The impacts of the global pandemic due to the Coronavirus COVID-19
continue to cause significant social and economic disruption up to the
date of reporting. In our audit we have identified the following key
impacts of COVID-19:
Ability of the entity to continue as a going concern
There are a number of potential matters in relation to COVID-19 which
could impact on the going concern status of the Group and Company.
Using downside scenarios driven by the required Own Risk and
Solvency Assessment (ORSA) process, the Directors have considered
the ability of the Company to remain solvent with sufficient liquidity to
meet future obligations. The Directors have also considered its
requirements in respect of regulatory capital under Solvency II and the
potential operational impacts on the business arising from remote
working.
The Directors’ have concluded that the Company is a going concern.
Impact on Estimation Uncertainty in the Financial Statements
The pandemic has increased the level of estimation uncertainty in the
financial statements. The Directors have therefore considered how
COVID-19 has impacted the key estimates that determine the valuation
of material balances, particularly the Non Life Insurance Contract
Liabilities, Life Insurance Contract Liabilities and Hard to Value
Financial Investments.
We assessed the implementation of new BPA actuarial model by
performing the following procedures:
• For a sample of immediate bulk purchase annuity policies we
remodelled the gross valuations to within 0.01% on average of
management’s valuation.
• We have replicated the calculation of benefits in deferment on a
sample of deferred bulk purchase annuity policies to within
0.01% on average.
• We have reviewed management’s own results reconciliation
testing (between this new model and the current model used for
other BPA business) and investigated any differences noted by
management.
Based on the work performed and evidence obtained, we consider
the valuation of the BPAs valued using the new model to be
appropriate.
In assessing management’s consideration of the
impact of
COVID-19 on the Company we have performed the following
procedures:
• Obtained management’s updated going concern assessment
and challenged the rationale for the downside scenarios adopted
and material assumptions made using our knowledge of Aviva’s
business performance, review of regulatory correspondence and
obtaining further corroborating evidence;
• Considered information obtained during the course of the audit
and publicly available market information to identify any
evidence that would contradict management’s assessment of the
impact of COVID-19; and
• Inquired and understood the actions taken by management to
mitigate the impacts of COVID-19, including review of Board Risk
Committee minutes and attendance of all Audit Committees.
We agree with the Director’s conclusions in respect of going
concern.
• Considered whether there have been any impacts from remote
working on the design and operating effectiveness of key controls
impacting the preparation of financial statement information;
• Challenged management’s judgements in the valuation of non-
life insurance contracts in relation to COVID-19, specifically the
treatment of the Business Interruption test case; and
• Challenged the
judgements applied by management to
determine the insurance contract liabilities, including annuitant
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Key audit matter
How our audit addressed the key audit matter
Qualitative Disclosures in the Annual Report and Financial Statements
In addition, the Directors have considered the qualitative disclosures
included in the Annual Report and Accounts in respect of COVID-19 and
the impact that the pandemic has had, and continues to have, on the
Group and Company.
mortality, credit default and expense assumptions, in light of the
emerging COVID-19 experience and by comparing these relative
to the Company’s industry peers;
We have audited the balances impacted by estimation uncertainty
and believe the values presented in the Financial Statements to be
reasonable.
• Reviewed the appropriateness of disclosures within the Annual
Report and Accounts with respect to COVID-19 and, where
relevant, considered the material consistency of this other
information to the audited financial statements and the
information obtained in the audit.
Based on the procedures performed and evidence obtained, we
consider the disclosure of COVID-19 in the financial statements to be
appropriate.
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 accounting processes and controls, and the industry in which
they operate.
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.
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 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.
We completed review procedures over the other components not subject to full scope audits.
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:
• Issued Group instructions outlining areas requiring additional audit focus, including the key audit matters included above;
• Maintained an active dialogue with reporting component audit teams throughout the year;
• Attended meetings with local management;
• Attended Audit Committee meetings for certain in-scope components;
• Reviewed reporting requested from component teams, including those areas determined to be of heightened audit risk; and
• Reviewed the detailed working papers, where relevant.
Due to the impact of COVID-19, we were unable to visit component teams in person. Consistent with previous years, we performed a detailed
review of key audit working papers at all in-scope components, however this was performed remotely.
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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
£157,900,000 (2019: £158,000,000).
£61,250,000 (2019: £47,800,000).
Financial statements – Group
Financial statements – Company
How we determined it
Rationale for
benchmark applied
5% of three-year average of the Group adjusted operating
profit before tax attributable to shareholders’ profits (2019:
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 prior year, that Group adjusted operating
profit was the most relevant benchmark. For the year
ended 31 December 2020, we have determined that a
3-year average of this metric is more appropriate as it
normalises both economic and non-economic assumption
changes and provides more consistency which aligns
better with the trend in the primary metrics used to assess
the businesses performance and dividend capability such
as capital metrics.
0.5% of net assets (2019: 5% of profit for the year
before tax)
In determining our materiality, we considered
financial metrics which we believed to be relevant
and concluded that net assets was the most
appropriate benchmark. The primary use of the
financial statements is to determine the entity’s
ability to pay dividends and the users will therefore
be focussed on distributable reserves, a balance
captured using a net asset benchmark.
For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range of
materiality allocated across components was between £20,000,000 and £145,000,000. Certain components were audited to a local statutory
audit materiality that was also less than our overall group materiality.
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected
misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature
and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our
performance materiality was 75% of overall materiality, amounting to £118,425,000 for the Group financial statements and £45,937,500 for
the Company financial statements.
In determining the performance materiality, we considered a number of factors – the history of misstatements, risk assessment and
aggregation risk and the effectiveness of controls – and concluded that an amount at the upper end of our normal range was appropriate.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £7,000,000 (Group audit)
(2019: £7,000,000) and £3,062,500 (Company audit) (2019: £2,390,000) as well as misstatements below those amounts that, in our view,
warranted reporting for qualitative reasons.
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the Group’s and the Company’s ability to continue to adopt the going concern basis of
accounting included:
• Obtained the Directors’ Going Concern assessment and challenged the rationale for the downside scenarios adopted and material
assumptions made using our knowledge of Aviva’s business performance, review of regulatory correspondence and obtaining further
corroborating evidence;
• Considered management's assessment of the regulatory Solvency coverage and liquidity position in the forward looking scenarios
considered which have been driven from Aviva’s ORSA;
• Considered information obtained during the course of the audit and publicly available market information to identify any evidence that
would contradict management’s assessment of going concern (including the impacts of COVID-19); and
• Enquired and understood the actions taken by management to mitigate the impacts of COVID-19, including review of Board Risk Committee
minutes and attendance of all Audit Committees.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Group’s and the Company’s ability to continue as a going concern for a period of at least twelve
months from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation
of the financial statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the Group’s and the Company’s
ability to continue as a going concern.
In relation to the Company’s reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or
draw attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to
adopt the going concern basis of accounting.
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Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
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 our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and matters as
described below.
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 2020 is consistent with the financial statements and has been prepared in
accordance with applicable legal requirements.
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.
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.
Corporate governance statement
The Listing Rules require us to review the directors’ statements in relation to going concern, longer-term viability and that part of the
corporate governance statement relating to the Company’s compliance with the provisions of the UK Corporate Governance Code specified
for our review. Our additional responsibilities with respect to the corporate governance statement as other information are described in the
Reporting on other information section of this report.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance
statement, included within the Directors’ and Corporate Governance Report is materially consistent with the financial statements and our
knowledge obtained during the audit, and we have nothing material to add or draw attention to in relation to:
• The directors’ confirmation that they have carried out a robust assessment of the emerging and principal risks;
• The disclosures in the Annual Report and Accounts that describe those principal risks, what procedures are in place to identify emerging
risks and an explanation of how these are being managed or mitigated;
• The directors’ statement in the financial statements about whether they considered it appropriate to adopt the going concern basis of
accounting in preparing them, and their identification of any material uncertainties to the Group’s and Company’s ability to continue to do
so over a period of at least twelve months from the date of approval of the financial statements;
• The directors’ explanation as to their assessment of the Group’s and Company’s prospects, the period this assessment covers and why the
period is appropriate; and
• The directors’ statement as to whether they have a reasonable expectation that the Company will be able to continue in operation and
meet its liabilities as they fall due over the period of its assessment, including any related disclosures drawing attention to any necessary
qualifications or assumptions.
Our review of the directors’ statement regarding the longer-term viability of the Group was substantially less in scope than an audit and only
consisted of making inquiries and considering the directors’ process supporting their statement; checking that the statement is in alignment
with the relevant provisions of the UK Corporate Governance Code; and considering whether the statement is consistent with the financial
statements and our knowledge and understanding of the Group and Company and their environment obtained in the course of the audit.
In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate
governance statement is materially consistent with the financial statements and our knowledge obtained during the audit:
• The directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable, and provides the
information necessary for the members to assess the Group’s and Company’s position, performance, business model and strategy;
• The section of the Annual Report that describes the review of effectiveness of risk management and internal control systems; and
• The section of the Annual Report describing the work of the Audit Committee.
We have nothing to report in respect of our responsibility to report when 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
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Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Directors’ Responsibilities section of the Directors’ and Corporate Governance Report, the directors are
responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give
a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors
either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of these financial statements.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques.
However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to
target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a
conclusion about the population from which the sample is selected.
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 obtained 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.; or
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 9 years, covering
the years ended 31 December 2012 to 31 December 2020.
Alex Bertolotti (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
3 March 2021
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Accounting policies
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 accounting standards in conformity with the
requirements of the Companies Act 2006 (IFRS) and the legal
requirements of the Companies Act 2006.
In addition, the
consolidated financial statements also comply with international
financial reporting standards adopted pursuant to Regulation (EC)
No 1606/2002 as it applies in the European Union (EU). 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
insurance and participating
existing accounting practices for
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).
Comparative figures have been re-presented 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 2020. The amendments
have been issued and endorsed by the EU and do not have a
significant impact on the Group’s consolidated financial statements.
(i) Amendments to References to the Conceptual Framework in IFRS
Standards (published by the IASB in March 2018)
(ii) Amendment to IFRS 3 Business Combinations (published by the IASB in
October 2018)
(iii) Amendment to IAS 1 and IAS 8: Definition of material (published by the
IASB in October 2018)
(iv) Interest Rate Benchmark Reform: Amendments to IFRS 9, IAS 39 and
IFRS 7 (published by the IASB in October 2019)
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
IFRS 17, Insurance Contracts
In May 2017, the IASB published IFRS 17 Insurance Contracts, a
comprehensive new accounting standard
insurance
contracts covering recognition and measurement, presentation
and disclosure. Once effective, IFRS 17 will replace IFRS 4 that
was issued in 2005. IFRS 17 applies to all types of insurance
contracts as well as to certain financial instruments with
the
discretionary participation
requirements
largely based on
IFRS 4, which are
grandfathering of previous local accounting policies, IFRS 17
provides a comprehensive and consistent approach to insurance
contracts. The core of
is the general model,
IFRS 17
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.
In contrast
features.
to
in
The main features of the new accounting model for insurance
contracts are, as follows: the measurement of the present value
of future cash flows incorporating an explicit risk adjustment and
remeasured at each reporting period (the fulfilment cash flows);
a contractual service margin that is equal and opposite to any
day one gain in the fulfilment cash flows of a group of contracts,
representing the unearned profit of the insurance contracts to be
recognised in profit or loss over the service period (coverage
period); the presentation of insurance revenue and insurance
service expenses in the statement of comprehensive income
based on the concept of insurance services provided during the
period; and extensive disclosures to provide information on the
recognised amounts from insurance contracts and the nature
and extent of risks arising from these contracts.
On adoption IFRS 17 will significantly impact the measurement
and presentation of the contracts in scope of the standard.
Following amendments to the standard published in June 2020,
it is now expected that the standard will apply to annual
reporting periods beginning on or after 1 January 2023. The final
standard remains subject to endorsement. Following departure
from the EU and the end of the transition period in December
2020 the Group will be subject to IFRS as endorsed by the UK. The
UK endorsement process has commenced and we expect it to
complete in time for the 1 January 2023 effective date.
(ii) IFRS 9, Financial Instruments
the
that
addressed
In September 2016, the IASB published amendments to IFRS 4
Insurance Contracts
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 53
and note 59.
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Accounting policies continued
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
investment
contracts within the scope of IFRS 4 (£218,604 million), non-
participating investment contract liabilities (£103,125 million),
unallocated divisible surplus (£8,811 million), borrowings (£8,770
million), and certain amounts within payables and other
financial liabilities which arise in the course of writing insurance
business (£10,285 million).
insurance and participating
included
In December 2020, the EU endorsed the IASB’s Amendments to
IFRS 4 Insurance Contracts – deferral of IFRS 9. This extends the
fixed expiry date for the temporary exemption for insurers from
applying IFRS 9 from 1 January 2021 until 1 January 2023, to align
the effective dates of IFRS 9 Financial Instruments with IFRS 17
Insurance contracts.
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.
incorporates new classification and measurement
IFRS 9
requirements for financial assets, the
introduction of an
expected credit loss impairment model which will replace the
incurred loss model of IAS 39, and new hedge accounting
requirements. Under IFRS 9, all financial assets will be measured
at either amortised cost or fair value. The basis of classification
will depend on the business model and the contractual cash flow
characteristics of the financial assets. The standard retains most
of IAS 39’s requirements for financial liabilities except for those
designated at fair value through profit or loss whereby that part
of the fair value changes attributable to own credit is to be
recognised in other comprehensive income instead of the
income statement. The hedge accounting requirements are
more closely aligned with risk management practices and follow
a more principle based approach.
The 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 effective for the current reporting period
and are not expected to have a significant impact on the Group’s
consolidated financial statements:
(iii) Amendments to IFRS 16 Leases: COVID-19 related rent concessions
Published by the IASB in May 2020. The amendments are
effective for annual reporting beginning on or after 30 June 2020
and have been endorsed by the EU.
(iv) Interest Rate Benchmark Reform Phase 2: Amendments to IFRS 9,
IAS 39, IFRS 7, IFRS 4 and IFRS 16
Published by the IASB in August 2020. The amendments are
effective for annual reporting beginning on or after 1 January
2021 and have not yet been endorsed by the EU.
(B) Group adjusted operating profit
The long-term nature of much of the Group’s operations means that,
for management’s decision-making and
internal performance
management of our operating segments, the Group focuses on
Group adjusted operating profit, a non-GAAP alternative
performance measure (APM) which is not bound by IFRS. The APM
incorporates the expected return on investments which supports its
long-term and non-long-term businesses.
Group adjusted operating profit for long-term business is based on
expected investment returns on financial investments backing
shareholder and policyholder funds over the reporting period, with
allowance for the corresponding expected movements in liabilities.
Variances between actual and expected investment returns, and the
impact of changes in economic assumptions on liabilities, are
disclosed separately outside Group adjusted operating profit. For
non-long-term business, the total investment income, including
realised and unrealised gains, is analysed between that calculated
using a longer-term return and short-term fluctuations from that
level. The exclusion of short-term realised and unrealised investment
gains and losses from the Group adjusted operating profit APM
reflects the long-term nature of much of our business and presents
separately the operating profit APM which is used in managing the
performance of our operating segments from the impact of
factors. Further details of this analysis and the
economic
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, acquisition
and disposal 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.
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 Generally Accepted Accounting Principles
(GAAP) measures. It is important to consider Group adjusted
operating profit and profit for the year 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.
The following accounting policies are those that have the most
significant impact on the amounts recognised in the financial
involving estimation
statements, with
summarised thereafter.
judgements
those
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Accounting policies continued
Item
Critical accounting judgement
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.
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.
Accounting
policy
L
Note
44(a)
43(b)
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).
Accounting
policy
D
Fair value of
financial
instruments and
investment
property
F,T,U
24(g)
Where quoted market prices are not
available, valuation techniques are
used to value financial instruments
and investment property. These
include broker quotes and models
using both observable and
unobservable market inputs. The
valuation techniques involve
judgement with regard to the
valuation models used and the inputs
to these models can lead to a range
of plausible valuations for financial
investments.
During the year management reassessed the critical estimates
previously provided and, based on their assessment of qualitative
and quantitative risk factors, resolved that valuation of two specific
UK Life product governance provisions was no longer a critical
estimate in the context of the Group’s results. The valuation of the
provisions has decreased significantly in the year, primarily due to
utilisation of one of the provisions, resulting in significantly reduced
estimation uncertainty in aggregate as at 31 December 2020.
(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, voting rights and potential voting rights.
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.
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
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%, the Group is
judged to have control over the entity;
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Accounting policies continued
• Where the entity is managed by a Group asset manager, and the
Group’s ownership holding in the entity is between 30% and 40%,
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; and
• Where the entity is managed by a Group asset manager, and the
Group’s ownership holding in the entity is less than 30%, 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.
The interest of parties other than Aviva in the investment return on
these funds appear as ‘Investment expense/(income) attributable to
unitholders’ in the income statement.
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
transactions, balances and
loses control. All
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.
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.
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Accounting policies continued
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
included
investment valuation reserve within equity.
Translation differences on non-monetary items, such as equities
which are designated as FVTPL, are reported as part of the fair value
gain or loss, whereas such differences on AFS equities are included
in the investment valuation reserve.
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
consideration given or received. In certain circumstances, the fair
value at initial recognition may differ from the transaction price.
If the fair value is evidenced by comparison with other observable
current market transactions in the same instrument (i.e. without
modification or repackaging), or is based on a valuation technique
whose variables include only data from observable markets, then the
difference between the fair value at initial recognition and the
transaction price is recognised as a gain or loss in the income
statement. When unobservable market data has a significant impact
on the valuation of financial instruments, the difference between the
fair value at initial recognition and the transaction price is not
recognised immediately in the income statement, but deferred and
recognised in the income statement on an appropriate basis over the
life of the instrument but no later than when the valuation is
supported wholly by observable market data or the transaction is
closed out or otherwise matured.
If an asset or a liability measured at fair value has a bid price and an
ask price, the price within the bid-ask spread that is most
representative of fair value in the circumstances is used to measure
fair value.
(G) Product classification
Insurance contracts are defined as those containing significant
insurance risk if, and only if, an insured event could cause an insurer
to make significant additional payments in any scenario, excluding
scenarios that lack commercial substance, at the inception of the
contract. Such contracts remain insurance contracts until all rights
and obligations are extinguished or expire. Contracts can be
reclassified as insurance contracts after inception if insurance risk
becomes significant. Any contracts not considered to be insurance
contracts under IFRS are classified as investment contracts. Some
insurance and
investment contracts contain a discretionary
participation feature, which is a contractual right to receive
additional benefits as a supplement to guaranteed benefits. These
are referred to as participating contracts.
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.
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Accounting policies continued
Where policies lapse due to non-receipt of premiums, then all the
related premium income accrued but not received from the date
they are deemed to have lapsed is offset against premiums.
General insurance and health premiums written reflect business
incepted during the year, and exclude any sales-based taxes or
duties. Unearned premiums are those proportions of the premiums
written in a year that relate to periods of risk after the statement of
financial position date. Unearned premiums are calculated on either
a daily or monthly pro rata basis. Premiums collected by
intermediaries, but not yet received, are assessed based on
estimates from underwriting or past experience, and are included in
premiums written.
Deposits collected under
investment contracts without a
discretionary participation feature (non-participating contracts) are
not accounted for through the income statement, except for the fee
income (covered in accounting policy I) and the investment income
attributable to those contracts, but are accounted for directly
through the statement of financial position as an adjustment to the
investment contract liability.
(I) Other investment contract fee revenue
Investment contract policyholders are charged fees for policy
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. For investment contracts
measured at fair value, the front-end fees that relate to the provision
of investment management services are deferred and recognised as
fees are recognised
the services are provided. Origination
immediately where the sale of fund interests represent a separate
performance obligation.
fee and commission
income consists primarily of
(J) Other fee and commission income
Other
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
interest and rents
Investment
receivable for the year, movements in amortised cost on debt
securities, realised gains and losses, and unrealised gains and losses
on FVTPL investments (as defined in accounting policy T). Dividends
on equity securities are recorded as revenue on the ex-dividend date.
Interest income is recognised as it accrues, taking into account the
effective yield on the investment. It includes the interest rate
differential on forward foreign exchange contracts. Rental income is
recognised on an accruals basis, and is recognised on a straight line
basis unless there is compelling evidence that benefits do not accrue
evenly over the period of the lease.
A gain or loss on a financial investment is only realised on disposal or
transfer, and is the difference between the proceeds received, net of
transaction costs, and its original cost or amortised cost, as
appropriate.
Unrealised gains and losses, arising on investments which have not
been derecognised as a result of disposal or transfer, represent the
difference between the carrying value at the year end and the
carrying value at the previous year end or purchase value during the
year, less the reversal of previously recognised unrealised gains and
losses in respect of disposals made during the year. Realised gains or
losses on investment property represent the difference between the
net disposal proceeds and the carrying amount of the property.
(L) Insurance and participating investment contract
liabilities
Claims
Long-term business claims reflect the cost of all claims arising during
the year, including claims handling costs, as well as policyholder
bonuses accrued in anticipation of bonus declarations.
General insurance and health claims incurred include all losses
occurring during the year, whether reported or not, related handling
costs, a reduction for the value of salvage and other recoveries, and
any adjustments to claims outstanding from previous years.
Claims handling costs include internal and external costs incurred in
connection with the negotiation and settlement of claims. Internal
costs include all direct expenses of the claims department and any
part of the general administrative costs directly attributable to the
claims function.
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 42(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, 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
liability 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 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.
In prior periods, the accounting policy was to disclose anticipated
recoveries as receivables where material, otherwise they were
deducted from outstanding claims provisions. To remove the
potential for inconsistent presentation of these balances in different
reporting periods, the accounting policy has been changed to
present outstanding claims provisions net of anticipated recoveries.
The revised accounting policy is consistent with previous practice
and so there is no restatement of 2019 comparatives in the statement
of financial position or related notes.
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 an additional liability 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
fair value.
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.
(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.
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Accounting policies continued
is
The cost of reinsurance related to
accounted for over the life of the underlying reinsured policies, using
assumptions consistent with those used to account for these policies.
long-duration contracts
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, as described
in accounting policy Z.
All other items classed as property and equipment within the
statement of financial position are carried at historical cost less
accumulated depreciation.
Investment properties under construction are included within
property and equipment until completion, and are stated at cost less
any provision for impairment in their values until construction is
completed or fair value becomes reliably measurable.
Depreciation is calculated on 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
• Computer equipment
• Other assets
Three years, or lease term (up
to useful life) if longer
Three to five years
Three to five years
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Accounting policies continued
The assets’ residual values, useful lives and method of depreciation
are reviewed regularly, 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 amortisation credited or charged to the
income statement. Investments classified as trading, other than
trading and AFS, are subsequently carried at fair value. Changes in
the fair value of trading and other than trading investments are
included in the income statement in the period in which they arise.
Changes in the fair value of securities classified as AFS are recognised
in other comprehensive income and recorded in a separate
investment valuation reserve within equity. When securities
classified as AFS are sold or impaired, the accumulated fair value
adjustments are transferred out of the investment valuation reserve
to the income statement with a corresponding movement through
other comprehensive income.
Impairment
The Group reviews the carrying value of its AFS investments on a
regular basis. If an AFS investment is deemed to be impaired, the
impairment losses are recognised as a charge to the income
statement in the period in which they occur. The following policies
are used to determine the level of any impairment, some of which
involve considerable judgement.
AFS debt securities
An AFS debt security is impaired if there is objective evidence that a
loss event has occurred which has impaired the expected cash flows,
i.e. where all amounts due according to the contractual terms of the
security are not considered collectible. An impairment charge,
measured as the difference between the security’s fair value and
amortised cost, is recognised when the issuer is known to be either
in default or in financial difficulty. Determining when an issuer is in
financial difficulty requires the use of judgement, and we consider a
number of factors including industry risk factors, financial condition,
liquidity position and near-term prospects of the issuer, credit rating
declines and a breach of contract. A decline in fair value below
amortised cost due to changes in risk-free interest rates does not
necessarily represent objective evidence of a loss event.
For securities identified as being impaired, the cumulative unrealised
loss previously recognised within the investment valuation reserve is
transferred to realised losses for the year, with a corresponding
movement through other comprehensive income. Any subsequent
increase in fair value of these impaired securities is recognised in
other comprehensive income and recorded in the investment
valuation reserve unless this increase represents a decrease in the
impairment loss that can be objectively related to an event occurring
after the impairment loss was recognised in the income statement.
In such an event, the reversal of the impairment loss is recognised as
a gain in the income statement.
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Accounting policies continued
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. 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,
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.
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Accounting policies continued
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 settle net, 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.
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.
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Accounting policies continued
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.
(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.
is calculated by
The defined benefit obligation
independent
actuaries using the projected unit credit method. The pension
obligation is measured as the present value of the estimated future
cash outflows, using a discount rate based on market yields for high-
quality corporate bonds that are denominated in the currency in
which the benefits will be paid and that have terms to maturity
approximating to the terms of the related pension liability. The
resultant net surplus or deficit recognised as an asset or liability on
the statement of financial position is the present value of the defined
benefit obligation at the end of the reporting period less the fair value
of plan assets.
Plan assets exclude unpaid contributions due from Group entities to
the schemes, and any non-transferrable financial instruments issued
by a Group entity and held by the schemes. If the fair value of plan
assets exceeds the present value of the defined benefit obligation,
the resultant asset is limited to the asset ceiling defined as present
value of economic benefits available in the form of future refunds
from the plan or reductions in contributions to the plan. In order to
calculate the present value of economic benefits, consideration is
given to any minimum funding requirements that apply to any plan
in the Group.
Remeasurements of defined benefit plans comprise actuarial gains
and losses arising from experience adjustments and changes in
actuarial assumptions, the return on plan assets (excluding net
interest) and the effect of the asset ceiling (if any). The Group
recognises remeasurements immediately in other comprehensive
income and does not reclassify them to the income statement in
subsequent periods.
Service costs comprising current service costs, past service costs,
gains and losses on curtailments and net interest expense/income
are charged or credited to the income statement.
Past service costs are recognised at the earlier of the date the plan
amendment or curtailment occurs or when related restructuring
costs are recognised.
The Group determines the net interest expense/income on the net
defined benefit liability/asset for the period by applying the discount
rate used to measure the defined benefit obligation at the beginning
of the year to the net defined benefit liability/asset. Net interest
expense is charged to finance costs, whereas, net interest income is
credited to investment income.
For defined contribution plans, the Group pays contributions to
publicly or privately administered pension plans. Once the
contributions have been paid, the Group, as employer, has no further
payment obligations. The Group’s contributions are charged to the
income statement in the year to which they relate and are included
in staff costs.
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IFRS financial statements
Other information
Accounting policies continued
Equity compensation plans
The Group offers share award and option plans over the Company’s
ordinary shares for certain employees, including a Save As You Earn
plan (SAYE plan), details of which are given in the Directors’
Remuneration Report and in note 33.
The Group accounts
for options and awards under equity
compensation plans, which were granted after 7 November 2002,
until such time as they are fully vested, using the fair value based
method of accounting (the ‘fair value method’). Under this method,
the cost of providing equity compensation plans is based on the fair
value of the share awards or option plans at date of grant, which is
recognised in the income statement over the expected vesting
period of the related employees and credited to the equity
compensation reserve, part of shareholders’ funds. In certain
jurisdictions, awards must be settled in cash instead of shares, and
the credit is taken to liabilities rather than reserves. The fair value of
these cash-settled awards is recalculated each year, with the income
statement charge and liability being adjusted accordingly.
Shares purchased by employee share trusts to fund these awards are
shown as deduction from shareholders’ equity at their weighted
average cost.
When the options are exercised and new shares are issued, the
proceeds received, net of any transaction costs, are credited to share
capital (par value) and the balance to share premium. Where the
shares are already held by employee trusts, the net proceeds are
credited against the cost of these shares, with the difference between
cost and proceeds being taken to retained earnings. In both cases,
the relevant amount in the equity compensation reserve is then
credited to retained earnings.
(AC) Income taxes
The current tax expense is based on the taxable profits for the year,
after any adjustments in respect of prior years. Tax, including tax
relief for losses if applicable, is allocated over profits before taxation
and amounts charged or credited to components of other
comprehensive income and equity, as appropriate.
Provision is made for deferred tax liabilities, or credit taken for
deferred tax assets, using the liability method, on all material
temporary differences between the tax bases of assets and liabilities
and their carrying amounts in the consolidated financial statements.
The rates enacted or substantively enacted at the statement of
financial position date are used to value the deferred tax assets and
liabilities.
Deferred tax assets are recognised to the extent that it is probable
that future taxable profit will be available against which the
temporary differences can be utilised. Where there is a history of tax
losses, deferred tax assets are only recognised in excess of deferred
tax liabilities if there is convincing evidence that future profits will be
available.
Deferred tax is provided on any temporary differences arising from
investments in subsidiaries, associates and joint ventures, except
where the timing of the reversal of the temporary difference can be
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
in equity are similarly
recognised in other comprehensive income and directly in equity
respectively.
income and directly
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 is credited to the income statement. In prior
periods, the accounting policy was to recognise the credit directly in
equity. The change in accounting policy followed an amendment to
IAS 12 as part of the IASB’s Annual improvements to IFRS standards
tax consequences of
2015-2017 cycle which
distributions from certain equity instruments to be recognised in the
income statement. There is no restatement of 2019 comparatives as
the impact of this change is not material.
required
the
Current and deferred tax includes amounts provided in respect of
uncertain tax positions, where management expects it is more likely
than not that an economic outflow will occur as a result of
examination by a relevant tax authority. Provisions reflect
management’s best estimate of the ultimate liability based on their
interpretation of tax law, precedent and guidance, informed by
external tax advice as necessary. The final amounts of tax due may
ultimately differ from management’s best estimate at the balance
sheet date. Changes in facts and circumstances underlying these
provisions are reassessed at each balance sheet date, and the
reflect current
provisions are
information.
re-measured as
required
to
In addition to paying tax on shareholders’ profits (shareholder tax),
the Group’s life businesses in the UK, Ireland and Singapore pay tax
on policyholders’ investment returns (policyholder tax) on certain
products at policyholder tax rates. The incremental tax borne by the
Group represents income tax on policyholder’s investment return. In
jurisdictions where policyholder tax is applicable, the total tax charge
in the income statement is allocated between shareholder tax and
policyholder tax. The shareholder tax is calculated by applying the
corporate tax rate to the shareholder profit. The difference between
the total tax charge and shareholder tax is allocated to policyholder
tax. This calculation methodology is consistent with the legislation
relating to the calculation of tax on shareholder profits. The Group
has decided to show separately the amounts of policyholder tax to
provide a meaningful measure of the tax the Group pays on its profit.
In the pro forma reconciliations, the Group adjusted operating profit
has been calculated after charging policyholder tax.
(AD) Borrowings
Borrowings are classified as being for either core structural or
operational purposes. They are recognised initially at their issue
proceeds less transaction costs incurred. Subsequently, most
borrowings are stated at amortised cost, and any difference between
net proceeds and the redemption value is recognised in the income
statement over the period of the borrowings using the effective
interest rate method. All borrowing costs are expensed as they are
incurred except where they are directly attributable to the
acquisition or construction of property and equipment as described
in accounting policy P.
Where loan notes have been issued in connection with certain
securitised mortgage loans, the Group has taken advantage of the
fair value option under IAS 39 to present the mortgages, associated
liabilities and derivative financial instruments at fair value, since they
are managed as a portfolio on a fair value basis. This presentation
provides more relevant information and eliminates any accounting
mismatch which would otherwise arise from using different
measurement bases for these three items.
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IFRS financial statements
Other information
(AI) Discontinued operations
Discontinued operations comprise those activities that were
disposed of or classified as held for sale at the end of the period and
represent a separate major line of business or geographical area that
can clearly be distinguished for operational and financial reporting
purposes.
The results of discontinued operations are presented as a single line
in the consolidated income statement and consolidated statement
of cash flows and comparatives are re-presented where applicable.
Notes to the consolidated statement of financial position are
presented on a total group basis and, as a result, income statement
and cash flow movements included within these notes may not
reconcile to those presented in the consolidated income statement
and the consolidated statement of cash flows. For more information
on amounts relating to discontinued operations, see note 4(d).
Accounting policies continued
(AE) Share capital and treasury shares
Equity instruments
An equity instrument is a contract that evidences a residual interest
in the assets of an entity after deducting all its liabilities. Accordingly,
a financial instrument is treated as equity if:
(i) there is no contractual obligation to deliver cash or other
financial assets or to exchange financial assets or liabilities on
terms that may be unfavourable; and
(ii) the instrument is a non-derivative that contains no contractual
obligation to deliver a variable number of shares or is a derivative
that will be settled only by the Group exchanging a fixed amount
of cash or other assets for a fixed number of the Group’s own
equity instruments.
Share issue costs
Incremental external costs directly attributable to the issue of new
shares are shown in equity as a deduction, net of tax, from the
proceeds of the issue and disclosed where material.
Dividends
Interim dividends on ordinary shares are recognised in equity in the
period in which they are paid. Final dividends on these shares are
recognised when they have been approved by shareholders.
Dividends on preference shares are recognised in the period in which
they are declared and appropriately approved.
Treasury shares
Where the Company or its subsidiaries purchase the Company’s
share capital or obtain rights to purchase its share capital, the
consideration paid (including any attributable transaction costs net
of income taxes) is shown as a deduction from total shareholders’
equity. Gains and losses on own shares are charged or credited to the
treasury share account in equity.
(AF) Fiduciary activities
Assets and income arising from fiduciary activities, together with
related undertakings to return such assets to customers, are
excluded from these financial statements where the Group has no
contractual rights in the assets and acts in a fiduciary capacity such
as nominee, trustee or agent.
(AG) Earnings per share
Basic earnings per share is calculated by dividing net income
available to ordinary shareholders by the weighted average number
of ordinary shares in issue during the year, excluding the weighted
average number of treasury shares.
Earnings per share has also been calculated on Group adjusted
operating profit attributable to ordinary shareholders, net of tax,
non-controlling interests, preference dividends, the direct capital
instrument (the DCI) and tier one notes as the directors believe this
figure provides a better indication of operating performance. Details
are given in note 15.
For the diluted earnings per share, the weighted average number of
ordinary shares in issue is adjusted to assume conversion of all
dilutive potential ordinary shares, such as convertible debt and share
options granted to employees.
Potential or contingent share issuances are treated as dilutive when
their conversion to shares would decrease net earnings per share.
(AH) Operations held for sale
Assets and liabilities held for disposal as part of operations which are
held for sale are shown separately in the consolidated statement of
financial position. Operations held for sale are recorded at the lower
of their carrying amount and their fair value less the estimated selling
costs.
Aviva plc Annual Report and Accounts 2020
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IFRS financial statements
Other information
Consolidated financial statements
Consolidated income statement
For the year ended 31 December 2020
Continuing operations
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
Share of profit after tax of joint ventures and associates
Profit on the disposal and remeasurement of subsidiaries, joint ventures and associates
Expenses
Claims and benefits paid, net of recoveries from reinsurers
Change in insurance liabilities, net of reinsurance
Change in investment contract provisions
Change in unallocated divisible surplus
Fee and commission expense
Investment expense attributable to unitholders
Other expenses
Finance costs
Profit before tax
Tax attributable to policyholders’ returns
Profit before tax attributable to shareholders’ profits
Tax expense
Less: tax attributable to policyholders’ returns
Tax attributable to shareholders’ profits
Profit from continuing operations
Profit from discontinued operations
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)2
Continuing operations – basic (pence per share)
Continuing operations – diluted (pence per share)2
Note
6
H
I & J
K
7
41(b)
8
14(d)
AC & 14
14(d)
4(d)
40
AG & 15
2020
£m
20191
£m
29,015
(3,638)
25,377
(123)
25,254
1,946
19,330
27
12
46,569
(21,045)
(6,640)
(6,413)
(1,528)
(4,161)
(579)
(3,037)
(553)
29,711
(3,184)
26,527
(193)
26,334
1,936
39,611
94
6
67,981
(22,092)
(5,670)
(23,878)
(3,616)
(3,924)
(1,355)
(3,057)
(568)
(43,956)
(64,160)
2,613
(43)
2,570
(571)
43
(528)
2,042
868
2,910
2,798
112
2,910
70.2
69.8
48.1
47.8
3,821
(501)
3,320
(1,201)
501
(700)
2,620
43
2,663
2,548
115
2,663
63.8
63.6
62.7
62.5
1 The 2019 comparative results have been re-presented from those previously published to reclassify certain operations in Asia as discontinued operations as described in note 1.
2 Following a revision to the methodology to calculate the dilutive effect of share awards, the 2019 comparative amounts have been amended from those previously reported. See note 15 for more information.
The above consolidated income statement should be read in conjunction with the accounting policies and accompanying notes to the
financial statements.
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Governance
IFRS financial statements
Other information
Consolidated financial statements continued
Consolidated statement of comprehensive income
For the year ended 31 December 2020
Profit for the year from continuing operations
Other comprehensive income from continuing operations:
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 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 from continuing operations
Total comprehensive income for the year from continuing operations
Profit for the year from discontinued operations
Other comprehensive income, net of tax from discontinued operations
Total comprehensive income for the year from discontinued operations
Total comprehensive income for the year
Attributable to:
Equity holders of Aviva plc
From continuing operations
From discontinued operations
Non-controlling interests
From continuing operations
From discontinued operations
1 The 2019 comparative results have been re-presented from those previously published to reclassify certain operations in Asia as discontinued operations as described in note 1.
Note
2020
£m
20191
£m
2,042
2,620
38
38
38
38, 40
14(b)
38
39
14(b)
4(d)
4(d)
22
(7)
17
131
(11)
3
(150)
(22)
(17)
39
(19)
22
(193)
6
3
(867)
103
(906)
2,025
1,714
868
4
872
43
(26)
17
2,897
1,731
1,880
871
1,637
18
145
1
77
(1)
2,897
1,731
The above consolidated statement of comprehensive income should be read in conjunction with the accounting policies and accompanying
notes to the financial statements.
Aviva plc Annual Report and Accounts 2020
145
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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 2020
Group adjusted operating profit before tax attributable to shareholders’ profits from continuing operations
Group adjusted operating profit before tax attributable to shareholders’ profits from discontinued operations
Group adjusted operating profit before tax attributable to shareholders’ profits
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
Profit/(loss) on the disposal and remeasurement of subsidiaries, joint ventures and associates
Other2
Adjusting items before tax
Profit before tax attributable to shareholders’ profits from continuing operations and discontinued operations
Tax on group adjusted operating profit
Tax on other activities
Profit for the year
Note
9
10(a)
10(a)
17(a), 20
18
18
4(a)
2020
£m
2,849
312
3,161
174
(64)
(104)
(30)
(76)
(278)
725
(34)
313
3,474
(634)
70
(564)
2,910
20191
£m
2,933
251
3,184
654
167
(54)
(15)
(87)
(406)
(22)
(47)
190
3,374
(668)
(43)
(711)
2,663
1 The 2019 comparative results have been re-presented from those previously published to reclassify certain operations in Asia as discontinued operations as described in note 1.
2 Other in 2020 includes a charge of £16 million relating to costs on contracts that have become onerous following the disposals of FPI, Singapore, Indonesia and Hong Kong. This is disclosed outside of Group adjusted operating
profit as the onerous contracts arise as a result of disposal transactions which we consider to be strategic in nature. Also included is a charge of £18 million relating to the estimated additional liability arising in the UK defined
benefit pension schemes as a result of the requirement to equalise members’ benefits for the effects of Guaranteed Minimum Pension (GMP) for former members. This is disclosed outside of Group adjusted operating profit as
the additional liability arose as a consequence of a further High Court judgement in November 2020 in the case involving Lloyds Banking Group and does not reflect the financial performance of the Group for the year. 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 and a charge of £2 million relating to negative goodwill which arose
on the acquisition of Friends First.
The above reconciliation of group adjusted operating profit to profit for the year should be read in conjunction with the accounting policies
and accompanying notes to the financial statements.
Aviva plc Annual Report and Accounts 2020
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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 operating segments and by product and services (details of
segments can be found in note 5):
For the year ended 31 December 2020
Operating segments
UK & Ireland Life
General Insurance
UK & Ireland GI
Canada
Aviva Investors
Manage-for-value
France
Italy
Poland
Other
Other Group activities
Corporate Centre
Group debt costs and other interest
Group adjusted operating profit before tax attributable to shareholders’ profits from
continuing operations (note 5)
Group adjusted operating profit before tax attributable to shareholders’ profits from
discontinued operations
Group adjusted operating profit before tax attributable to shareholders’ profits
For the year ended 31 December 2019 restated1
Operating segments
UK & Ireland Life2
General Insurance
UK & Ireland GI
Canada
Aviva Investors
Manage-for-value
France
Italy
Poland
Other
Other Group activities
Corporate Centre
Group debt costs and other interest2
Group adjusted operating profit before tax attributable to shareholders’ profits from continuing
operations (note 5)
Group adjusted operating profit before tax attributable to shareholders’ profits from discontinued
operations
Group adjusted operating profit before tax attributable to shareholders’ profits
Long-term
business
£m
General
insurance and
health
£m
Fund
management
£m
1,873
—
—
—
412
244
168
46
—
2,743
43
213
287
—
103
62
21
(4)
(3)
722
—
—
—
85
—
—
—
—
—
85
Long-term
business
£m
General
insurance and
health
£m
Fund
management
£m
1,948
—
—
—
425
182
171
46
27
35
296
191
—
94
23
20
—
(7)
—
—
—
96
—
—
—
—
—
Products and services
Other
£m
Total
£m
(9)
1,907
—
—
—
(48)
(8)
7
(4)
(19)
(81)
213
287
85
467
298
196
38
(22)
3,469
(250)
(370)
2,849
312
3,161
Products and services
Other
£m
Total
£m
(9)
1,974
1
—
—
(46)
(10)
3
(9)
(41)
297
191
96
473
195
194
37
(21)
2,799
652
96
(111)
3,436
(183)
(320)
2,933
251
3,184
1 The 2019 comparative results have been restated from those previously published due to a change in presentation of segmental information and re-presented to reclassify the amounts relating to certain operations in Asia as
discontinued operations as described in note 1.
2 The 2019 comparative results have been amended to reclassify £65 million net interest expense from UK & Ireland Life to Group debt costs and other interest. The change has no impact on Group adjusted operating profit before
tax attributable to shareholders’ profits.
The above reconciliation of group adjusted operating profit to profit for the year should be read in conjunction with the accounting policies
and accompanying notes to the financial statements.
Aviva plc Annual Report and Accounts 2020
147
Strategic report
Governance
IFRS financial statements
Other information
Consolidated financial statements continued
Consolidated statement of changes in equity
For the year ended 31 December 2020
Ordinary
share
capital
Note 33
£m
Preference
share
capital
Note 36
£m
Capital
reserves1
Note 33b
£m
Treasury
shares
Note 35
£m
Currency
translation
reserve
Note 38
£m
Other
reserves
Note 38
£m
Retained
earnings
Note 39
£m
DCI
Note 37
£m
Total
equity
excluding
non-
controlling
interests
£m
Non-
controlling
interests
Note 40
£m
Total
equity
£m
Balance at 1 January
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Dividends and appropriations
Non-controlling interests share of dividends declared in the
year
Reclassification of DCI to financial liabilities2
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
Transfer to profit on disposal of subsidiaries, joint ventures
and associates
Aggregate tax effect – shareholder tax
Balance at 31 December
980
—
—
—
—
—
—
—
2
—
—
—
—
200 10,257
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3
—
—
—
—
—
—
982
—
—
—
—
200 10,260
(7)
—
—
—
—
—
—
—
1
—
—
—
—
—
—
(6)
814
—
221
221
—
(101) 5,065
— 2,798
(171)
(97)
(97) 2,627
(280)
—
500 17,708
— 2,798
(47)
—
— 2,751
(280)
—
977 18,685
112 2,910
(13)
146 2,897
(280)
34
—
—
—
—
—
—
—
—
—
—
—
37
(51)
—
—
—
—
—
1
—
46
—
2
7
—
—
(500)
—
—
—
—
—
—
—
(499)
37
1
—
2
7
—
(30)
—
—
—
—
—
(61)
—
(30)
(499)
37
1
—
2
(54)
—
(173)
—
862
—
—
—
—
(212) 7,468
(173)
—
—
(199)
—
—
— 19,554 1,006 20,560
(26)
—
1 Capital reserves consist of share premium of £1,242 million, a capital redemption reserve of £44 million and a merger reserve of £8,974 million.
2 On 23 June 2020, notification was given that the Group would redeem the 5.9021% £500 million DCI. The instrument was reclassified as a financial liability of £499 million, representing its fair value, and the difference of £1 million
charged to retained earnings. On 27 July 2020, the instrument was redeemed in full. See note 37 for further information.
For the year ended 31 December 2019
Ordinary
share
capital
Note 33
£m
Preference
share
capital
Note 36
£m
Capital
reserves1
Note 33b
£m
Treasury
shares
Note 35
£m
Currency
translation
reserve
Note 38
£m
Other
reserves
Note 38
£m
Retained
earnings
Note 39
£m
DCI & Tier 1
notes Note
37
£m
Total
equity
excluding
non-
controlling
interests
£m
Non-
controlling
interests
Note 40
£m
Total
equity
£m
Balance at 1 January
Adjustment at 1 January 2019 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
Transfer to profit on disposal of subsidiaries, joint ventures
and associates
Aggregate tax effect – shareholder tax
Balance at 31 December
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
—
—
—
—
—
(7)
—
—
—
—
—
—
—
—
—
—
—
—
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
814
(101) 5,065
500 17,708
977 18,685
980
200 10,257
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 were not restated and the impact of the adoption was shown as an adjustment to opening retained
earnings.
3 On 17 October 2019, notification was given that the Group would redeem the 6.875% £230 million tier 1 notes. The instrument was reclassified as a financial liability of £210 million, representing its fair value, and the difference
of £21 million charged to retained earnings. On 21 November 2019, the instruments were redeemed in full.
The above consolidated statement of changes in equity should be read in conjunction with the accounting policies and accompanying notes
to the financial statements.
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Other information
Consolidated financial statements continued
Consolidated statement of financial position
As at 31 December 2020
Assets
Goodwill
Acquired value of in-force business and intangible assets
Interests in, and loans to, joint ventures
Interests in, and loans to, associates
Property and equipment
Investment property
Loans
Financial investments
Reinsurance assets
Deferred tax assets
Current tax assets
Receivables
Deferred acquisition costs
Pension surpluses and other assets
Prepayments and accrued income
Cash and cash equivalents
Assets of operations classified as held for sale
Total assets
Equity
Capital
Ordinary share capital
Preference share capital
Capital reserves
Share premium
Capital redemption reserve
Merger reserve
Treasury shares
Currency translation reserve
Other reserves
Retained earnings
Equity attributable to shareholders of Aviva plc
Direct capital instrument and tier 1 notes
Equity excluding non-controlling interests
Non-controlling interests
Total equity
Liabilities
Gross insurance liabilities
Gross liabilities for investment contracts
Unallocated divisible surplus
Net asset value attributable to unitholders
Pension deficits and other provisions
Deferred tax liabilities
Current tax liabilities
Borrowings
Payables and other financial liabilities
Other liabilities
Liabilities of operations classified as held for sale
Total liabilities
Total equity and liabilities
Approved by the Board on 3 March 2021
Jason Windsor
Chief Financial Officer
Company number: 2468686
Note
O & 17
O & 18
D & 19
D & 20
P & 21
Q & 22
V & 25
S, T, U & 28
N & 46
AC & 49
29
X & 30
X & 31
X & 31(b)
Y & 58(d)
AH & 4(c)
AE
33
36
33(b)
33(b)
D
35
38
38
39
37
40
2020
£m
2019
£m
1,799
2,434
1,702
263
768
11,369
43,679
351,378
13,338
119
183
9,352
3,264
2,834
2,742
16,900
17,733
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
479,857
460,043
982
200
1,182
1,242
44
8,974
10,260
(6)
862
(212)
7,468
19,554
—
19,554
1,006
20,560
980
200
1,180
1,239
44
8,974
10,257
(7)
814
(101)
5,065
17,208
500
17,708
977
18,685
149,338
222,127
9,597
16,610
1,565
2,155
569
9,039
18,138
3,094
9,126
L & 42
M & 44
L & 48
D
AA, AB & 50
AC & 49
AD & 52
S & 53
54
AH & 4(c)
152,482
222,831
9,736
20,301
1,435
1,828
114
9,684
20,667
3,043
17,176
459,297
441,358
479,857
460,043
The above consolidated statement of financial position should be read in conjunction with the accounting policies and accompanying notes
to the financial statements.
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Other information
Consolidated financial statements continued
Consolidated statement of cash flows
For the year ended 31 December 2020
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.
Continuing operations
Cash flows from operating activities2
Cash (used in)/generated from operating activities
Tax paid
Total net cash (used in)/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 investing activities
Cash flows from financing activities
Proceeds from issue of ordinary shares
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
Dividends paid to non-controlling interests of subsidiaries
Other
Total net cash used in financing activities
Total net (decrease)/increase in cash and cash equivalents from continuing operations
Net cash flows from discontinued operations
Cash and cash equivalents at 1 January
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at 31 December
1 The 2019 comparative results have been re-presented from those previously published to reclassify certain operations in Asia as discontinued operations as described in note 1.
2 Cash flows from operating activities include interest received of £5,705 million (2019: £5,693 million) and dividends received of £3,434 million (2019: £5,568 million).
3 2020 includes the redemption of 5.902% £500 million direct capital instrument and lease payments of £76 million. 2019 includes the redemption of 6.875% £210 million tier 1 notes.
Note
58(a)
58(b)
58(c)
16
16
16
40
4(d)
58(d)
2020
£m
20191
£m
(1,644)
(1,040)
(2,684)
6,392
(543)
5,849
(11)
12
(97)
3
(72)
(19)
12
(63)
4
(57)
(165)
(123)
3
(2)
966
(1,005)
(39)
(536)
(17)
(236)
2
(27)
(30)
(2)
(884)
(3,733)
245
19,434
236
16,182
27
(9)
552
(927)
(375)
(545)
(17)
(1,184)
4
(43)
(63)
(5)
(2,210)
3,516
112
16,051
(245)
19,434
The above consolidated statement of cash flows should be read in conjunction with the accounting policies and accompanying notes to the
financial statements.
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Other information
Notes to the consolidated financial statements
1 – Changes to comparative amounts
(a) Discontinued operations
In the second half of 2020, Aviva has announced the completion of the disposal of its controlling interest in Friends Provident International
Limited (FPI), its entire shareholdings in the Hong Kong and Indonesia joint ventures and its majority shareholding in Aviva Singapore. The
sale of its entire shareholding in Aviva Vietnam Life Insurance Limited has been agreed and is subject to regulatory approval, expected in
2021.
In accordance with IFRS 5 Non-current assets held for sale and discontinued operations, the results of these operations have been reclassified
as discontinued operations in these consolidated financial statements, as they represent an exit from a single geographical area of business.
Profit from discontinued operations for the year ended 31 December 2020 has been shown as a single line in the consolidated income
statement and net cash flows from discontinued operations have been shown as a single line in the consolidated statement of cash flows,
with 2019 comparatives re-presented accordingly. Further analysis of the results from discontinued operations is provided in note 4(d).
(b) Amendment to segmental analysis
At our interim results announcement on 6 August 2020, we announced our strategic priorities to focus on building and extending leadership
in the UK, Ireland and Canada (Core markets), and managing our other international businesses for long-term shareholder value
(Manage- for-value markets). As a result, the financial performance of our ‘Core markets’ are presented as UK & Ireland Life, General Insurance
(which brings together our UK & Ireland General Insurance businesses and Canada) and Aviva Investors. Our ‘Manage-for-value markets’
consist of our other international businesses: France, Italy, Poland and Other. The 2019 comparative results have been restated from those
previously published to reclassify operations on this basis. See note 5 for further information.
2 – Significant events in the current reporting period
On 11 March 2020, the World Health Organization declared the outbreak of a strain of novel coronavirus disease, COVID-19, a global pandemic.
Governments in affected areas have imposed a number of measures designed to contain the outbreak, including business closures, travel
restrictions, stay at home orders and prohibition of gatherings and events. The spread of COVID-19 has had a significant impact on the global
economy, causing volatile equity markets and falls in interest rates.
In our interim results announcement on 6 August 2020, we assessed the emerging situation and provided details of the significant impacts of
COVID-19 on the Group’s results for the first half of 2020. The Group has been impacted by the COVID-19 pandemic through its operations,
insurance products and assets holdings as well as ongoing difficult conditions in the global financial markets and the wider macroeconomic
environment. The effects of COVID-19 continue to present unprecedented uncertainty that may adversely impact the results of the Group.
However, the strength of the Group’s capital and liquidity means it is well positioned to manage this crisis and continue to support customers.
This note sets out key considerations in relation to the impact of COVID-19 on the Group’s results.
Business and performance
(i) Long-term business
The Group’s life insurance business is long-term in nature. As such the ultimate impact of COVID-19 has a high degree of uncertainty and will
emerge over a long period of time. The reported results include a net £16 million increase in long-term insurance contract liabilities as a result
of the changes in non-economic assumptions for COVID-19, noting that this includes the offsetting impacts of an increase attributable to
mortality and a decrease attributable to longevity assumptions. The valuation of the Group’s long-term insurance liabilities is closely linked
to market movements and therefore the impact of COVID-19 on global markets has had a consequential impact on the valuation of the
Group’s long-term business. It is not possible however to disaggregate the impact of the pandemic from wider economic movements in the
period, and as such quantification of the economic impact of COVID-19 on long term insurance contract liabilities is not possible. The effect
of COVID-19 on assumptions and estimates for the long-term business is set out in note 47.
(ii) General insurance
The estimated impact of COVID-19 on the general insurance results in the year is £(17) million, principally reflecting business interruption
claims net of reinsurance, which were partly offset by favourable impacts of reduced economic activity in other product lines tempered by
higher profit-contingent commission payments to distributors. Further information on the impact of COVID-19 on general insurance liabilities
can be found within note 42(c) and note 59(f).
(ii) Fund management
The widespread economic disruption caused by of COVID-19 has led to significant volatility in financial markets and elevated levels of investor
activity throughout 2020. Information on the revenue earned by the Group’s fund management segment can be found within note 5(b).
Risk profile
Note 59 has been updated to reflect the impact of COVID-19 on the risk environment within which the Group operates and the way in which
the pandemic has had an impact on the Group’s material risk exposures. This includes descriptions of key actions taken to mitigate these
changes in risk exposures during 2020.
Fair value measurement
In addition to the increased volatility in financial markets, the economic disruption caused by COVID-19 has led to declines in the level of
trading in some asset classes giving rise to additional valuation uncertainty. Information on the fair value of the Group’s assets and liabilities
and the methodology for calculating this fair value can be found within note 24.
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Other information
Notes to the consolidated financial statements continued
2 – Significant events in the current reporting period – continued
Capital management
The Group’s balance sheet exposure and solvency position has been reviewed and actions taken to protect the solvency position and further
reduce the sensitivity to economic shocks. The estimated Solvency II regulatory own funds is £29.3 billion at 31 December 2020
(2019: £28.3 billion) and the estimated Solvency II shareholder own funds is £25.8 billion (2019: £24.5 billion). Further information on Group
capital management can be found within note 57.
Other
(i) Dividend
On 26 November 2020, the Group announced a new dividend policy and capital framework. Information on dividends paid during the year
and the proposed final dividend for 2020 can be found within note 16.
3 – 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)
2020
2019
£0.88
£0.90
£0.58
£0.57
£0.20
£0.20
£0.88
£0.85
£0.59
£0.58
£0.20
£0.20
4 – Strategic transactions
This note provides details of the acquisitions and disposals of subsidiaries, joint ventures and associates that the Group has made during the
year, together with the details of business held for sale at 31 December 2020 and discontinued operations.
(a) Acquisitions
On 5 June 2020, the Group completed the acquisition of a further 40% shareholding in Wealthify, a Group subsidiary, for a consideration of
£11 million. Following the transaction, Wealthify is now a wholly owned subsidiary.
(b) Disposals and remeasurements
The profit on the disposal and remeasurement of subsidiaries, joint ventures and associates comprises:
Disposals
Held for sale remeasurements
Total gain/(loss) on disposals and remeasurements
2020
£m
744
(19)
725
2019
£m
6
(28)
(22)
The net gain on the disposal and remeasurement of subsidiaries, joint ventures and associates during the year of £725 million predominantly
relates to the disposals of Friends Provident International Limited (FPI), Singapore, Indonesia and Hong Kong. In 2019, the loss on disposal
of £22 million comprised of £6 million of gains relating to small disposals and a £28 million remeasurement loss relating to FPI.
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Other information
Notes to the consolidated financial statements continued
4 – Strategic transactions continued
(b) Disposals and remeasurements continued
Disposals of subsidiaries, joint ventures and associates
The following businesses were disposed of in 2020:
Assets
Goodwill, acquired value of in-force business and intangible assets
Interests in, and loans to, associates and joint ventures
Property and equipment
Financial investments
Reinsurance assets
Receivables and other financial assets
Deferred acquisition costs
Prepayments and accrued income
Cash and cash equivalents
Total assets
Liabilities
Gross insurance liabilities
Gross liabilities for investment contracts
Unallocated divisible surplus
Tax liabilities
Other liabilities
Total liabilities
Net assets
Total consideration
Less: transaction costs
Net consideration
Reserves recycled to the income statement
(Loss)/profit on disposal
Other small disposals (iii)
Total profit on disposal
FPI(i)
£m
Singapore(ii)
£m
Total
£m
442
—
5
6,981
15
36
205
6
851
44
38
4
5,573
734
87
10
40
186
486
38
9
12,554
749
123
215
46
1,037
8,541
6,716
15,257
103
8,033
—
—
104
4,276
—
693
388
367
4,379
8,033
693
388
471
8,240
5,724
13,964
301
309
(11)
298
—
(3)
992
1,293
1,540
(34)
1,849
(45)
1,506
1,804
160
674
160
671
73
744
(i) FPI
On 19 July 2017, Aviva announced the sale of FPI to RL360 Holding Company Limited, a subsidiary of International Financial Group Limited
and FPI has been reported as held for sale by the Group since 31 December 2017. In 2020, a revised structure was agreed for Aviva to sell a
76% shareholding in FPI for a consideration of £259 million, including £50 million of deferred consideration.
The classification as held for sale has resulted in a loss on remeasurement of £118 million in 2017, £13 million in 2018, £28 million in 2019 and
an additional remeasurement loss of £19 million at 30 June 2020. The transaction completed on 16 July 2020.
On 11 December 2020, an option was exercised by RL360 requiring Aviva to recapture a book of business from FPI, subject to regulatory
approval, resulting in Aviva forgoing both the deferred consideration and its remaining shareholding in FPI. The estimated value of the book
of business matches the total value of the deferred consideration and the shareholding, therefore there is no impact on the value of
consideration received.
(ii) Singapore
On 11 September 2020, Aviva announced the sale of a majority shareholding in Aviva Singapore to a consortium led by Singapore Life Ltd
(Singlife) for a consideration of SGD 2.7 billion (approximately £1.5 billion), which is comprised of SGD 2.0 billion in cash and marketable
securities, SGD 250 million in vendor finance notes and a 26% equity shareholding in the new group (Aviva Singlife Holdings Pte. Ltd – see
note 19(a)). The transaction completed on 30 November 2020.
(iii) Other
On 6 March 2020, Aviva announced the sale of its entire shareholding in its joint venture in Indonesia, PT Astra Aviva Life, to the joint venture
partner, PT Astra International Tbk. The consideration received was INR 1,389 billion (approximately £72 million). The transaction completed
on 16 November 2020.
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 HKD 450 million (approximately £44 million). The transaction completed on 10 December 2020.
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Other information
Notes to the consolidated financial statements continued
4 –Strategic transactions continued
(c) Assets and liabilities of operations classified as held for sale
The assets and liabilities of operations classified as held for sale as at 31 December 2020 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
Unallocated divisible surplus
Borrowings
Other liabilities
Total liabilities
Net assets
2020
£m
2019
£m
18
—
69
—
16,907
18
531
190
17,733
3,166
12,425
1,234
43
308
17,176
557
526
8
8
1
7,824
75
290
780
9,512
687
8,324
—
28
87
9,126
386
Assets and liabilities of operations classified as held for sale as at 31 December 2020 relate to the expected disposal of the Group’s operations
in Vietnam and of Aviva Vita S.p.A. (Aviva Vita). See below for further details. Assets and liabilities classified as held for sale at
31 December 2019 related primarily to FPI and Hong Kong.
(i) Vietnam
On 14 December 2020, Aviva announced the sale of its entire shareholding in Aviva Vietnam Life Insurance Limited to Manulife Financial Asia
Limited. The transaction is expected to complete in the second half of 2021, subject to regulatory approvals.
(ii) Aviva Vita (Italy)
On 23 November 2020, Aviva announced the sale of its entire 80% shareholding in the Italian life insurance joint venture, Aviva Vita to its
partner UBI Banca. The transaction is subject to customary closing conditions, including regulatory approval, and is expected to complete in
the first half of 2021.
(d) Discontinued operations
In the second half of 2020, Aviva has announced the completion of the disposal of its controlling interest in FPI, its entire shareholdings in the
Hong Kong and Indonesia joint ventures and its majority shareholding in Aviva Singapore. The sale of its entire shareholding in Aviva Vietnam
Life Insurance Limited has been agreed and is subject to regulatory approval, expected in 2021.
In accordance with IFRS 5 Non-current assets held for sale and discontinued operations, the results of these operations have been reclassified
as discontinued operations in these consolidated financial statements. Profit from discontinued operations for the year ended
31 December 2020 has been shown as a single line in the consolidated income statement and net cash flows from discontinued operations
have been shown as a single line in the consolidated statement of cash flows, with 2019 comparatives being re-presented accordingly. Notes
to the consolidated statement of financial position are presented on a total group basis and, as a result, income statement and cash flow
movements included within these notes may not reconcile to those presented in the consolidated income statement and the consolidated
statement of cash flows.
Further analysis of the results and cash flows for the discontinued operations presented in the consolidated financial statements are analysed
below.
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Notes to the consolidated financial statements continued
4 – Strategic transactions continued
(d) Discontinued operations continued
Income Statement
Discontinued operations
Net written premiums
Net change in provision for unearned premiums
Net earned premiums
Net investment income
Other income
Share of loss after tax of joint ventures and associates
Profit/(loss) on the disposal and remeasurement of subsidiaries, joint ventures and associates
Total 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
Other expenses
Total expenses
Profit before tax from discontinued operations
Tax attributable to policyholders’ returns
Profit before tax attributable to shareholders’ profits from discontinued operations
Tax expense
Profit for the year from discontinued operations
Other Comprehensive Income
Discontinued operations
Other comprehensive income from discontinued operations:
Items that may be reclassified subsequently to income statement
Foreign exchange rate movements
Total other comprehensive income for the year from discontinued operations
Cash flows
Discontinued operations
Total net cash from operating activities
Cash proceeds from disposal of subsidiaries, joint ventures and associates
Less: Net cash and cash equivalents divested with subsidiaries
Other investing activities
Total net cash from investing activities
Total net cash (used in)/from financing activities
Net cash flows from discontinued operations
2020
£m
1,284
3
1,287
119
119
(12)
713
2,226
(749)
(265)
342
(161)
(445)
(1,278)
948
(44)
904
(36)
868
2019
£m
1,153
(16)
1,137
966
205
(9)
(28)
2,271
(1,004)
(32)
(217)
(369)
(537)
(2,159)
112
(58)
54
(11)
43
2020
£m
2019
£m
4
4
(26)
(26)
2020
£m
102
1,208
(1,065)
4
147
(4)
245
2019
£m
119
—
—
(27)
(27)
20
112
(e) Significant restrictions
In certain jurisdictions the ability of subsidiaries to transfer funds to the Group in the form of cash dividends or to repay loans and advances
is subject to local corporate or insurance laws and regulations and solvency requirements. There are no protective rights of non-controlling
interests which significantly restrict the Group’s ability to access or use the assets and settle the liabilities of the Group.
(f) Subsequent events
For the following subsequent events, management undertook an assessment of the facts and circumstances at 31 December 2020 and
concluded that for each of the transactions, the IFRS 5 criteria for classification as held for sale were not met at that date.
(i) Aviva France
On 23 February 2021, Aviva announced it had approved the sale of its entire shareholding in Aviva France to Aéma Groupe for cash
consideration of €3.2 billion (approximately £2.9 billion), including €1.1 billion (approximately £1.0 billion) in respect of Aviva France’s
intra-group debt. The transaction will significantly strengthen the Group’s capital and liquidity on completion, and covers the French life,
general insurance, and asset management businesses and the 75% shareholding in L’Union Financière de France, a wealth manager listed
on the Paris Bourse. The transaction is subject to consultation and customary closing conditions, including regulatory approval, and is
expected to complete in the second half of 2021. The transaction would have decreased the Group’s IFRS net asset value by approximately
£0.5 billion, increased Solvency II surplus on a shareholder basis by approximately £0.8 billion and strengthened the Solvency II cover ratio
on a shareholder basis by approximately 22 percentage points as at 31 December 2020.
(ii) AvivaSA (Turkey)
On 24 February 2021, Aviva announced the sale of its entire 40% shareholding in its joint venture in Turkey, AvivaSA Emeklilik ve Hayat AS
(AvivaSA), to Ageas Insurance International N.V. for cash consideration of £122 million. The transaction is subject to customary closing
conditions, including regulatory approval, and is expected to complete in 2021.
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Notes to the consolidated financial statements continued
4 – Strategic transactions continued
(f) Subsequent events continued
(iii) Aviva Italy
On 3 March 2021, the Group entered into agreements to sell its remaining Italian Life and General Insurance businesses (Aviva Italy). The sale
of the remaining Life business primarily comprises the entire 100% shareholding in Aviva Life S.p.A. and the 51% shareholding in Aviva S.p.A.
to CNP Assurances for cash consideration of €543 million (approximately £486 million). The sale of the General Insurance business comprises
the entire 100% shareholding in Aviva Italia S.p.A. to Allianz for cash consideration of €330 million (approximately £295 million). The
transactions are subject to customary closing conditions, including regulatory and anti-trust approvals, and are expected to complete in the
second half of 2021. The transactions would have increased the Group’s IFRS net asset value by approximately £0.2 billion, increased Solvency
II surplus on a shareholder basis by approximately £0.2 billion and strengthened the Solvency II cover ratio on a shareholder basis by
approximately 7 percentage points as at 31 December 2020. Following completion of these transactions, Aviva will retain Aviva Italia Holdings
S.p.A, which will have no underlying operating insurance entities.
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. At our 2020 interim results announcement on 6 August 2020, we announced our strategic priorities to focus on building and
extending our leadership in the UK, Ireland and Canada (Core markets), and managing International businesses for long-term shareholder
value (Manage-for-value markets). As a result, the financial performance of our ‘Core markets’ is presented as UK & Ireland Life, General
Insurance (which brings together our UK & Ireland businesses and Canada) and Aviva Investors. Our ‘Manage-for-value markets’ consists of
our other international businesses: France, Italy, Poland and Other. The 2019 comparative results have been restated (see note 1) from those
previously published to reclassify operations to reflect these changes. Segmental information is presented for continuing operations only, an
analysis of results from discontinued operations is presented in note 4(d).
(a) Operating segments
UK & Ireland Life
The principal activities of our UK & Ireland Life operations are life insurance, long-term health and accident insurance, savings, pensions and
annuity business.
General Insurance
UK & Ireland
The principal activities of our UK & Ireland General Insurance operations are the provision of 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 Canada General Insurance operation is the provision of personal and commercial lines insurance products
principally distributed through insurance brokers.
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.
Manage-for-value
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.
Italy
The principal activities of our operations in Italy are in the life and non-domestic insurance markets. We offer savings, investments, pension
and protection products with distribution through a major bancassurance partnership with Unione di Banche Italiane S.p.A. and also through
independent financial advisor networks.
Poland
Activities in Poland comprise long-term business and general insurance and includes our long-term business in Lithuania.
Other
Our other continuing activities principally comprise our long-term business operations in China, India and Singapore and our life operations
in Turkey. These have been aggregated into a single reporting segment in line with IFRS 8 Operating Segments.
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 are also included in this segment, as are the elimination entries for certain inter-segment transactions and group consolidation
adjustments.
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Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements continued
5 – Segmental information continued
Measurement basis
The accounting policies of the segments are the same as those for the Group as a whole. Any transactions between the business segments
are subject to normal commercial terms and market conditions. The Group evaluates performance of operating segments on the basis of:
(i) profit or loss from operations before tax attributable to shareholders;
(ii) profit or loss from operations before tax attributable to shareholders, adjusted for non-operating items, including investment market
performance.
(a) (i) Segmental income statement for the year ended 31 December 2020
General Insurance
Manage-for-value
UK &
Ireland Life
£m
UK &
Ireland GI
£m
Canada
£m
Aviva
Investors
£m
France
£m
Italy
£m
Poland
£m
Other
£m
Continuing operations
Gross written premiums
Premiums ceded to reinsurers
Internal reinsurance revenue
Premiums written net of reinsurance
Net change in provision for unearned premiums
Net earned premiums
Fee and commission income
Net investment income
Inter-segment revenue
Share of profit/(loss) after tax of joint ventures and associates
Profit on the disposal and remeasurement of subsidiaries, joint
ventures and associates
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
Investment expense attributable to unitholders
Other expenses
Inter-segment expenses
Finance costs
Segmental expenses
Adjusting items:
Reclassification of 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 acquired value of in-force
business
Profit on the disposal and remeasurement of subsidiaries, joint
ventures and associates
Other2
Group adjusted operating profit/(loss) before tax
attributable to shareholders’ profits
10,268 5,051 3,271
(175)
(2,904)
—
—
7,364 4,630 3,096
(56)
(421)
—
(38)
(1)
—
—
—
—
—
(78)
—
5,326 4,473
(44)
—
5,248 4,429
(1)
(28)
7,363 4,592 3,040
25
101
989
—
325
5,220 4,428
80
327
8,352 4,693 3,065
227
123
—
—
—
—
13,842
—
(58)
325 5,547 4,508
31 1,881 2,318
—
—
—
15
217
—
—
12
22,136 4,816 3,304
—
(8,748) (2,559) (1,712)
(148)
(345)
(4,505)
—
—
(5,221)
—
505
—
(914)
(730) (1,372)
—
—
(168)
(474)
(7)
(5)
(6)
(4)
(20,178) (4,759) (2,955)
—
(1,112)
(201)
(166)
349
—
349
29
—
48
(13)
(314)
—
—
—
—
46
212
—
—
92
(118)
77
—
—
—
—
—
7
16
16
—
(12)
—
—
—
—
573 7,443 6,826
—
—
(30)
—
(27)
—
(432)
—
—
(5,418) (2,260)
(670)
(925)
631 (1,793)
(844) (1,179)
(257)
(698)
—
9
(90)
(245)
—
(1)
(2)
(1)
(489) (7,237) (6,506)
84
—
84
206
—
206
320
—
320
1
53
—
—
—
—
—
—
—
—
—
145
(31)
40
19
—
2
2
—
—
8
—
—
1
—
—
—
626
(16)
—
610
1
611
95
706
157
—
—
—
863
(339)
(54)
—
(10)
(159)
—
(103)
(3)
(1)
(669)
194
—
194
—
2
(5)
—
—
5
—
—
—
Profit/(loss) before tax
Tax attributable to policyholders’ returns
1,958
(43)
Profit/(loss) before tax attributable to shareholders’ profits
1,915
57
—
57
Other
Group
activities
£m
Total
continuing
operations
£m
— 29,015
—
(3,638)
—
—
— 25,377
—
(123)
— 25,254
4 1,946
4 27,200
751 19,330
217
27
—
16
—
12
771 46,786
—
—
—
—
—
—
—
—
—
—
54
—
54
(9) (21,045)
—
7
—
(6,640)
—
—
(6,413)
—
—
(1,528)
(4) (4,161)
—
(588)
—
(579)
(410) (3,037)
(3)
—
(217)
—
(553)
(3) (1,377) (44,173)
—
(373)
51
—
51
(606) 2,613
(43)
—
(606) 2,570
—
(118)
—
(26)
—
(224)
—
—
13
—
—
—
—
47
64
1
104
—
—
—
—
34
29
70
214
(12)
34
1,907
213
287
85
467
298
196
38
(642) 2,849
1 Total reported income, excluding inter-segment revenue, includes £26,051 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 includes a charge of £16 million relating to costs on contracts that have become onerous following the disposals of FPI, Singapore, Indonesia and Hong Kong and a charge of £18 million relating to the estimated additional
liability arising in the UK defined benefit pension schemes as a result of the requirement to equalise members’ benefits for the effects of Guaranteed Minimum Pension (GMP).
Aviva plc Annual Report and Accounts 2020
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Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements continued
5 – Segmental information continued
(a) (ii) Segmental income statement for the year ended 31 December 2019 – restated1
General Insurance
Manage-for-value
Italy
£m
Poland
£m
Other Group
activities
£m
Other
£m
Total
continuing
operations
£m
Continuing operations
Gross written premiums
Premiums ceded to reinsurers
Internal reinsurance revenue
Premiums written net of reinsurance
Net change in provision for unearned premiums
Net earned premiums
Fee and commission income
Net investment income
Inter-segment revenue
Share of profit/(loss) after tax of joint ventures and associates
Profit on the disposal and remeasurement of subsidiaries, joint
ventures and associates
Segmental income2
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
Investment expense attributable to unitholders
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 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 acquired value of in-force
business
Profit on the disposal and remeasurement of subsidiaries, joint
ventures and associates
Other3
Group adjusted operating profit/(loss) before tax attributable to
UK & Ireland
Life
£m
UK & Ireland
GI
£m
8,921
(2,477)
—
6,444
(2)
6,442
984
7,426
28,247
—
20
5,066
(428)
—
4,638
(55)
4,583
114
4,697
252
—
—
Canada
£m
3,204
(143)
—
3,061
(99)
2,962
24
2,986
171
—
—
Aviva
Investors
£m
—
—
—
—
—
—
320
320
61
247
—
France
£m
6,883
(86)
—
6,797
(28)
6,769
305
7,074
6,267
—
48
4,994
(36)
—
4,958
(11)
4,947
89
5,036
3,218
—
—
—
—
6
—
—
—
35,693
4,949
3,163
628 13,389
8,254
(9,878)
(3,431)
(17,186)
174
(711)
—
(1,416)
(228)
(192)
(2,844)
(80)
—
—
(1,337)
—
(340)
(6)
(4)
(1,938)
(16)
—
—
(823)
—
(162)
(6)
(7)
—
—
(63)
—
(27)
—
(447)
—
—
(4,751)
(1,112)
(4,041)
(2,010)
(659)
(157)
(246)
(2)
(1)
(2,280)
(1,032)
(2,589)
(1,776)
(238)
—
(109)
—
(3)
(32,868)
(4,611)
(2,952)
(537) (12,979)
(8,027)
2,825
(501)
2,324
54
(735)
—
—
—
54
275
—
2
338
—
338
(8)
—
211
—
211
33
—
(105)
(64)
27
—
—
—
—
45
2
2
13
—
(6)
—
91
—
91
5
—
—
—
—
—
—
—
—
410
—
410
46
84
227
—
227
—
(3)
(95)
(30)
24
—
2
2
—
—
—
—
1
—
—
—
643
(12)
—
631
2
633
99
732
155
—
—
—
887
(380)
(49)
1
(4)
(156)
—
(95)
(5)
(1)
(689)
198
—
198
—
(4)
(5)
—
—
5
—
—
—
—
(2)
1
(1)
—
(1)
—
(1)
1
—
55
—
55
—
—
—
—
—
—
(11)
—
—
— 29,711
(3,184)
—
—
(1)
(1) 26,527
(193)
—
(1) 26,334
1,936
1
— 28,270
1,239 39,611
247
94
—
(29)
—
6
1,210 68,228
(21) (22,092)
(5,670)
50
(23,878)
—
(3,616)
—
(3,924)
27
(1,355)
(1,198)
(3,057)
(231)
(247)
—
(568)
(360)
(11)
(1,733) (64,407)
44
—
44
(523)
—
3,821
(501)
(523)
3,320
—
(130)
—
(17)
(8)
(683)
—
—
9
1
—
—
—
132
(167)
1
—
1
3
—
—
54
11
77
280
(6)
47
shareholders’ profits2
1,974
297
191
96
473
195
194
37
(524)
2,933
1 The 2019 comparative results have been restated from those previously published due to the change in presentation of segmental information. See note 1.
2 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.
3 Other 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 and a charge of £2 million relating to negative goodwill which arose
on the acquisition of Friends First.
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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 2020
General
insurance and
health1
£m
Fund
management
£m
Continuing operations
Gross written premiums2
Premiums ceded to reinsurers
Premiums written net of reinsurance
Net change in provision for unearned premiums
Net earned premiums
Fee and commission income
Net investment income
Inter-segment revenue
Share of profit/(loss) after tax of joint ventures and associates
Profit on the disposal and remeasurement of subsidiaries, joint ventures and associates
Long-term
business
£m
18,288
(2,948)
15,340
—
15,340
1,423
16,763
18,213
—
16
—
10,727
(690)
10,037
(123)
9,914
126
10,040
365
—
(4)
12
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
Investment expense attributable to unitholders
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
34,992
10,413
(15,345)
(6,073)
(6,413)
(1,528)
(1,290)
9
(1,347)
(206)
(139)
(5,700)
(567)
—
—
(2,794)
—
(751)
(13)
(10)
(32,332)
(9,835)
2,660
(43)
2,617
126
2,743
578
—
578
144
722
Total
continuing
operations
£m
29,015
(3,638)
25,377
(123)
25,254
1,946
27,200
19,330
219
27
12
46,788
(21,045)
(6,640)
(6,413)
(1,528)
(4,161)
(579)
(3,037)
(219)
(553)
Other
£m
—
—
—
—
—
76
76
751
—
15
—
842
—
—
—
—
(50)
(588)
(509)
—
(404)
(1,551)
(44,175)
(709)
—
(709)
8
(701)
2,613
(43)
2,570
279
2,849
—
—
—
—
—
321
321
1
219
—
—
541
—
—
—
—
(27)
—
(430)
—
—
(457)
84
—
84
1
85
1 General insurance and health business segment includes gross written premiums of £100 million relating to health business. The remaining business relates to property and liability insurance.
2 Gross written premiums include inward reinsurance premiums assumed from other companies amounting to £637 million, which all relates to property and liability insurance.
Aviva plc Annual Report and Accounts 2020
159
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements continued
5 – Segmental information continued
(b) (ii) Segmental income statement – products and services for the year ended 31 December 2019
Continuing operations
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 income/(expense)
Inter-segment revenue
Share of profit/(loss) after tax of joint ventures and associates
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
Investment expense attributable to unitholders
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
19,058
(2,529)
16,529
—
16,529
1,301
17,830
37,756
—
122
—
55,708
(15,774)
(5,540)
(23,878)
(3,616)
(1,151)
(157)
(1,628)
(237)
(162)
(52,143)
3,565
(501)
3,064
(265)
2,799
General
insurance and
health2
£m
Fund
management
£m
10,653
(655)
9,998
(193)
9,805
126
9,931
622
—
—
6
10,559
(6,318)
(130)
—
—
(2,653)
—
(622)
(13)
(10)
(9,746)
813
—
813
(161)
652
—
—
—
—
—
315
315
(1)
250
—
—
564
—
—
—
—
(27)
—
(445)
—
—
(472)
92
—
92
4
96
Total
continuing
operations1
£m
29,711
(3,184)
26,527
(193)
26,334
1,936
28,270
39,611
250
94
6
68,231
(22,092)
(5,670)
(23,878)
(3,616)
(3,924)
(1,355)
(3,057)
(250)
(568)
Other
£m
—
—
—
—
—
194
194
1,234
—
(28)
—
1,400
—
—
—
—
(93)
(1,198)
(362)
—
(396)
(2,049)
(64,410)
(649)
—
(649)
35
(614)
3,821
(501)
3,320
(387)
2,933
1 The 2019 comparative results have been re-presented from those previously published to reclassify certain operations in Asia as discontinued operations as described in note 1.
2 General insurance and health business segment includes gross written premiums of £704 million relating to health business. The remaining business relates to property and liability insurance.
3
Gross written premiums include inward reinsurance premiums assumed from other companies amounting to £62 million, which all relates to property and liability insurance.
Aviva plc Annual Report and Accounts 2020
160
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements continued
6 – Details of income
This note gives further detail on the items appearing in the income section of the income statement.
Continuing operations
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
Reinsurers’ share of change in provision for unearned premiums
Net change in provision for unearned premiums
Net earned premiums
Fee and commission income
Fee income from investment contract business
Fund management fee income
Other fee income
Reinsurance commissions receivable
Other commission income
Net change in deferred revenue
Total revenue
Net investment income
Interest and similar income
From financial instruments designated as trading and other than trading
From AFS investments and financial instruments at amortised cost
Dividend income
Other income from investments designated as trading
Realised (losses)/gains on disposals
Unrealised gains and losses (see accounting policy K)
Gains arising in the year
Gains/(losses) recognised now realised
Other income from investments designated as other than trading
Realised gains on disposals
Unrealised gains and losses (see accounting policy K)
Gains arising in the year
Losses recognised now realised
Realised gains on AFS investments
Gains recognised in prior periods as unrealised in equity
Net income from investment properties
Rent
Expenses relating to these properties
Realised gains on disposal
Fair value (losses)/gains on investment properties (note 22)
Foreign exchange losses on investments other than trading
Other investment expenses
Net investment income
Share of profit after tax of joint ventures
Share of profit after tax of associates
Share of profit after tax of joint ventures and associates
Profit on disposal and remeasurement of subsidiaries, joint ventures and associates
Income from continuing operations
Income from discontinued operations
Total income
1 The 2019 comparative results have been re-presented from those previously published to reclassify certain operations in Asia as discontinued operations as described in note 1.
Aviva plc Annual Report and Accounts 2020
161
2020
£m
20191
£m
13,272
5,016
10,727
29,015
(3,638)
(150)
27
(123)
11,633
7,425
10,653
29,711
(3,184)
(216)
23
(193)
25,254
26,334
863
439
436
40
162
6
886
437
426
31
175
(19)
1,946
1,936
27,200
28,270
5,604
19
5,623
3,434
5,819
49
5,868
5,568
(238)
1,393
1,242
238
1,480
1,242
1,839
(1,393)
446
1,839
4,081
8,847
9,164
(4,079)
5,085
9,166
26,272
(8,847)
17,425
26,272
7
19
554
(124)
5
(372)
63
(67)
(138)
555
(158)
58
93
548
(458)
(45)
19,330
39,611
9
18
27
12
32
62
94
6
46,569
67,981
2,226
2,271
48,795
70,252
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements continued
7 – Details of expenses
This note gives further detail on the items appearing in the expenses section of the income statement.
Continuing operations
Claims and benefits paid
Claims and benefits paid to policyholders on long-term business
Insurance contracts
Participating investment contracts
Non-participating investment contracts
Claims and benefits paid to policyholders on general insurance and health business
Less: Claim recoveries from reinsurers
Insurance contracts
Participating investment contracts
Claims and benefits paid, net of recoveries from reinsurers
Change in insurance liabilities
Change in insurance liabilities (note 41(b))
Change in reinsurance asset for insurance provisions (note 41(b))
Change in insurance liabilities, net of reinsurance
Change in investment contract provisions
Investment expense allocated to investment contracts
Other changes in provisions
Participating investment contracts (note 44(c)(i))
Non-participating investment contracts
Change in reinsurance asset for investment contract provisions
Change in investment contract provisions
Change in unallocated divisible surplus
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
Reinsurance commissions and other fee and commission expense
Fee and commission expense
Investment expense attributable to unitholders
Other expenses
Other operating expenses
Staff costs (note 11(b))
Central costs
Depreciation
Impairment of goodwill on subsidiaries
Amortisation of acquired value of in-force business on insurance/investment contracts
Amortisation of intangible assets
Impairment of intangible assets
Other expenses (see below)
Impairments
Net impairment on loans
Net impairment on financial investments
Net impairment on receivables and other financial assets
Net impairment on non-financial assets
Other net foreign exchange losses/(gains)
Other expenses
Finance costs (note 8)
Expenses from continuing operations
Expenses from discontinued operations
Total expenses
1 The 2019 comparative results have been re-presented from those previously published to reclassify certain operations in Asia as discontinued operations as described in note 1.
Other expenses were £1,135 million (2019: £1,277 million) which mainly included costs relating to property and IT.
Aviva plc Annual Report and Accounts 2020
162
2020
£m
20191
£m
11,197
5,927
6
5,987
23,117
12,100
5,333
7
6,575
24,015
(2,069)
(3)
(1,926)
3
21,045
22,092
8,121
(1,481)
6,640
6,434
(764)
5,670
5,783
14,972
405
225
—
6,413
1,528
2,718
(207)
32
1,058
98
462
4,161
579
998
250
103
17
214
193
23
1,135
2
1
(7)
(1)
109
7,365
1,550
(9)
23,878
3,616
2,669
(161)
39
976
(71)
472
3,924
1,355
1,100
183
93
2
280
204
13
1,277
4
—
10
—
(109)
3,037
553
43,956
1,278
45,234
3,057
568
64,160
2,159
66,319
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements continued
8 – Finance costs
This note analyses the interest costs on our borrowings (which are described in note 52) and similar charges. Finance costs comprise:
Continuing operations
Interest expense on core structural borrowings
Subordinated debt
Long term senior debt
Commercial paper
Interest expense on operational borrowings
Amounts owed to financial institutions
Securitised mortgage loan notes at fair value
Interest on collateral received
Net finance charge on pension schemes (note 51(b)(i))
Interest on lease liabilities
Other similar charges
Finance costs from continuing operations
Finance costs from discontinued operations
Total finance costs
2020
£m
20191
£m
352
16
(1)
367
14
75
89
2
17
11
67
553
—
553
336
16
(1)
351
21
77
98
10
23
14
72
568
8
576
1 The 2019 comparative results have been re-presented from those previously published to reclassify certain operations in Asia as discontinued operations as described in note 1.
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.
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Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements continued
9 – Life business investment variances and economic assumption changes continued
(c) 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
France1
Other Eurozone
2020
4.5%
4.5%
3.7%
Equity
2019
4.9%
4.3%
4.3%
2020
3.0%
3.5%
2.2%
Property
2019
3.4%
2.8%
2.8%
1
In light of the current unprecedented low interest rates, the expected investment return on equity and property in France have been determined taking into account local economic and market forecasts of the long-term return.
The impact of this change is an increase of £12 million to the expected return on the life business over 2020.
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
2020
3.5%
2.0%
2019
3.5%
2.0%
2020
1.0%
0.2%
2019
1.4%
0.8%
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.
(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
2020
£m
174
2019
£m
654
Investment variances and economic assumption changes were £174 million positive (2019: £654 million positive), mainly due to a reduction
in yields, partially offset by a reduction in equities in the UK and France.
At 31 December 2019 we included a specific allowance for the possible adverse impacts of the UK’s exit from the European Union on UK
commercial and residential property, which we have now removed. Our future property growth assumptions are reviewed on a quarterly
basis and as at 31 December 2020 they include a cumulative 5-year growth assumption, from 2021-25, of -1% for UK commercial property
(with variation by sector) and 4% for UK residential property.
Investment variance and economic assumption changes in 2019 was 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 reflect that
we hedge on an economic rather than on an IFRS basis.
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)
2020
£m
(64)
(104)
(168)
2019
£m
167
(54)
113
(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.
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Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements continued
10 – Non-life business: short-term fluctuations in return on investments continued
(b) Methodology continued
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
France1
Other eurozone
Canada
Long-term rates
of return equities
Long-term rates
of return properties
2020
%
4.5
4.5
3.7
5.7
2019
%
4.9
4.3
4.3
6.0
2020
%
3.0
3.5
2.2
4.2
2019
%
3.4
2.8
2.8
4.5
1
In light of the current unprecedented low interest rates, the expected investment return on equity and property in France have been determined taking into account local economic and market forecasts of the long-term return.
The impact of this change is an increase of £5 million to the expected return on the general insurance business over 2020.
The long-term rates of return on equities and 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.
(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
Foreign exchange (losses)/gains 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
2020
£m
322
(45)
277
341
(15)
(49)
(64)
277
2019
£m
511
55
566
399
296
(129)
167
566
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 2020 of £64 million adverse is primarily due to falling equity markets and foreign exchange losses. These
losses are partly offset by an increase in the value of fixed income securities as a result of falls in interest rates.
The short-term fluctuations during 2019 were mainly 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.
(e) Economic assumption changes
In the general insurance and health business, there is a negative impact of £104 million (2019: £54 million negative) primarily as a result of a
decrease in the interest rates used to discount claims reserves for both periodic payment orders (PPOs) and latent claims.
As explained in accounting policy L, provisions for latent claims are discounted, using rates based on the relevant swap curve, in the relevant
currency at the reporting date, having regard to the duration of the expected settlement of the claims. The discount rate is set at the start of
the accounting period, with any change in rates between the start and end of the accounting period being reflected below Group adjusted
operating profit as an economic assumption change. The range of discount rates used is disclosed in note 43.
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Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements continued
11 – Employee information
This note shows where our staff are employed throughout the world, excluding staff employed by our joint ventures and associates, and
analyses the total staff costs. The comparative amounts in (a) and (b) have been re-presented from those previously published to reclassify
certain operations in Asia as discontinued operations as described in note 1.
(a) Employee numbers
The number of persons employed by the Group, including directors under a service contract, was:
Continuing operations
UK & Ireland Life
UK & Ireland General Insurance
Canada
Aviva Investors
Manage-for-value
France
Poland
Italy
Other
Other Group activities
Employees in continuing operations
Employees in discontinued operations
Total employee numbers
At 31 December
2020
Number
8,746
7,817
4,163
1,483
3,799
1,769
555
61
203
Restated2
2019
Number
9,022
7,759
4,264
1,495
3,911
1,861
548
245
445
Average for the year1
Restated2
2019
Number
2020
Number
8,860
7,942
4,198
1,492
3,845
1,768
551
215
208
9,312
7,964
4,338
1,485
3,925
1,918
542
240
465
28,596
334
29,550
1,631
29,079
1,734
28,930
31,181
30,813
30,189
1,602
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.
2 The 2019 comparative amounts have been restated from those previously published due to the change in presentation of segmental information. See note 1.
(b) Staff costs
Continuing operations
Wages and salaries
Social security costs
Post-retirement obligations
Defined benefit schemes (note 51(d))
Defined contribution schemes (note 51(d))
Profit sharing and incentive plans
Equity compensation plans
Termination benefits
Staff costs from continuing operations
Staff costs from discontinued operations
Total staff costs
Staff costs are charged within:
Continuing operations
Acquisition costs
Claims handling expenses
Central costs
Other operating expenses (note 7)
Staff costs from continuing operations
Staff costs from discontinued operations
Total staff costs
2020
£m
2019
£m
1,182
237
1,236
235
18
168
185
48
19
1,857
73
1,930
2020
£m
599
205
55
998
1,857
73
1,930
22
162
193
62
34
1,944
92
2,036
2019
£m
580
197
67
1,100
1,944
92
2,036
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 2020 was £5.0 million (2019: £7.0 million). Employer contributions to pensions for
executive directors for qualifying periods were £nil (2019: £18,813). The aggregate net value of share awards granted to the directors in the
period was £6.8 million (2019: £8.0 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 (2019: no share options).
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Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements continued
13 – Auditors’ remuneration
This note shows the total remuneration payable by the Group, excluding VAT and any overseas equivalent thereof, to our auditors.
Continuing operations
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 classified as continuing
operations
Fees payable to PwC LLP and its associates for Group occupational pensions scheme audits
Discontinued operations
Fees payable to PwC LLP and its associates for Audit of Group subsidiaries
Fees payable to PwC LLP and its associates for Audit related assurance
Total fees payable to PwC LLP and its associates for services to Group companies
2020
£m
1.9
12.6
1.0
15.5
4.9
3.4
23.8
—
—
—
—
23.8
0.4
0.3
24.5
0.1
2020
£m
0.8
—
0.8
20191
£m
1.8
12.4
0.8
15.0
4.6
0.7
20.3
—
—
—
0.1
20.4
0.4
0.3
21.1
0.3
2019
£m
1.3
0.3
1.6
1 The 2019 comparative amounts have been re-presented from those previously published to reclassify the amounts relating to certain operations in Asia as discontinued operations as described in note 1.
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. In addition to these fees, audit fees payable to PwC LLP in respect of investment funds consolidated in the Group financial
statements were £2.7 million (2019: £2.4 million). These fees are borne directly by the unitholders of the funds and are not borne by 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 2020, 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 for continuing and discontinued operations
(including additional fees related to the prior year audit of Group subsidiaries) and audit-related assurance fees were £21.2 million
(2019: £21.2 million).
Other assurance services in 2020 of £3.4 million (2019: £0.7 million) mainly include a fee of £2.4 million to undertake a ‘reasonable assurance’
review of the Solvency II Partial Internal Model following the correction of the misapplication of regulatory rules in our French actuarial models
and 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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IFRS financial statements
Other information
Notes to the consolidated financial statements continued
14 – Tax
This note analyses the tax charge for the year and explains the factors that affect it. The comparative amounts in (a), (b) and (d) have been
re-presented from those previously published to reclassify certain operations in Asia as discontinued operations as described in note 1.
(a) Tax charged to the income statement
(i) The total tax charge comprises:
Continuing operations
Current tax
For the period
Prior period adjustments
Total current tax from continuing operations
Deferred tax
Origination and reversal of temporary differences
Changes in tax rates or tax laws
Write (back) of deferred tax assets
Total deferred tax from continuing operations
Total tax charged to income statement from continuing operations
Total tax charged to income statement from discontinued operations
Total tax charged to income statement
2020
£m
2019
£m
648
(64)
584
12
(14)
(11)
(13)
571
80
651
1,041
(178)
863
344
(6)
—
338
1,201
69
1,270
(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 £87 million (2019: £559 million) of which
£43 million (2019: £501 million) relates to continuing operations and £44 million (2019: £58 million) relates to discontinued operations.
(iii) The tax charge from continuing operations above, comprising current and deferred tax, can be analysed as follows:
Continuing operations
UK tax
Overseas tax
2020
£m
259
312
571
2019
£m
851
350
1,201
(iv) Unrecognised tax losses and temporary differences of previous years were used to reduce the current tax expense and deferred tax charge
by £6 million and £11 million (2019: £nil and £11 million), respectively.
(v) Deferred tax charged/(credited) to the income statement represents movements on the following items:
Continuing operations
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
Total deferred tax (credited)/charged to income statement from continuing operations
Total deferred tax charged to income statement from discontinued operations
Total deferred tax charged to income statement
(b) Tax charged/(credited) to other comprehensive income
(i) The total tax charge/(credit) comprises:
Current tax from continuing operations
In respect of pensions and other post-retirement obligations
In respect of foreign exchange movements
Deferred tax from continuing operations
In respect of pensions and other post-retirement obligations
In respect of fair value gains on owner-occupied properties
In respect of unrealised gains on investments
Total tax charged/(credited) to other comprehensive income arising from continuing operations
Total tax charged/(credited) to other comprehensive income arising from discontinued operations
Total tax charged/(credited) to other comprehensive income
Aviva plc Annual Report and Accounts 2020
168
2020
£m
2019
£m
(339)
16
343
(2)
(32)
6
(23)
18
(13)
70
57
2020
£m
(34)
9
(25)
55
1
2
58
33
—
33
(1,241)
4
1,554
21
13
4
(63)
46
338
49
387
2019
£m
(49)
(10)
(59)
(56)
1
5
(50)
(109)
—
(109)
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements continued
14 – Tax continued
(ii) There is no tax charge/(credit) attributable to policyholders’ return included above in either 2020 or 2019.
(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 £nil
(2019: £9 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:
Profit before tax from continuing operations
Profit before tax from discontinued operations
Total profit before tax
Tax calculated at standard UK corporation tax rate of 19.00% (2019: 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 to income statement
Shareholder
£m
Policyholder
£m
2020
£m
Shareholder
£m
Policyholder
£m
2,570
904
3,474
660
—
(30)
(72)
(138)
33
100
30
(3)
(10)
(6)
564
43
44
87
17
73
—
—
—
—
(3)
—
—
—
—
87
2,613
948
3,561
3,320
54
3,374
677
641
73
(30)
(72)
(138)
33
97
30
(3)
(10)
(6)
651
—
5
(51)
(1)
41
98
(6)
(4)
(8)
(4)
711
501
58
559
106
454
—
—
—
—
(1)
—
—
—
—
559
2019
£m
3,821
112
3,933
747
454
5
(51)
(1)
41
97
(6)
(4)
(8)
(4)
1,270
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.
The rate of corporation tax in the UK was due to be reduced from 19% to 17% from 1 April 2020. In addition, the French government has
introduced a stepped reduction to the French corporation tax rate from 34.43% to 25.83% from 1 January 2022. These reduced rates were
used in the calculation of deferred tax assets and liabilities in the UK and France at 31 December 2019.
During 2020, the reduction in the UK corporation tax rate that was due to take effect from 1 April 2020 was cancelled and as a result, the rate
has remained at 19%. This revised rate has been used in the calculation of the UK’s deferred tax assets and liabilities as at 31 December 2020
and increased the Group’s deferred tax liabilities by £81 million.
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. The comparative amounts in (a) and (b) have been re-presented from those previously published to reclassify certain
operations in Asia as discontinued operations as described in note 1.
(a) Basic earnings per share
(i) The profit attributable to ordinary shareholders is:
Continuing operations
Profit before tax attributable to shareholders’ profits
Tax attributable to shareholders’ profits
Profit from continuing operations
Amount attributable to non-controlling interests
Cumulative preference dividends for the year
Coupon payments in respect of DCI and tier 1 notes (net of tax)
Profit attributable to ordinary shareholders from continuing operations
Profit/(loss) attributable to ordinary shareholders from discontinued operations
Profit attributable to ordinary shareholders
Group
adjusted
operating
profit
£m
Adjusting
items
£m
2,849
(596)
2,253
(98)
(17)
(27)
2,111
274
2,385
(279)
68
(211)
(14)
—
—
(225)
594
369
2020
Total
£m
2,570
(528)
2,042
(112)
(17)
(27)
1,886
868
2,754
Group
adjusted
operating
profit
£m
Adjusting
items
£m
2,933
(640)
2,293
(98)
(17)
(34)
2,144
223
2,367
387
(60)
327
(17)
—
—
310
(180)
130
2019
Total
£m
3,320
(700)
2,620
(115)
(17)
(34)
2,454
43
2,497
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Other information
Notes to the consolidated financial statements continued
15 – Earnings per share continued
(a) Basic earnings per share continued
(ii) Basic earnings per share is calculated as follows:
Continuing operations
Group adjusted operating profit attributable to ordinary shareholders2
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 combinations
Amortisation and impairment of acquired value of in-force business
Loss on disposal and remeasurement of subsidiaries, joint ventures and associates
Other
Profit attributable to ordinary shareholders from continuing operations
Discontinued operations
Group adjusted operating profit attributable to ordinary shareholders2
Adjusting items
Profit attributable to ordinary shareholders from discontinued operations
2020
Net of tax, NCI,
preference
dividends and
DCI
£m
Before tax
£m
Per share
p
Before tax
£m
Net of tax, NCI,
preference
dividends and
DCI1
£m
2019
Per share
p
2,849
2,111
53.8
2,933
2,144
54.8
224
(64)
(104)
(29)
(70)
(214)
12
(34)
2,570
312
592
904
143
(11)
(83)
(27)
(55)
(174)
12
(30)
1,886
274
594
868
3.6
(0.3)
(2.1)
(0.7)
(1.4)
(4.4)
0.3
(0.7)
683
167
(54)
(11)
(77)
(280)
6
(47)
558
118
(33)
(11)
(51)
(230)
5
(46)
48.1
3,320
2,454
7.0
15.1
22.1
70.2
251
(197)
54
223
(180)
43
3,374
2,497
14.3
3.0
(0.8)
(0.3)
(1.3)
(5.9)
0.1
(1.2)
62.7
5.7
(4.6)
1.1
63.8
Profit attributable to ordinary shareholders
3,474
2,754
1 DCI includes the direct capital instrument and tier 1 notes.
2 Group adjusted operating earnings per share from continuing operations and discontinued operations is 60.8p (2019: 60.5p).
(iii) The calculation of basic earnings per share uses a weighted average of 3,925 million (2019: 3,911 million) ordinary shares in issue, after
deducting treasury shares. The actual number of shares in issue at 31 December 2020 was 3,928 million (2019: 3,921 million) or 3,926 million
(2019: 3,919 million) excluding treasury shares.
(b) Diluted earnings per share
(i) Diluted earnings per share is calculated as follows:
Continuing operations
Profit attributable to ordinary shareholders
Dilutive effect of share awards and options
Diluted earnings per share from continuing operations
Discontinued operations
Profit attributable to ordinary shareholders
Dilutive effect of share awards and options
Diluted earnings per share from discontinued operations
Diluted earnings per share
Weighted
average
number of
shares
million
3,925
19
3,944
3,925
19
3,944
3,944
Total
£m
1,886
—
1,886
868
—
868
2,754
2020
Per share
p
Total
£m
Weighted
average
number of
shares
million
20191
Per share
p
48.1
(0.3)
47.8
22.1
(0.1)
22.0
69.8
2,454
—
2,454
43
—
43
2,497
3,911
14
3,925
3,911
14
3,925
3,925
62.7
(0.2)
62.5
1.1
—
1.1
63.6
1 Following a revision to the methodology to correctly allow for unvested share options in the calculation of the dilutive effect of share awards, the 2019 comparative amounts have been amended from those previously reported.
(ii) Diluted earnings per share on Group adjusted operating profit attributable to ordinary shareholders is calculated as follows:
Continuing operations
Group adjusted operating profit attributable to ordinary shareholders
Dilutive effect of share awards and options
Diluted group adjusted operating profit per share from continuing operations
Discontinued operations
Group adjusted operating profit attributable to ordinary shareholders
Dilutive effect of share awards and options
Diluted group adjusted operating profit per share from discontinued operations
Diluted group adjusted operating profit per share
Weighted
average
number of
shares
million
3,925
19
3,944
3,925
19
3,944
3,944
Total
£m
2,111
—
2,111
274
—
274
2,385
2020
Per share
p
Total
£m
53.8
(0.3)
53.5
7.0
—
7.0
2,144
—
2,144
223
—
223
60.5
2,367
Weighted
average
number of
shares
million
20191
Per share
p
3,911
14
3,925
3,911
14
3,925
3,925
54.8
(0.2)
54.6
5.7
—
5.7
60.3
1 Following a revision to the methodology to correctly allow for unvested share options in the calculation of the dilutive effect of share awards, the 2019 comparative amounts have been amended from those previously reported.
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Notes to the consolidated financial statements continued
16 – Dividends and appropriations
This note analyses the total dividends and other appropriations paid during the year, as set out in the table below. Details are also provided
of the 2020 interim dividend, paid in January 2021, and the proposed final dividend for 2020, which are not accrued in these financial
statements and are therefore excluded from the table.
Ordinary dividends declared and charged to equity in the period
Final 2019 – 21.40 pence per share, withdrawn on 8 April 2020
Final 2018 – 20.75 pence per share, paid on 30 May 2019
Second interim 2019 – 6.00 pence per share, paid on 24 September 2020
Interim 2019 – 9.50 pence per share, paid on 26 September 2019
Preference dividends declared and charged to equity in the period
Coupon payments on DCI and tier 1 notes
2020
£m
—
—
236
—
236
17
27
280
2019
£m
—
812
—
372
1,184
17
43
1,244
On 21 January 2021, an interim dividend of 7.00 pence per ordinary share was paid in respect of the 2020 financial year, amounting to
£275 million, and will be accounted for as an appropriation of retained earnings in the year ending 31 December 2021. In respect of the 2019
financial year, two interim dividends were paid: 9.50 pence per ordinary share, amounting to £372 million, on 26 September 2019, accounted
for as an appropriation of retained earnings in the year ended 31 December 2019, and a second payment of 6.00 pence per ordinary share,
amounting to £236 million, on 24 September 2020, accounted for as an appropriation of retained earnings in the year ended
31 December 2020.
Subsequent to 31 December 2020, the directors proposed a final dividend for 2020 of 14 pence per ordinary share, amounting to £550 million
in total. Subject to approval by shareholders at the AGM, the dividend will be paid on 14 May 2021 and will be accounted for as an
appropriation of retained earnings in the year ending 31 December 2021. Subsequent to 31 December 2019, the directors agreed a final
dividend for 2019 of 21.40 pence per ordinary share, amounting to £839 million. On 8 April 2020 the Group announced that the Board of
Directors had agreed to withdraw this recommendation.
On 23 June 2020, notification was given that the Group would redeem the 5.9021% £500 million DCI at its principal amount together with
accrued interest to (but excluding) 27 July 2020, the date on which the DCI was redeemed. Interest payable up to 23 June 2020 has been
recorded as an appropriation of retained profits with the remaining interest payable from 24 June 2020 until the redemption date recorded
within profit before tax attributable to shareholders’ profits. In prior periods, the interest on the DCI and tier 1 notes was treated as an
appropriation of retained profits and, accordingly, accounted for when paid.
17 – Goodwill
This note analyses the changes to the carrying amount of goodwill during the year and details the results of our impairment testing on both
goodwill and intangible assets with indefinite lives.
(a) Carrying amount
Gross amount
At 1 January
Acquisitions and additions
Disposals
Foreign exchange rate movements
At 31 December
Accumulated impairment
At 1 January
Impairment charges
Disposals
Foreign exchange rate movements
At 31 December
Carrying amount at 1 January
Carrying amount at 31 December
Less: Assets classified as held for sale
Carrying amount at 31 December
2020
£m
2019
£m
1,968
—
(55)
8
1,921
(113)
(16)
16
(3)
(116)
1,855
1,805
(6)
1,991
4
(5)
(22)
1,968
(119)
(6)
—
12
(113)
1,872
1,855
—
1,799
1,855
Disposals in 2020 relate to the disposals of FPI, Singapore and a small disposal in Canada. Disposals in 2019 relate to a small disposal in
Canada.
The total impairment of goodwill in 2020 is a charge of £16 million (2019: £6 million) comprised of impairments of goodwill relating to
businesses in Canada. Impairment tests on goodwill were conducted as described in note 17(b) below.
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Notes to the consolidated financial statements continued
17 – Goodwill continued
(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
Ireland – general insurance and health
Canada
France – long-term business
Italy – general insurance and health
Poland
Other
Carrying amount of goodwill
Carrying amount of intangibles
with indefinite useful lives
(detailed in note 18)
2020
£m
663
927
98
60
—
26
25
6
2019
£m
663
927
94
77
—
24
25
45
1,805
1,855
2020
£m
—
1
—
—
55
—
7
—
63
2019
£m
—
1
—
—
52
—
7
1
61
2020
£m
663
928
98
60
55
26
32
6
Total
2019
£m
663
928
94
77
52
24
32
46
1,868
1,916
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.
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
2020
%
1
Nil
Nil
5
2019
%
1
Nil
Nil
4
2020
(Pre-tax)
%
7.5
7.7
11.0
8.7
2019
(Pre-tax)
%
6.8
6.8
10.3
8.0
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Other information
Notes to the consolidated financial statements continued
17 – Goodwill continued
(b) Goodwill allocation and impairment testing continued
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 £16 million
which relates to two different 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.
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 2019
Additions and transfers
Disposals
Foreign exchange rate movements
At 31 December 2019
Additions and transfers
Disposals
Foreign exchange rate movements
At 31 December 2020
Accumulated amortisation
At 1 January 2019
Amortisation for the year
Disposals and transfers
Foreign exchange rate movements
At 31 December 2019
Amortisation for the year3
Disposals and transfers
Foreign exchange rate movements
At 31 December 2020
Accumulated Impairment
At 1 January 2019
Impairment charges
Disposals
Foreign exchange rate movements
At 31 December 2019
Impairment charges
Disposals
Foreign exchange rate movements
At 31 December 2020
Carrying amount
At 1 January 2019
At 31 December 2019
At 31 December 2020
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
2,692
—
—
(21)
2,671
—
(108)
18
2,581
(1,247)
(180)
—
18
(1,409)
(132)
73
(16)
(1,484)
(27)
—
—
—
(27)
—
8
—
(19)
1,418
1,235
1,078
(6)
1,072
2,726
—
—
(1)
2,725
—
(1,295)
2
1,432
(1,081)
(226)
—
1
(1,306)
(146)
708
—
(744)
(147)
(28)
—
—
(175)
(19)
170
—
(24)
1,498
1,244
664
—
664
1,623
136
(36)
(6)
1,717
76
(187)
1
1,607
(703)
(212)
28
—
(887)
(197)
177
2
(905)
(38)
(13)
6
1
(44)
(23)
7
(1)
(61)
882
786
641
(6)
635
134
2
(1)
(7)
128
—
—
6
134
—
—
—
—
—
—
—
—
—
(71)
—
—
4
(67)
—
—
(4)
(71)
63
61
63
—
63
Total
£m
7,175
138
(37)
(35)
7,241
76
(1,590)
27
5,754
(3,031)
(618)
28
19
(3,602)
(475)
958
(14)
(3,133)
(283)
(41)
6
5
(313)
(42)
185
(5)
(175)
3,861
3,326
2,446
(12)
2,434
1 On insurance and participating investment contracts.
2 On non-participating investment contracts.
3 Amortisation of other intangible assets with finite useful lives includes £76 million (2019: £87 million) of amortisation in respect of intangible assets acquired in business combinations.
(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 £1,742 million, £1,553 million
(2019: £2,380 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)).
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Notes to the consolidated financial statements continued
18 – Acquired value of in-force business (AVIF) and intangible assets continued
(a) Acquired value of in-force business continued
In 2020, an impairment charge of £19 million (2019: £28 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.
(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 2020 and 2019 relate to capitalisation of software costs in relation to the Group’s
digital initiatives. Impairments totalling £23 million have been recognised in 2020 in relation to capitalised software.
(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 2020 (2019: £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 intangibles
Share of (loss)/profit after tax
Reclassification from subsidiary
Acquisitions
Additions
Disposals
Share of gains 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
Goodwill and
intangibles
£m
38
—
—
—
(4)
(4)
—
—
—
(18)
—
—
(4)
12
—
12
Equity
interests
£m
1,197
10
(7)
3
—
3
45
457
47
(29)
17
(39)
(8)
2020
Total
£m
1,235
10
(7)
3
(4)
(1)
45
457
47
(47)
17
(39)
(12)
1,690
1,702
—
—
1,690
1,702
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
Acquisitions of £457 million represents the Group’s 25.95% equity shareholding in Aviva Singlife Holdings Pte. Ltd recognised as part of the
consideration received on sale of the Aviva Singapore business on 30 November 2020. More details of this transaction are set out in note 4(b).
The reclassification from subsidiary and additions during 2020 relate to changes in the Group’s holdings in property management
undertakings.
Disposals of £47 million comprises the sale of the entire shareholdings in the Group’s joint ventures in Indonesia and Hong Kong, which are
detailed in note 4(b).
The Group’s share of total comprehensive income related to joint venture entities is £16 million (2019: £40 million).
(ii) The carrying amount at 31 December comprised:
Property management undertakings
Long-term business undertakings
General insurance and health undertakings
Total
Goodwill and
intangibles
£m
—
12
—
12
Equity
interests
£m
807
883
—
1,690
2020
Total
£m
807
895
—
1,702
Goodwill and
intangibles
£m
Equity
interests
£m
2019
Total
£m
792
435
8
792
397
8
—
38
—
38
1,197
1,235
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 Co. Ltd, which are held by Aviva plc. The Group’s
share of net assets of that company is £378 million (2019: £320 million) and it has a carrying value at cost of £123 million
(2019: £123 million).
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Other information
Notes to the consolidated financial statements continued
19 – Interests in, and loans to, joint ventures continued
(iii) No joint ventures are considered to be material from a Group perspective (2019: none). The Group’s principal joint ventures are as follows:
Proportion of
ownership interest
Name
Nature of activities
Principal place of business
2020
2019
Ascot Real Estate Investments LP
2-10 Mortimer Street Limited Partnership
Aviva-COFCO Life Insurance Co. Ltd
Aviva Singlife Holdings Pte. Ltd
PT Astra Aviva Life
Aviva Life Insurance Company Limited
AvivaSA Emeklilik ve Hayat A.S
Property management
Property management
Life insurance
Insurance holding company
Life and Health insurance
Life insurance
Life insurance
UK
UK
China
Singapore
Indonesia
Hong Kong
Turkey
50.00%
50.00%
50.00%
25.95%
—
—
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 2020 this includes a contingent liability in respect of a dispute where the Group’s maximum exposure is approximately
£65 million (2019: £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 £4 million (2019: £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).
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
Additions
Disposals
Reduction in Group interest
Dividends received from associates
Foreign exchange rate movements
Movements in carrying amount
At 31 December
2020
Equity
interests
£m
2019
Equity
interests
£m
304
18
11
29
(13)
16
3
(38)
(3)
(18)
(1)
(41)
304
80
(4)
76
(9)
67
2
—
(1)
(54)
(14)
—
263
304
Disposals of £38 million represents the Group’s interest in Lend Lease JEM Partners Fund Limited which formed part of the sale of a majority
shareholding in Aviva Singapore, as set out in note 4(b).
The Group’s share of total comprehensive income related to associates is £16 million (2019: £67 million).
(ii) No associates are considered to be material from a Group perspective (2019: 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.
Aviva plc Annual Report and Accounts 2020
175
Proportion of
ownership interest
2020
2019
49.00%
44.46%
—
20.40%
19.39%
49.00%
44.46%
22.50%
20.40%
17.53%
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements continued
20 – Interests in, and loans to, associates continued
(a) Carrying amount and details of associates continued
(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 £nil (2019: £6 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 £13 million (2019: £9 million) 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).
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 2019
Adjustment at 1 January 2019 for adoption of IFRS 16
At 1 January 2019 restated
Additions
Disposals
Fair value losses
Foreign exchange rate movements
At 31 December 2019
Additions
Disposals
Fair value losses
Foreign exchange rate movements
At 31 December 2020
Depreciation and impairment
At 1 January 2019
Adjustment at 1 January 2019 for adoption of IFRS 16
At 1 January 2019 restated
Depreciation charge for the year
Disposals
Impairment charge
Foreign exchange rate movements
At 31 December 2019
Depreciation charge for the year
Disposals
Impairment charge
Foreign exchange rate movements
At 31 December 2020
Carrying amount
At 31 December 2019
At 31 December 2020
Less: Assets classified as held for sale
At 31 December 2020
Owner -occupied properties
Freehold
£m
Leasehold
£m
Properties
under
construction
£m
Motor
vehicles
£m
Computer
equipment
£m
Other assets
£m
Total
£m
359
—
359
11
(4)
(3)
(14)
349
20
(11)
(2)
15
—
1,149
1,149
42
(2)
—
(4)
1,185
65
(31)
—
(3)
371
1,216
(3)
—
(3)
—
—
(22)
—
(25)
—
—
(11)
—
(36)
324
335
(69)
266
—
(739)
(739)
(62)
1
—
—
(800)
(66)
22
(40)
5
(879)
385
337
—
337
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4
—
4
—
—
—
—
4
10
—
—
—
14
(3)
—
(3)
—
—
—
—
(3)
(4)
—
—
—
(7)
1
7
—
7
175
—
175
19
(16)
—
(3)
175
5
(82)
—
3
306
—
306
12
(16)
—
(6)
296
7
(42)
—
7
844
1,149
1,993
84
(38)
(3)
(27)
2,009
107
(166)
(2)
22
101
268
1,970
(137)
—
(137)
(16)
16
—
2
(135)
(16)
77
—
(1)
(75)
40
26
—
26
(148)
—
(148)
(20)
15
—
4
(149)
(24)
39
(1)
(1)
(136)
147
132
—
132
(291)
(739)
(1,030)
(98)
32
(22)
6
(1,112)
(110)
138
(52)
3
(1,133)
897
837
(69)
768
Owner-occupied properties, excluding £337 million (2019: £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.
Aviva plc Annual Report and Accounts 2020
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Notes to the consolidated financial statements continued
21 – Property and equipment continued
Owner-occupied properties held under lease arrangements are stated at amortised cost and are amortised on a straight-line basis over the
lease term, unless the carrying value of the leased asset exceeds the recoverable amount. Where this is the case, the asset is impaired to its
recoverable amount and the impaired carrying value is amortised on a straight-line basis over the remainder of 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 £426 million (2019: £431 million).
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
Additions
Capitalised expenditure on existing properties
Fair value (losses)/gains
Disposals
Foreign exchange rate movements
At 31 December
Less: Assets classified as held for sale
At 31 December
Freehold
£m
Leasehold
£m
2020
Total
£m
Freehold
£m
Leasehold
£m
9,379
1,190
41
(298)
(662)
256
9,906
—
1,824
17
14
(74)
(337)
19
11,203
1,207
55
(372)
(999)
275
1,463
11,369
—
—
9,601
731
143
183
(1,036)
(243)
9,379
—
1,881
189
68
(90)
(200)
(24)
1,824
—
2019
Total
£m
11,482
920
211
93
(1,236)
(267)
11,203
—
9,906
1,463
11,369
9,379
1,824
11,203
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 2020 was £11,094 million
(2019: £10,931 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
On 1 January 2019 the Group adopted IFRS 16 Leases, the standard which replaced IAS 17 Leases. Adoption of the standard 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 within the comparative numbers. 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 53).
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).
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
2020
£m
10
10
2019
£m
14
14
Total cash outflows recognised in the period in relation to leases were £76 million (2019: £70 million). Expenses recognised in the Group
consolidated income statement in relation to short-term and low-value leases were £nil (2019: £nil). Variable lease payments not included in
the measurement of lease liabilities were £nil (2019: £nil).
(ii) The following table analyses the right-of-use assets, primarily relating to leased properties occupied by Group companies.
Balance at 1 January
Additions
Disposals
Foreign exchange rate movements
Impairment of right-of-use assets
Depreciation
Balance at 31 December
Aviva plc Annual Report and Accounts 2020
177
2020
Total
£m
385
66
(9)
2
(40)
(66)
338
2019
Total
£m
410
42
(1)
(4)
—
(62)
385
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IFRS financial statements
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Notes to the consolidated financial statements continued
23 – Lease assets and liabilities continued
There were no gains arising from sale and leaseback transactions during the year. Included within the income statement is £3 million
(2019: £2 million) of income in respect of sublets of right-of-use assets. Impairment of right-of-use assets of £40 million arises from the
reduction in the Group’s property footprint.
(iii) Lease liabilities included within note 53 total £533 million (2019: £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
2020
£m
152
214
198
564
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 not 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
2020
£m
266
223
193
162
179
1,233
2,256
2019
£m
265
205
183
161
208
1,599
2,621
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
(a) Basis for determining fair value hierarchy 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 16.7% (2019: 16.8%) of assets and 1.2% (2019: 3.1%) 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 2019 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.
2020
Carrying
amount
£m
Fair value
£m
2019
Carrying
amount
£m
Fair value
£m
Financial assets
Loans (note 25(a))
Financial investments (note 28(a))
Fixed maturity securities
Equity securities
Other investments (including derivatives)
Financial liabilities
Non-participating investment contracts (note 44(a))
Net asset value attributable to unitholders
Borrowings (note 52(a))1
Derivative liabilities (note 60(b))
43,672
43,679
351,378 351,378
202,837 202,837
100,404 100,404
48,137
48,137
38,559
343,418
198,832
99,570
45,016
38,579
343,418
198,832
99,570
45,016
135,347 135,347
20,301
9,684
7,562
20,301
11,141
7,562
129,365
16,610
10,268
6,517
129,365
16,610
9,039
6,517
1 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
2020
Non-SPPI –
Fair value1
£m
216,154
100,504
30,454
3,215
4,158
1,721
51,626
SPPI –
Fair value
£m
—
—
13,217
6,510
12,932
277
1
2019
Non-SPPI –
Fair value1
£m
199,481
99,826
28,980
3,265
4,960
1,924
51,930
SPPI –
Fair value
£m
—
—
9,580
5,799
15,344
272
5
32,937 407,832
31,000
390,366
1
Instruments within this category include financial assets that meet the definition of held for trading, financial assets that are managed and evaluated on a fair value basis, and instruments with contractual terms that do not give
rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
There has been a £13 million increase (2019: £24 million increase) in the fair value of SPPI instruments, and a £8,668 million
increase (2019: £20,090 million increase) 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.
2020
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 44(a))
Net asset value attributable to unit holders
Borrowings (note 52(a))
Derivative liabilities (note 60(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
—
—
—
—
11,369
29,839
11,369
29,839
—
13,840
11,369
43,679
53,880 129,904
—
99,997
9,997
31,481
6,178
9,696
19,053 202,837
407 100,404
48,137
16,907
6,659
1,033
—
—
—
—
202,837
100,404
48,137
16,907
195,054 146,079
68,360 409,493
13,840 423,333
135,308
20,151
—
421
2,837
158,717
39
—
—
6,570
—
6,609
—
150
1,166
571
98
135,347
20,301
1,166
7,562
2,935
1,985 167,311
—
—
8,518
—
43
135,347
20,301
9,684
7,562
2,978
8,561 175,872
1
In addition to the balances in this table, included within reinsurance assets in the statement of financial position and note 46 are £3,860 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.
2020
Non-recurring fair value measurement
Properties occupied by group companies
Total
Less: Assets classified as held for sale
Fair value hierarchy
Level 1
£m
Level 2
£m
Level 3
£m
—
—
—
—
—
—
—
—
335
335
(69)
266
Total
fair value
£m
335
335
(69)
266
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 freehold owner-occupied property measured on a non-recurring
basis at 31 December 2020 was £335 million (2019: £324 million), stated at their revalued amounts in line with the requirements of IAS 16
Property, Plant and Equipment.
2019
Recurring fair value measurements
Investment property (note (22))
Loans (note 25(a))
Financial investments measured at fair value (note 28(a))
Fixed maturity securities1
Equity securities
Other investments (including derivatives)1
Financial assets classified as held for sale
Total
Financial liabilities measured at fair value
Non-participating investment contracts2 (note 44(a))
Net asset value attributable to unit holders
Borrowings (note 52(a))
Derivative liabilities (note 60(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
56,124
98,850
32,465
5,788
125,113
—
6,878
50
17,595
720
5,673
1,986
198,832
99,570
45,016
7,824
—
—
—
1
198,832
99,570
45,016
7,825
193,227
132,041
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
—
—
7,806
—
28
129,365
16,610
9,039
6,517
8,352
5,045
162,049
7,834
169,883
1 Following a review of the fair value hierarchy for fixed maturity securities, a new framework has been implemented to improve consistency across the Group. Comparative amounts have been amended from those previously
2
reported and the effect of this change is to move £14,681 million of fixed maturity securities from fair value hierarchy Level 1 to Level 2 and £3,167 million from 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 46 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.
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Notes to the consolidated financial statements continued
24 – Fair value methodology continued
(d) Fair value hierarchy analysis continued
2019
Non-recurring fair value measurement
Properties occupied by group companies
Total
Less: Assets classified as held for sale
Fair value hierarchy
Level 1
£m
Level 2
£m
Level 3
£m
—
—
—
—
—
—
—
—
324
324
(4)
320
Total
fair value
£m
324
324
(4)
320
(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.
Fixed maturity 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
£1.0 billion of assets transferred from Level 1 to Level 2 relate to fixed maturity securities held by our business in France, primarily due to a
reclassification of certain securities from government debt to corporate bonds. There were no significant transfers from Level 2 to Level 1.
Transfers to/from Level 3
£810 million of assets transferred into Level 3 and £1,042 million of assets transferred out of Level 3 relate principally to fixed maturity
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.
2020
Opening balance at 1 January 2020
Total net (losses)/gains recognised in the
income statement1
Purchases
Issuances
Disposals
Settlements
Transfers into Level 3
Transfers out of Level 3
Reclassification to held for sale
Foreign exchange rate movements
Balance at 31 December 2020
Investment
Property
£m
Fixed
maturity
securities
£m
Loans
£m
Other
investments
(including
derivatives)
£m
Financial
assets
classified as
held for sale
£m
Non
participating
investment
contracts
£m
Equity
securities
£m
Assets
Net asset
value
attributable
to
unitholders
£m
Derivative
liabilities
£m
Borrowings
£m
Liabilities
Financial
liabilities
classified as
held for sale
£m
11,203 28,319 17,595
720
5,673
1,986
(399)
1,263
—
(971)
—
—
—
—
273
831
2,611
177
(2,111)
—
—
—
—
12
393
4,640
106
(3,776)
—
768
(692)
(487)
506
11,369 29,839 19,053
(52)
74
—
(124)
—
1
(218)
(8)
14
407
88
1,798
137
(653)
1
35
(119)
(538)
237
6,659
(280)
177
—
(1,876)
—
6
(13)
1,033
—
1,033
—
—
—
—
—
—
—
—
—
—
—
(112)
(655)
(1,233)
(3,045)
—
(38)
—
—
—
—
—
—
—
(150)
(47)
(1)
—
21
18
—
—
98
(5)
(571)
18
(1)
—
50
—
—
—
—
—
(1,166)
170
(146)
—
3,002
—
(31)
50
(98)
—
(98)
1 Total net gains/(losses) recognised in the income statement includes realised gains/(losses) on disposals.
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(g) Further information on Level 3 assets and liabilities continued
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)
5,673
134
185
—
(262)
—
49
(112)
—
—
(100)
—
100
—
—
—
—
—
(56)
—
(31)
—
—
—
—
1,986
—
(112)
(86)
(128)
—
88
—
—
—
5
(655)
(52)
—
—
44
—
—
—
—
(134)
(134)
—
261
—
(49)
111
—
(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.
Total net gains recognised in the income statement in the year ended 31 December 2020 in respect of Level 3 assets measured at fair value
amounted to £581 million (2019: net gains of £1,574 million) with net gains in respect of liabilities of £141 million (2019: net losses of
£272 million). Net gains of £423 million (2019: net gains of £1,427 million) attributable to assets and net gains of £147 million (2019: net losses
of £271 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. Valuations have been performed more frequently
since the onset of COVID-19 and have taken place at least quarterly, with a particular focus on sectors deemed to be exposed to higher risk
of default as a result of the pandemic, such as retail. Valuations have been performed for all UK properties since the onset of COVID-19.
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 option 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. External valuations relating to properties in the retail and leisure sectors include a capital deduction where tenant risk is
deemed to have increased as a result of COVID-19.
(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 80 bps to 110 bps (2019: 65 bps to 80 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 2020 the illiquidity premium used in the discount rate was 190 bps (2019: 160 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 cash flows. 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 2020 (2019: 4.0%). After applying the cost of capital
charge, dilapidations and the stochastic distribution, the effective net long-term growth rate equates to 0.6% pa (2019: 0.5%).
• At 31 December 2019 mortgage loan assumptions included a specific allowance for the possible adverse impacts of the UK’s exit from the
European Union on UK commercial and residential property, which have now been removed. Our future property growth assumptions are
reviewed on a quarterly basis and as at 31 December 2020 they include a cumulative 5-year growth assumption, from 2021-25, of -1% for
UK commercial property (with variation by sector) and 4% for UK residential property.
• 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.
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Notes to the consolidated financial statements continued
24 – Fair value methodology continued
(g) Further information on Level 3 assets and liabilities continued
(iii) Fixed maturity securities
• Structured bond-type and non-standard debt products held by our business in France have no active market and are valued either using
counterparty or broker quotes and validated against internal or third-party models. They 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 fixed
maturity 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.
• Fixed maturity securities held by our French, UK 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.
(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) Other investments (including derivatives)
• Other investments are held for index-linked, unit-linked and with-profit funds and are valued based on external valuation reports received
from fund managers. The investments consist of:
– Unit trusts;
– Other investment funds including property funds;
– External hedge funds held principally by business in the UK and France; and
– Derivatives.
• Where valuations are at a date other than the balance sheet date, as is the case for some private equity funds, adjustments are made for
items such as subsequent draw-downs and distributions and the fund manager’s carried interest.
(vi) Financial assets of operations classified as held for sale
• Financial assets of operations classified as held for sale are held by our Asia and Italian businesses and consist primarily of discretionary
managed funds of £538 million (2019: £1,404 million) and fixed maturity securities which are not traded in an active market and have been
valued using third party or counterparty valuations of £487 million (2019: £401 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:
• Securitised mortgage loan notes, presented within Borrowings, are valued using a similar technique to the related Level 3 securitised
mortgage assets.
• £nil million (2019: £3,045 million) of non-participating investment contract liabilities. Comparative figures were included within financial
liabilities of operations classified as held for sale. These were classified as Level 3, either because the underlying unit funds were classified
as Level 3 or because the liability related to unfunded units or other non-unit adjustments which were 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.
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
The valuation of Level 3 assets involves a high degree of judgement and estimation uncertainty due to the reliance of valuation models on
unobservable inputs. 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.
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Notes to the consolidated financial statements continued
24 – Fair value methodology continued
(g) Further information on Level 3 assets and liabilities continued
Valuation uncertainty on assets which rely on either unobservable long-term assumptions or comparable market transactions as valuation
inputs has been impacted by the economic disruption resulting from the COVID-19 pandemic. In particular, certain assets relying on
comparable market transactions for a valuation, such as investment properties within the leisure and hospitality sectors, have been more
difficult to value due to a reduction in the level of available market evidence. A number of property valuers have included ‘material uncertainty
declarations’ in their valuation reports on these assets to reflect this. The pandemic has also increased uncertainty in relation to long term
economic assumptions such as residential and commercial property growth rate assumptions.
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:
2020
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 rate spreads.
2 Dependent on investment category.
Fair value
£bn
Most significant unobservable input
11.4
Equivalent rental yields
12.6
11.8
4.9
0.5
Illiquidity premium
Base property growth rate
Base property growth rate
Current property market values
Illiquidity premium
Illiquidity premium
Reasonable
alternative
+/- 5-10%
+/- 20 bps
+/- 100 bps p.a.
+/- 40 bps p.a.
+/- 10%
+/- 25 bps1
+/- 25 bps1
7.6
1.9
10.0
Market spread (credit, liquidity and other)
Credit spreads
Credit and liquidity spreads
+/- 25 bps
+/- 25 bps1
+/- 20-25 bps
0.4
Market spread (credit, liquidity and other)
+/- 25 bps
1.8
5.4
Market multiples applied to net asset values
Market multiples applied to net asset values
+/- 15-20%
+/- 10-40%2
—
Fair value of the underlying unit funds
(1.2) Illiquidity premium
(0.7) Independent valuation vs counterparty
+/- 20-25%
+/- 50 bps
N/A
Sensitivities
Positive
Impact
£bn
Negative
Impact
£bn
0.8
(0.8)
0.2
0.1
0.2
0.3
0.2
—
0.1
0.1
0.5
—
0.3
0.4
—
—
—
(0.2)
(0.1)
(0.2)
(0.4)
(0.2)
—
(0.1)
(0.1)
(0.5)
—
(0.4)
(0.3)
—
—
—
66.4
3.2
(3.3)
2019
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)
Fair value
£bn
11.2
Most significant unobservable input
Equivalent rental yields
12.9
11.0
4.0
0.4
Illiquidity premium
Base property growth rate
Base property growth rate1
Current property market values1
Illiquidity premium
Illiquidity premium
Reasonable
alternative
+/- 5-10%
+/- 20 bps
+/- 100 bps p.a.
+/- 40 bps p.a.
+/- 10%
+/- 25 bps2
+/- 25 bps2
6.4
1.7
9.9
Market spread (credit, liquidity and other)
Credit spreads
Credit and liquidity spreads
+/- 25 bps
+/- 25 bps2
+/- 20-25 bps
0.8
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%3
(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
Total Level 3 investments
60.5
Sensitivities
Positive
Impact
£bn
0.9
Negative
Impact
£bn
(0.9)
0.2
0.2
0.2
0.3
0.2
—
0.1
0.1
0.5
—
0.1
0.8
0.4
—
—
4.0
(0.2)
(0.1)
(0.2)
(0.4)
(0.2)
—
(0.1)
(0.1)
(0.5)
(0.1)
(0.1)
(0.6)
(0.4)
—
—
(3.9)
1 The sensitivity impacts for base property growth rate and current property market values for equity release mortgage loans were incorrectly transposed at 31 December 2019 and have been amended from the impacts previously
reported.
2 On discount rate spreads.
3 Dependent on investment category.
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Notes to the consolidated financial statements continued
24 – Fair value methodology continued
(g) Further information on Level 3 assets and liabilities continued
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.
2020
Liabilities not carried at fair value
Borrowings
2019
Liabilities not carried at fair value
Borrowings
25 – Loans
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
52(a)
8,561
9,558
204
213
9,975
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
52(a)
7,834
8,583
235
217
9,035
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 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
2020
2019
At fair value
through profit
or loss other
than trading
£m
2
481
7,283
2,391
19,682
—
At amortised
cost
£m
635
11,849
—
—
—
1,356
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
Total
£m
637
12,330
7,283
2,391
19,682
1,356
Total
£m
685
8,830
6,467
2,432
19,117
1,049
29,839
13,840
43,679
28,319
10,261
38,580
—
—
—
—
(1)
(1)
29,839
13,840
43,679
28,319
10,260
38,579
Of the above total loans, £29,629 million (2019: £28,938 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 2020 was a £1,302 million loss
(2019: £1,224 million loss).
Healthcare, infrastructure and PFI other loans of £7,283 million (2019: £6,467 million) are secured against the income from healthcare and
educational premises.
Non-securitised mortgage loans include £9,360 million (2019: £8,558 million) of residential equity release mortgages, £7,518 million
(2019: £7,681 million) of commercial mortgages and £2,804 million (2019: £2,878 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.
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Notes to the consolidated financial statements continued
25 – Loans continued
(a) Carrying amounts continued
The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of financial assets mentioned
above.
Loans at amortised cost
The carrying amount of these loans at both 31 December 2020 and 31 December 2019 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
The movements in the impairment provisions on these loans were as follows:
At 1 January
Increase during the year
Foreign exchange rate movements
At 31 December
2020
2019
Amortised
Cost
£m
635
11,849
15
1,357
13,856
Impairment
£m
Carrying Value
£m
—
—
(15)
(1)
(16)
635
11,849
—
1,356
13,840
Amortised
Cost
£m
684
8,528
12
1,050
10,274
Impairment
£m
Carrying Value
£m
—
—
(12)
(1)
(13)
684
8,528
—
1,049
10,261
2020
£m
(13)
(2)
(1)
(16)
2019
£m
(10)
(4)
1
(13)
(c) Collateral
Loans to banks include cash collateral received under stock lending arrangements (see note 61 for further discussion regarding these
collateral positions). The obligation to repay this collateral is included in payables and other financial liabilities (see note 53).
The Group holds collateral in respect of loans where it is considered appropriate in order to reduce the risk of non-recovery. This collateral
generally takes the form of liens or charges over properties and, in the case of policy loans, the underlying policy for the majority of the loan
balances above. In all other situations, the collateral must be in a readily realisable form, such as listed securities, and is held in segregated
accounts.
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 £230 million (2019: £224 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.
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Notes to the consolidated financial statements continued
26 – Securitised mortgages and related assets continued
(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 52(c)(i))
2020
Securitised
assets
£m
Securitised
liabilities
£m
Securitised
assets
£m
2,391
300
2,691
(1,396)
(1,295)
(2,691)
2,432
282
2,714
2019
Securitised
liabilities
£m
(1,457)
(1,257)
(2,714)
2020
£m
1,396
(230)
1,166
2019
£m
1,457
(224)
1,233
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 2020 the Group has granted loans to consolidated PLPs for a total of £61 million (2019: £64 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 £68 million (2019: £57 million). The Group has
commitments to provide funding to consolidated structured entities of £4 million (2019: £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 2020.
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 2020, the Group’s total interest
in unconsolidated structured entities was £55,961 million (2019: £58,519 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.
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Notes to the consolidated financial statements continued
27 – Interests in structured entities continued
As at 31 December 2020, a summary of the Group’s interest in unconsolidated structured entities is as follows:
Structured debt securities1
Other investments and equity securities
Analysed as:
Unit trust and other investment vehicles2
PLPs and property funds
Other (Including other funds and equity securities)2
Loans3
Total
2020
2019
Interest in,
and loans to,
joint
ventures
£m
Interest in,
and loans to,
associates
£m
—
807
—
807
—
—
807
—
173
—
173
—
—
173
Financial
investments
£m
4,504
41,594
37,945
3,647
2
—
46,098
Loans
£m
Total assets
£m
—
—
4,504
42,574
—
—
—
8,883
37,945
4,627
2
8,883
8,883
55,961
Interest in,
and loans to,
joint
ventures
£m
Interest in,
and loans to,
associates
£m
—
792
—
792
—
—
792
—
209
—
209
—
—
209
Financial
investments
£m
4,746
44,669
42,154
2,395
120
—
49,415
Loans
£m
Total assets
£m
—
—
4,746
45,670
—
—
—
8,103
42,154
3,396
120
8,103
8,103
58,519
1 Primarily reported within ‘other debt securities’ in note 28(a).
2 Following a review of the presentation of investments held by the Singapore business, comparative amounts have been amended to reclassify £318 million of investments from Other (Including other funds and equity securities)
to Unit trust and other investment vehicles.
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 £55,961 million (2019: £58,519 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.
In relation to risk management, disclosures on debt securities and investment vehicles are given in note 59(b)(ii) ‘Risk management’. In
relation to other guarantees and commitments that the Group provides in the course of its business, please see note 55(f) ‘Contingent
liabilities and other risk factors’.
Aviva’s interest in unconsolidated structured entities that it also manages at 31 December 2020 is £1,803 million (2019: £1,919 million) and the
total funds under management relating to these investments at 31 December 2020 is £16,012 million (2019: £15,454 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.
2020
Investment
Management
Fees
£m
2019
Investment
Management
Fees
£m
Assets Under
Management
£m
30
23
10
13
53
6,885
3,108
33
3,075
9,993
32
10
—
10
42
Assets Under
Management
£m
6,690
3,658
410
3,248
10,348
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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 securities
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
2020
At fair value through
profit or loss
Trading
£m
Other than
trading
£m
Available
for sale
£m
Total
£m
Trading
£m
Other than
trading
£m
Available
for sale
£m
2019
Total
£m
30,249
214
64,508
—
—
1,257
30,249
214
65,765
10,403
84,398
6
7,787
197,565
17,010
10
305
7
—
10,413
84,703
13
7,787
1,579 199,144
17,010
—
214,575
1,579 216,154
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,098
17,835
79,313
100,246
251
100,497
1
3,099
—
17,835
6
79,319
7 100,253
—
251
7 100,504
1
—
—
—
—
—
1
37,945
9,722
211
3,647
101
1
51,627
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
7,097
—
—
—
—
7,097
27,044
202
60,569
10,252
77,999
35
7,378
183,479
14,541
198,020
2,883
20,635
76,082
99,600
211
99,811
42,153
—
169
2,395
119
—
44,836
—
—
1,133
14
308
6
—
27,044
202
61,702
10,266
78,307
41
7,378
1,461
—
184,940
14,541
1,461
199,481
—
1
14
15
—
15
1
—
—
—
—
1
2
2,883
20,636
76,096
99,615
211
99,826
42,154
7,097
169
2,395
119
1
51,935
Other investments
Unit trusts and other investment vehicles1
Derivative financial instruments (note 60)
Deposits with credit institutions
Minority holdings in property management undertakings
Other investments – long-term1
Other investments – short-term
—
9,722
—
—
—
—
37,944
—
211
3,647
101
1
9,722
41,904
Total financial investments
Less: Assets classified as held for sale
Fixed maturity securities
Equity securities
Other investments
9,722 356,976
1,587 368,285
7,097
342,667
1,478
351,242
—
—
—
—
(13,317)
(100)
(3,490)
(16,907)
—
—
—
—
(13,317)
(100)
(3,490)
(16,907)
—
—
—
—
(649)
(256)
(6,919)
(7,824)
—
—
—
—
(649)
(256)
(6,919)
(7,824)
9,722 340,069
1,587 351,378
7,097
334,843
1,478
343,418
1 Following a review of the presentation of investments held by the Singapore business, comparative amounts have been amended to reclassify £318 million of investments from Other investments – long-term to Unit trusts and
other investment vehicles.
Of the above total, £185,544 million (2019: £172,649 million) is due to be recovered in more than one year after the statement of financial
position date.
Other debt securities of £7,787 million (2019: £7,378 million) include residential and commercial mortgage-backed securities, as well as other
structured credit securities.
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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 securities
Equity securities
Other investments
Unit trusts and other investment vehicles1
Derivative financial instruments
Deposits with credit institutions
Minority holdings in property management undertakings
Other investments – long-term1
Other investments – short-term
These are further analysed as follows:
At fair value through profit or loss
Available for sale
Cost/
amortised cost
£m
197,789
87,181
30,691
4,634
211
3,557
102
1
324,166
Unrealised
gains
£m
24,814
20,669
8,188
5,258
—
263
—
—
59,192
2020
Unrealised
losses and
impairments
£m
Fair value
£m
Cost
/amortised cost
£m
(6,449) 216,154
(7,346) 100,504
186,753
87,436
(934)
(170)
—
(173)
(1)
—
37,945
9,722
211
3,647
101
1
(15,073) 368,285
35,138
3,413
169
2,226
138
1
Unrealised
losses and
impairments
£m
2019
Fair value
£m
(7,312)
(4,445)
199,481
99,826
(683)
(833)
—
(90)
(31)
—
42,154
7,097
169
2,395
119
1
Unrealised
gains
£m
20,040
16,835
7,699
4,517
—
259
12
—
315,274
49,362
(13,394)
351,242
322,704
1,462
324,166
59,066
126
59,192
(15,072) 366,698
1,587
(15,073) 368,285
(1)
313,893
1,381
49,264
98
(13,393)
(1)
349,764
1,478
315,274
49,362
(13,394)
351,242
1 Following a review of the presentation of investments held by the Singapore business, comparative amounts have been amended to reclassify £318 million of investments from Other investments – long-term to Unit trusts and
other investment vehicles.
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 fair value through profit or loss, recognised in the income statement in the
year, were a net loss of £3,841 million (2019: £18,398 million net gain). Of this net loss, £4,079 million net loss (2019: £17,920 million net gain)
related to investments designated as other than trading and £238 million net gain (2019: £478 million net gain) related to financial investments
designated as trading.
The movement in the unrealised gain/loss position reported in the statement of financial position during the year, shown in the table above,
includes foreign exchange movements on the translation of unrealised gains and losses on financial investments held by foreign subsidiaries,
which are recognised in other comprehensive income, as well as transfers due to the realisation of gains and losses on disposal and the
recognition of impairment losses.
(c) Financial investment arrangements
(i) Stock lending arrangements
The Group has entered into stock lending arrangements in the UK and overseas in accordance with established market conventions. The
majority of the Group’s stock lending transactions occur in the UK, where investments are lent to EEA-regulated, locally domiciled
counterparties and governed by agreements written under English law.
The Group receives collateral in order to reduce the credit risk of these arrangements, either in the form of securities or cash. See note 61 for
further discussion regarding collateral positions held by the Group.
(ii) Other arrangements
In carrying on its bulk purchase annuity business, the Group’s UK Life operation is required to place certain investments in trust on behalf of
the policyholders. Amounts become payable from the trust funds to the trustees if the Group were to be in breach of its payment obligations
in respect of policyholder benefits. At 31 December 2020, £2,621 million (2019: £2,472 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.
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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 2020, 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
Less: Assets classified as held for sale
Total (excluding assets held for sale)
2020
£m
106
158
866
420
2
108
952
99
722
117
582
671
630
5,433
88
1,064
1,152
4
2,465
2,469
9,054
(285)
8,769
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
2020
£m
772
1,021
15,662
1,864
—
892
11,428
493
465
596
1,117
1,509
1,607
37,426
164
787
951
14
4,248
4,262
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
2020
£m
170
270
1,956
765
—
301
28
376
555
119
176
2,435
986
8,137
3,366
1,424
4,790
74
1,071
1,145
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
1,045
2020
£m
1,048
1,449
18,484
3,049
2
1,301
12,408
968
1,742
832
1,875
4,615
3,223
50,996
3,618
3,275
6,893
92
7,784
7,876
Total
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
42,639
39,408
14,072
12,983
65,765
61,702
(23)
(8,252)
—
(247)
(93)
(8,784)
(116)
9,288
34,387
39,408
13,825
12,890
56,981
61,586
At 31 December 2020, the Group’s total government (non-UK) debt securities stood at £65,765 million (2019: £61,702 million). The 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 £14,072 million (2019: £12,983 million). The primary
exposures, relative to total shareholder (non-UK) government debt exposure, are to Canadian (24%), French (14%), US (10%), German (5%),
Polish (4%) and Dutch (3%) government debt securities.
The participating funds exposure to (non-UK) government debt amounts to £42,639 million (2019: £39,408 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 (27%), Germany (4%), Spain (3%), Belgium (2%) and Ireland (2%).
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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
2020
£m
2,126
1,504
38
432
156
3,170
976
1,323
9,725
(373)
9,352
9,701
24
9,725
2019
£m
2,187
1,379
68
347
274
2,786
812
1,211
9,064
(69)
8,995
9,032
32
9,064
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.
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
2020
£m
2019
£m
1,075
1,146
118
950
3,289
(25)
3,264
993
1,141
116
1,108
3,358
(202)
3,156
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, £1,707 million (2019: £1,751 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:
2020
Carrying amount at 1 January
Acquisition costs deferred during the year
Amortisation
Impact of assumption changes
Effect of portfolio transfers, acquisitions and disposals1
Foreign exchange rate movements
Other movements
Carrying amount at 31 December
Less: Classified as held for sale
1 The movement during 2020 includes the disposal of FPI and Singapore businesses
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
993
226
(98)
(22)
(39)
15
—
1,075
—
1,075
116
7
(11)
1
—
5
—
118
—
118
1,108
88
(88)
(1)
(166)
9
—
950
(25)
925
1,141
2,622
(2,610)
—
(9)
2
—
1,146
—
1,146
—
—
—
—
—
—
—
—
—
—
Total
£m
3,358
2,943
(2,807)
(22)
(214)
31
—
3,289
(25)
3,264
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Notes to the consolidated financial statements continued
30 – Deferred acquisition costs continued
(b) Deferred acquisition costs – movements in the year continued
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
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
—
—
—
—
—
—
—
—
—
—
Total
£m
3,156
2,978
(2,719)
(12)
—
(41)
(4)
3,358
(202)
3,156
DAC for long-term business decreased overall over 2020 as increases from new business sales across the UK and European markets were
lower than the decrease arising from the disposals of FPI and Singapore businesses. DAC for general insurance and health business increased
slightly over 2020.
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 £116 million
(2019: £29 million) if market yields on fixed income investments were to increase by 1% and increase profit by £135 million (2019: £36 million)
if yields were to reduce by 1%.
At both 31 December 2020 and 31 December 2019, the DAC balance has been restricted by the value of projected future profits.
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 51(a))
Other assets
Total
Less: Assets classified as held for sale
2020
£m
2,780
55
2,835
(1)
2019
£m
2,746
53
2,799
—
2,834
2,799
Surpluses in the staff pension schemes and £2 million (2019: £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 £2,865 million (2019: £3,151 million) include assets classified as held for sale of £123 million
(2019: £8 million) and £62 million (2019: £30 million) that is expected to be recovered more than one year after the statement of financial
position date.
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Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements continued
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 securities
Equity securities
Reinsurance assets
Cash and cash equivalents
Units trusts and other investment vehicles
Other
Total
Less: Assets classified as held for sale
Total
2020
£m
2,334
45,781
86,957
3,860
6,555
34,577
7,921
2019
£m
2,111
42,350
83,035
4,003
8,353
37,822
8,508
187,985
186,182
(3,194)
(8,170)
184,791
178,012
The reinsurance assets balance in the table above includes £3,860 million (2019: £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.
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 2020 was: 3,928,490,420 (2019: 3,921,129,145)
ordinary shares of 25 pence each
At the 2020 Annual General Meeting, the Company was authorised to allot up to a further maximum nominal amount of:
• £654,611,032 of which £327,305,516 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 2020, a total of 7,361,275 were allotted and issued by the Company as follows:
2020
£m
2019
£m
982
980
At 1 January
Shares issued under the Group’s Employee and
Executive Share Option Schemes
At 31 December
Number of
shares
Share capital
£m
3,921,129,145
7,361,275
3,928,490,420
980
2
982
Capital
redemption
reserve
£m
2020
Share
premium
£m
Number of
shares
Share capital
£m
44
—
44
1,239
3,902,352,211
3
18,776,934
1,242
3,921,129,145
975
5
980
Capital
redemption
reserve
£m
44
—
44
2019
Share
premium
£m
1,214
25
1,239
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.
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. 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.
Aviva plc Annual Report and Accounts 2020
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IFRS financial statements
Other information
Notes to the consolidated financial statements continued
34 – Group’s share plans continued
(a) Description of the plans continued
(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 2020:
Range of exercise prices
£2.20 – £3.16
£3.17 – £3.67
£3.68 – £4.19
The comparative figures as at 31 December 2019 were:
Range of exercise prices
£2.20 – £3.16
£3.17 – £3.67
£3.68 – £4.19
Outstanding
options
Number
44,735,905
873,773
4,528,106
Outstanding
options
Number
26,589,056
5,066,836
7,634,402
Weighted average
remaining
contractual life
Years
4
1
1
Weighted average
remaining
contractual life
Years
3
1
1
Weighted average
exercise price
p
234.65
351.00
394.94
Weighted average
exercise price
p
284.00
351.00
395.52
(c) Movements in the year
A summary of the status of the option and share plans as at 31 December 2019 and 2020, 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
2020
2019
Number of options
39,290,294
34,852,776
(1,126,489)
(19,149,479)
(202,718)
(3,526,600)
50,137,784
1,910,895
Weighted average
exercise price
p
314.36
220.00
348.71
299.36
300.97
351.07
251.16
401.98
Number of awards
Number of options
35,442,035
26,293,467
(11,829,285)
(3,959,889)
—
—
28,658,026
26,798,392
(7,340,420)
(8,112,308)
(240,979)
(472,417)
45,926,327
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
40,574,481
17,713,898
(12,308,712)
(10,557,632)
—
—
35,442,035
—
(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
Aviva plc Annual Report and Accounts 2020
195
2020
£m
50
50
2019
£m
62
62
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements continued
34 – Group’s share plans continued
(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 £0.64 and £1.96 (2019: £0.50 and £3.86) 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
2020
2019
291p
220p
29.50%
3.91 years
5.32%
(0.10)%
394p
284p
20.22%
3.80 years
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. 1,126,489 options granted after
7 November 2002 were exercised during the year (2019: 7,340,420).
(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.
2020
2019
222p
29%
30%
54%
2.77 years
0.00%
0.08%
405p
23%
23%
53%
2.77 years
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.
35 – Treasury shares
The following table summarises information about treasury shares at 31 December 2020:
Shares held by employee trusts
Shares held by subsidiary companies
Number
1,737,038
—
1,737,038
2020
£m
Number
6 1,714,288
—
—
6 1,714,288
2019
£m
7
—
7
(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
2020
£m
Number
1,714,288
687,326
(664,576)
1,737,038
455,986
7
2 2,165,032
(906,730)
(3)
6 1,714,288
2019
£m
2
9
(4)
7
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 2020, they had an aggregate nominal value of £434,260 (2019: £428,572) and a market value of £5,648,848 (2019: £7,177,724).
The trustees have waived their rights to dividends on the shares held in the trusts.
(b) Shares held by subsidiary companies
At 31 December 2020, the balance of shares held by subsidiary companies of nil shares (2019: nil shares) had an aggregate nominal value of
£0 (2019: £nil) and a market value of £0 (2019: £nil).
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IFRS financial statements
Other information
Notes to the consolidated financial statements continued
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
2020
£m
100
100
200
2019
£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 2020, the fair value of Aviva plc’s preference share capital was £303.6 million (2019: £299 million).
Following our March 2018 statement in 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”. 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 to 22 March 2018 (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.
On 26 October 2020, the Financial Conduct Authority published the outcome of its investigation into Aviva’s announcement on preference
shares in March 2018, which found that Aviva contravened certain provisions of the Listing Rules and the Disclosure Guidance and
Transparency Rules by failing to take reasonable care to ensure that information in that announcement was not misleading and did not omit
anything likely to affect the import of the information in the announcement. Aviva released its response the same day accepting the FCA
finding.
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.
At the 2020 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.
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
2020
£m
—
—
—
2019
£m
500
—
500
The DCI was issued on 25 November 2004. The DCI had no fixed redemption date however, on 23 June 2020 notification was given that the
Group would redeem the DCI at its principal amount together with accrued interest to (but excluding) 27 July 2020. The 27 July 2020 being
the first optional call date for the DCI. On the notification date the instrument was reclassified as a financial liability of £499 million,
representing its fair value at that date. The resulting difference of £1 million has been charged to retained earnings. On 27 July 2020, the
instrument was redeemed in full at a cost of £500 million.
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 was charged to retained earnings.
Aviva plc Annual Report and Accounts 2020
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Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements continued
38 – Currency translation and other reserves
This note gives details of the currency translation and other reserves forming part of the Group’s consolidated equity and shows the
movements during the year net of non-controlling interests:
Other reserves
Balance at 1 January 2019
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 movements
Aggregate tax effect – shareholders’ tax
Total other comprehensive income for the year
Transfer to profit on disposal of subsidiaries, joint ventures and associates
Reserves credit for equity compensation plans
Shares issued under equity compensation plans
Balance at 31 December 2019
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 movements
Aggregate tax effect – shareholders’ tax
Total other comprehensive income for the year
Transfer to profit on disposal of subsidiaries, joint ventures and associates
Reserves credit for equity compensation plans
Shares issued under equity compensation plans
Balance at 31 December 2020
Currency
translation
reserve (see
accounting
policy E)
£m
1,122
—
—
—
(318)
10
(308)
—
—
—
814
—
—
—
230
(9)
221
(173)
—
—
862
Owner
occupied
properties
reserve (see
accounting
policy P)
£m
Investment
valuation
reserve (see
accounting
policy T)
£m
Hedging
instruments
reserve (see
accounting
policy U)
£m
Equity
compensation
reserve (see
accounting
policy AB)
£m
(466)
120
27
3
—
—
—
(1)
2
—
—
—
29
3
—
—
—
(1)
2
—
—
—
40
39
(19)
22
—
(4)
38
—
—
—
78
22
(7)
17
—
(2)
30
—
—
—
31
108
—
—
—
138
—
138
—
—
—
(328)
—
—
—
(129)
—
(129)
—
—
—
(457)
Total
£m
(279)
42
(19)
22
138
(5)
178
—
62
(62)
(101)
25
(7)
17
(129)
(3)
(97)
—
37
(51)
—
—
—
—
—
—
—
62
(62)
120
—
—
—
—
—
—
—
37
(51)
106
(212)
Foreign exchange rate movements recorded in the consolidated statement of comprehensive income of £131 million for continuing
operations (2019: £(193) million) and £4 million (2019: £(26) million) for discontinued operations (see note 4(d)) relate to foreign exchange rate
movements on the currency translation reserve of £230 million (2019: £(318) million), the hedging instrument reserve of £(129) million
(2019 £138 million) and non-controlling interests (see note 40) of 34 million (2019: £(39) million).
39 – Retained earnings
This note analyses the movements in the consolidated retained earnings during the year.
Balance at 1 January
Adjustment at 1 January 2019 for adoption of IFRS 16
Balance at 1 January restated
Profit for the year attributable to equity shareholders
Remeasurements of pension schemes1 (note 51)
Dividends and appropriations (note 16)
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 DCI and tier 1 notes to financial liabilities (note 37)
Aggregate tax effect
Balance at 31 December
2020
£m
5,065
—
5,065
2,798
(150)
(280)
46
7
2
—
1
(21)
7,468
2019
£m
4,523
(110)
4,413
2,548
(867)
(1,244)
55
—
4
22
21
113
5,065
1 Net remeasurements of pension schemes recorded in the consolidated statement of comprehensive income of £150 million loss (2019: £867 million loss) includes £148 million of remeasurement losses (2019: £867 million losses)
on the main pension schemes (see note 51) with a small amount of losses in relation to other schemes.
2 The Group has a shareholder forfeiture programme, where the shares of shareholders with whom Aviva has lost contact over the last 12 years will be forfeited and sold on. Any associated unclaimed dividends will be reclaimed
by the Group. After covering administration costs, the majority of the money will be put into a charitable foundation.
The Group’s regulated subsidiaries are required to hold sufficient capital to meet acceptable solvency levels based on applicable local
regulations. Their ability to transfer retained earnings to the UK parent companies is therefore restricted to the extent these earnings form
part of local regulatory capital.
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IFRS financial statements
Other information
Notes to the consolidated financial statements continued
40 – Non-controlling interests
This note gives details of the Group’s non-controlling interests and shows the movements during the year.
Non-controlling interests at 31 December comprised:
Equity shares in subsidiaries
Share of earnings
Share of other reserves
Preference shares in General Accident plc
Movements in the year comprised:
Balance at 1 January
Profit for the year attributable to non-controlling interests
Foreign exchange rate movements
Total comprehensive income attributable to non-controlling interests
Non-controlling interests share of dividends declared in the year
Disposals of non-controlling interests in subsidiaries
Changes in non-controlling interests in subsidiaries
Balance at 31 December
2020
£m
261
479
16
756
250
1,006
2020
£m
977
112
34
146
(30)
(26)
(61)
1,006
2019
£m
273
441
13
727
250
977
2019
£m
966
115
(39)
76
(63)
—
(2)
977
The Group has no subsidiaries whose non-controlling interest is material on the basis of their share of profit or loss.
41 – Contract liabilities and associated reinsurance
The Group’s liabilities for insurance and investment contracts it has sold, and the associated reinsurance, is covered in the following notes:
• Note 42 covers insurance liabilities;
• Note 43 covers the methodology and assumptions used in calculating the insurance liabilities;
• Note 44 covers liabilities for investment contracts;
• Note 45 details the financial guarantees and options on certain contracts;
• Note 46 details the associated reinsurance assets on these liabilities; and
• Note 47 shows the effects of changes in the assumptions on the liabilities.
(a) Carrying amount
The following is a summary of the contract liabilities and related reinsurance assets as at 31 December.
Long-term business
Insurance liabilities
Liabilities for participating investment contracts
Liabilities for non-participating investment contracts
Outstanding claims provisions
General insurance and health
Outstanding claims provisions
Provisions for claims incurred but not reported
Provision for unearned premiums
Provision arising from liability adequacy tests1
Total
Less: Liabilities classified as held for sale
Gross
provisions
£m
Reinsurance
assets
£m
2020
£m
Net
£m
Gross
provisions
£m
Reinsurance
assets
£m
2019
£m
Net
£m
(135,409)
(97,073)
(138,183)
(370,665)
(2,643)
(373,308)
(9,017)
(3,367)
(12,384)
(5,210)
(2)
7,176 (128,233)
(97,072)
3,860 (134,323)
1
11,037 (359,628)
(2,556)
11,124 (362,184)
87
(131,182)
(92,762)
(137,689)
(361,633)
(2,187)
6,369
1
4,006
(124,813)
(92,761)
(133,683)
10,376
93
(351,257)
(2,094)
(363,820)
10,469
(353,351)
794
1,139
1,933
299
—
(8,223)
(2,228)
(10,451)
(4,911)
(2)
(8,831)
(2,672)
(11,503)
(5,138)
(15)
683
1,004
1,687
275
—
(8,148)
(1,668)
(9,816)
(4,863)
(15)
(17,596)
2,232
(15,364)
(16,656)
1,962
(14,694)
(390,904)
13,356 (377,548)
(380,476)
12,431
(368,045)
15,591
(18)
15,573
9,011
(75)
8,936
(375,313)
13,338 (361,975)
(371,465)
12,356
(359,109)
1 Provision arising from liability adequacy tests relates to general insurance business only. Additional liabilities arising from liability adequacy test for life operations, where applicable, are included in unallocated divisible surplus.
At 31 December 2020 this liability is £8 million (2019: £nil) for life operations.
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Notes to the consolidated financial statements continued
41 – Contract liabilities and associated reinsurance continued
(b) Change in contract liabilities, net of reinsurance, recognised as an expense
The purpose of the following table is to reconcile the change in insurance liabilities, net of reinsurance, shown on the income statement
(note 7), to the change in insurance liabilities recognised as an expense in the relevant movement tables in the following notes. The
components of the reconciliation are the change in provision for outstanding claims on long-term business (which is not included in a
separate movement table), and the unwind of discounting on general insurance reserves (which is included within finance costs in the income
statement). For general insurance and health, the change in the provision for unearned premiums is not included in the reconciliation as,
within the income statement, this is included within earned premiums.
2020
Long-term business
Change in insurance liabilities (note 42(b)(iii))
Change in provision for outstanding claims
General insurance and health
Change in insurance liabilities (note 42(c)(iv) and 46(c)(ii))
Change in provision arising from liability adequacy tests
Less: Unwind of discount
Total change in insurance liabilities
Less: Change in insurance liabilities from discontinued operations
Total change in insurance liabilities from continued operations (note 7)
2019
Long-term business
Change in insurance liabilities (note 42(b)(iii))
Change in provision for outstanding claims
General insurance and health
Change in insurance liabilities (note 42(c)(iv) and 46(c)(ii))1
Change in provision arising from liability adequacy tests
Less: Unwind of discount
Total change in insurance liabilities
Less: Change in insurance liabilities from discontinued operations
Total change in insurance liabilities from continued operations (note 7)
Gross
£m
Reinsurance
£m
Net
£m
7,336
471
7,807
(1,458)
(22)
(1,480)
852
(12)
(11)
829
(259)
—
8
(251)
8,636
(515)
(1,731)
250
8,121
(1,481)
5,878
449
6,327
593
(12)
(3)
578
6,905
(265)
6,640
Gross
£m
Reinsurance
£m
Net
£m
6,600
4
6,604
234
—
(14)
220
6,824
(390)
6,434
(1,030)
(8)
(1,038)
(94)
—
10
(84)
(1,122)
358
(764)
5,570
(4)
5,566
140
—
(4)
136
5,702
(32)
5,670
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%.
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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Notes to the consolidated financial statements continued
42 – Insurance liabilities
This note analyses the Group’s gross insurance contract liabilities for the long-term and general insurance and health business, describes
how the Group calculates these liabilities and presents the movement in these liabilities during the year.
(a) Carrying amount
Insurance liabilities (gross of reinsurance) at 31 December comprised:
Long-term business
Participating insurance liabilities
Unit-linked non-participating insurance liabilities
Other non-participating insurance liabilities
Outstanding claims provisions
General insurance and health
Outstanding claims provisions
Provision for claims incurred but not reported
Provision for unearned premiums
Provision arising from liability adequacy tests1
Total
Less: Liabilities classified as held for sale
2020
£m
2019
£m
44,725
14,061
76,623
47,344
14,707
69,131
135,409
2,643
131,182
2,187
138,052
133,369
9,017
3,367
12,384
5,210
2
17,596
8,831
2,672
11,503
5,138
15
16,656
155,648
150,025
(3,166)
(687)
152,482
149,338
1 Provision arising from liability adequacy tests relates to general insurance business only. Additional liabilities arising from liability adequacy test for life operations, where applicable, are included in unallocated divisible surplus.
At 31 December 2020 this liability is £8 million (2019: £nil) for 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 and Ireland, long-term business is mainly written in the ‘Non-Profit’ funds and in a number of ‘With-Profits’ sub-funds. In the
‘Non-Profit’ funds 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) in the UK, 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 Manage-for-value 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 43).
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Notes to the consolidated financial statements continued
42 – Insurance liabilities continued
(b) Long-term business 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 41(b))
Effect of portfolio transfers, acquisitions and disposals2
Foreign exchange rate movements
Other movements3
Carrying amount at 31 December
2020
£m
2019
£m
131,182
8,982
(6,293)
(378)
(783)
5,531
277
7,336
(4,707)
1,510
88
125,829
6,988
(6,452)
3,212
(961)
3,766
47
6,600
—
(1,775)
528
135,409
131,182
1 Other movements recognised as an expense during 2020 relate primarily to recognition of additional reserves related to with-profits legacy guarantees. Additional contributions from a special bonus distribution to with-profits
policyholders and provisions for legacy unclaimed assets broadly offset by model changes in UK Life, Ireland and Singapore. The movement in 2019 relates 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.
2 The movement during 2020 includes the disposal of FPI, Hong Kong and Singapore businesses.
3 Other movements include the reclassification in the UK from participating investment contracts to insurance contracts of £97 million during 2020 (2019: £972 million). Other movements in 2019 also included £(427) million of
negative reinsurance assets in the UK which were reclassified from insurance liabilities to reinsurance assets following a review of the presentation of negative reinsurance assets.
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 £4.2 billion during
2020 (2019: £5.4 billion increase) mainly driven by:
• New business net of the expected change on existing business of £2.7 billion, primarily due to growing bulk purchase annuities sales in the
UK;
• Variance between actual and expected experience of £(0.4) billion, which was mainly due to lower than expected equity returns in the UK,
France and Italy;
• Impact of operating assumption changes of £(0.8) 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 £5.5 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 47), together with the impact of movements in related non-financial assets.
(c) General insurance and health liabilities
(i) Business description
The Group underwrites general insurance and health business in a number of countries as follows:
• In the UK and Ireland, 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 other Manage-for-value operations in Europe, providing a range of general insurance and health products.
(ii) Group practice
Delays occur in the notification and settlement of claims and a substantial measure of experience and judgement is involved in assessing
outstanding liabilities, the ultimate cost of which cannot be known with certainty at the statement of financial position date. The liabilities
for general insurance and health business are based on information currently available. However, it is inherent in the nature of the business
written that the ultimate liabilities may vary as a result of subsequent developments.
Provisions for outstanding claims are established to cover the outstanding expected ultimate liability for losses and loss adjustment expenses
(LAE) in respect of all claims that have already occurred. The provisions established cover reported claims and associated LAE, as well as
claims incurred but not yet reported and associated LAE.
The Group only establishes reserves for losses that have already occurred. The Group therefore does not establish catastrophe equalisation
reserves that defer a share of income in respect of certain lines of business from years in which a catastrophe does not occur to future periods
in which catastrophes may occur. When calculating reserves, the Group takes into account estimated future recoveries from salvage and
subrogation, and a separate asset is recorded for expected future recoveries from reinsurers after considering their collectability.
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Notes to the consolidated financial statements continued
42 – Insurance liabilities continued
(c) General insurance and health liabilities continued
(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 2020
As at 31 December 2019
Outstanding
claim
provisions
£m
IBNR
provisions
£m
Total claim
provisions
£m
Outstanding
claim
provisions
£m
IBNR
provisions
£m
Total claim
provisions
£m
4,678
2,117
1,940
2
280
9,017
1,298
430
1,440
1
198
3,367
5,976
2,547
3,380
3
478
12,384
4,836
1,823
1,864
5
303
8,831
1,115
155
1,277
6
119
2,672
5,951
1,978
3,141
11
422
11,503
The gross outstanding claims provision before discounting was £12,546 million (2019: £11,801 million). Details of the range of discount rates
used along with other material assumptions are available (see note 43(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 41(b))
Effect of portfolio transfers, acquisitions and disposals1
Foreign exchange rate movements
Other movements
Carrying amount at 31 December
1 The movement during 2020 relates to the disposal of the Singapore business.
2020
£m
11,503
184
6,909
(122)
6,971
(3,315)
(3,137)
322
(6,130)
11
852
(72)
101
—
2019
£m
11,406
126
7,045
(186)
6,985
(3,834)
(3,327)
396
(6,765)
14
234
—
(138)
1
12,384
11,503
The impact of COVID-19 on general insurance incurred claims losses is estimated as £150 million after allowing for an estimated £500 million
of offsetting favourable impacts in other product lines as a result of reduced economic activity. Claims are primarily as a result of disruption
to business insured by the Group; partially offset by a reduction in claims frequency on other product lines. Further information on the impact
of COVID-19 on general insurance and health liabilities can be found within note 59.
Since the ultimate cost of claims is not known in advance, there are uncertainties involved in estimating the loss reserves including those
relating to the COVID-19 pandemic. Allowances for uncertainties in the reserving process are discussed in note 43.
(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/(income)
Gross portfolio transfers and acquisitions1
Foreign exchange rate movements
Carrying amount at 31 December
1 The movement during 2020 relates to the disposal of the Singapore business.
2020
£m
2019
£m
5,138
10,956
(10,807)
4,946
10,908
(10,677)
149
(104)
27
231
—
(39)
5,210
5,138
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Notes to the consolidated financial statements continued
42 – 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 2011 to
2020. 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 2020 were:
• £47 million release from the UK and Ireland primarily due to favourable experience in personal property and personal motor lines, partially
offset by strengthening across commercial lines due to adverse large claims experience;
• £13 million release from Canada primarily due to favourable injury experience in personal motor, offset by strengthening and large loss
development in latent claims;
• £20 million release from Manage-for-value markets mainly due to favourable claims development in France.
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 43);
• £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 other markets mainly due to favourable claims development in France.
Gross of reinsurance
Before the effect of reinsurance, the loss development table is:
All prior years
£m
2011
£m
2012
£m
2013
£m
2014
£m
2015
£m
2016
£m
2017
£m
2018
£m
2019
£m
2020
£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
2,305
(160)
2,145
—
—
(3,420)
(4,765)
(5,150)
(5,457)
(5,712)
(5,864)
(5,978)
(6,032)
(6,078)
(6,101)
6,428
6,330
6,315
6,292
6,262
6,265
6,265
6,223
6,205
6,213
6,213
(6,101)
112
(1)
111
1
5
(3,055)
(4,373)
(4,812)
(5,118)
(5,376)
(5,556)
(5,635)
(5,718)
(5,756)
6,201
6,028
6,002
5,952
6,002
5,979
5,910
5,902
5,895
(3,068)
(4,476)
(4,916)
(5,221)
(5,467)
(5,645)
(5,739)
(5,785)
(3,102)
(4,295)
(4,681)
(4,974)
(5,244)
(5,406)
(5,507)
(2,991)
(4,285)
(4,710)
(4,997)
(5,198)
(5,364)
(3,534)
(4,972)
(5,435)
(5,781)
(6,020)
6,122
6,039
6,029
6,067
6,034
5,996
5,956
5,950
5,896
5,833
5,865
5,842
5,772
5,756
5,735
5,851
5,930
5,912
5,814
5,785
5,760
6,947
6,931
6,864
6,817
6,836
(3,517)
(4,952)
(5,388)
(5,699)
(3,769)
(5,239)
(5,681)
(3,617)
(4,986)
(3,240)
6,894
6,796
6,756
6,751
7,185
7,175
7,220
6,979
6,935
6,896
5,895
(5,756)
5,950
(5,785)
5,735
(5,507)
5,760
(5,364)
6,836
(6,020)
6,751
(5,699)
7,220
(5,681)
6,935
(4,986)
6,896
(3,240)
139
(1)
138
5
7
165
—
165
7
7
228
—
228
18
15
396
—
396
60
31
816
—
816
(4)
31
1,052
—
1,052
1,539
—
1,539
1,949
—
1,949
3,656 12,357
(162)
3,656 12,195
—
(9)
—
(2)
—
17
—
—
—
93
96
statement of financial position
2,145
117
150
179
261
487
843
1,043
1,537
1,966
3,656 12,384
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Notes to the consolidated financial statements continued
42 – Insurance liabilities continued
Net of reinsurance
After the effect of reinsurance, the loss development table is:
Accident year
Net cumulative claim payments
At end of accident year
One year later
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Estimate of net ultimate claims
At end of accident year
One year later
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Estimate of net ultimate claims
Cumulative payments
Effect of discounting
Present value
Cumulative effect of foreign exchange
movements
Effect of acquisitions
Present value recognised in the
statement of financial position
All prior years
£m
2011
£m
2012
£m
2013
£m
2014
£m
2015
£m
2016
£m
2017
£m
2018
£m
2019
£m
2020
£m
Total
£m
(3,300)
(4,578)
(4,963)
(5,263)
(5,485)
(5,626)
(5,740)
(5,798)
(5,842)
(5,868)
6,202
6,103
6,095
6,077
6,034
6,005
6,003
5,967
5,952
5,961
5,961
(5,868)
93
1
94
1
5
990
(89)
901
—
3
(2,925)
(4,166)
(4,575)
(4,870)
(5,110)
(5,289)
(5,371)
(5,439)
(5,488)
5,941
5,765
5,728
5,683
5,717
5,680
5,631
5,600
5,607
(2,905)
(4,240)
(4,649)
(4,918)
(5,159)
(5,324)
(5,417)
(5,459)
(2,972)
(4,079)
(4,432)
(4,720)
(4,973)
(5,132)
(5,222)
(2,867)
(4,061)
(4,452)
(4,725)
(4,919)
(5,085)
(3,309)
(4,591)
(5,012)
(5,329)
(5,564)
5,838
5,745
5,752
5,733
5,689
5,653
5,612
5,612
5,613
5,575
5,591
5,559
5,490
5,472
5,449
5,548
5,635
5,608
5,517
5,495
5,469
6,489
6,458
6,377
6,334
6,335
(3,483)
(4,843)
(5,255)
(5,560)
(3,718)
(5,117)
(5,514)
(3,565)
(4,873)
(3,090)
6,714
6,591
6,569
6,560
6,997
6,944
6,983
6,774
6,729
6,378
5,607
(5,488)
5,612
(5,459)
5,449
(5,222)
5,469
(5,085)
6,335
(5,564)
6,560
(5,560)
6,983
(5,514)
6,729
(4,873)
6,378
(3,090)
119
(1)
118
5
7
153
2
155
7
7
227
—
227
17
15
384
—
384
59
30
771
—
771
(4)
31
1,000
—
1,000
1,469
—
1,469
1,856
—
1,856
3,288 10,350
(87)
—
3,288 10,263
(9)
—
(2)
—
16
—
—
—
90
98
904
100
130
169
259
473
798
991
1,467
1,872
3,288 10,451
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 2020 were
£87 million (2019: £88 million). The movement in asbestos and environmental pollution liabilities in the year reflects a reduction of £11 million
due to favourable claims development, claim payments net of reinsurance recoveries and foreign exchange movements.
43 – Insurance liabilities methodology and assumptions
(a) Long-term business
The main method used for the actuarial valuation of long-term insurance liabilities is the gross premium method which involves the
discounting of projected future cash flows. The cash flows are calculated using the contractual premiums payable together with explicit
assumptions for investment returns, discount rates, inflation, mortality, morbidity, persistency and future expenses. These assumptions can
vary by contract type and reflect current and expected future experience with an allowance for prudence.
The methodology and assumptions described below relate to the UK and France insurance businesses only.
(i) UK
Non-profit business
The valuation of non-profit business is based on grandfathered regulatory requirements under IFRS 4 prior to the adoption of Solvency II,
adjusted to remove certain regulatory reserves and margins in assumptions, notably for annuity business. Conventional non-profit contracts,
including those written in the with-profits funds, are valued using the gross premium method. For non-profit business in the ex. Friends Life
with-profits funds, the liabilities are measured on a realistic basis with implicit recognition of the present value of future profits.
For unit-linked and some unitised with-profits business, the provisions are valued by adding a prospective non-unit reserve to the bid value
of units. The prospective non-unit reserve is calculated by projecting the future non-unit cash flows using prudent assumptions and on the
assumption that future premiums cease, unless it is more onerous to assume that they continue.
Discount rates
Valuation discount rate assumptions are set with regard to yields on the supporting assets and the general level of long-term interest rates
as measured by gilt yields. An explicit allowance for risk is included by making 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.
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Other information
Notes to the consolidated financial statements continued
43 – Insurance liabilities methodology and assumptions continued
(a) Long-term business continued
Discount rates continued
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)
2020
2019
0.5%
0.5%
0.5% to 2.1%
0.6% to 1.6%
0.5% to 1.5%
0.9% to 2.3%
0.4%
0.5%
0.5%
0.5%
0.9%
1.1%
0.6% to 2.1%
1.1%
The valuation discount rates are after a reduction for risk, but before allowance for investment expenses. For 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 46 bps, 35 bps, and 118 bps
respectively at 31 December 2020 (2019: 45 bps – 47 bps, 31 bps – 35 bps, and 124 bps respectively).
The total valuation allowance in respect of corporate bonds was £1.4 billion (2019: £1.3 billion) over the remaining term of the portfolio at
31 December 2020. The total valuation allowance in respect of mortgages (including healthcare mortgages but excluding equity release) was
£0.6 billion at 31 December 2020 (2019: £0.5 billion). The total valuation allowance in respect of equity release mortgages was £1.7 billion at
31 December 2020 (2019: £1.5 billion). Total liabilities for the annuity business were £62.9 billion at 31 December 2020 (2019: £57.6 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.
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
2020
2019
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
CV3
For the largest portfolio of pensions annuity business, the underlying mortality assumptions for males are 105.2% of PMA08 HAMWP adjusted
(2019: 105.4% of PMA08 HAMWP adjusted) with base year 2008; for females the underlying mortality assumptions are 102.7% of PFA08 HAMWP
adjusted (2019: 99.5% of PFA08 HAMWP adjusted) with base year 2008.
Improvements are based on ‘CMI_2019 (S=7.25) Advanced with adjustments’ (2019: ‘CMI_2018 (S=7.25) Advanced with adjustments’) with a
long-term improvement rate of 1.5% (2019: 1.75%) for males and 1.5% (2019: 1.5%) for females, both with an additional improvement for
prudence of 0.5% (2019: 0.5%) to all future annual improvement adjustments. The CMI_2019 tables have been adjusted by adding 0.25%
(2019: 0.25%) and 0.35% (2019: 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_2019 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 2019. 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.
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Notes to the consolidated financial statements continued
43 – Insurance liabilities methodology and assumptions continued
(a) Long-term business continued
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 2020 of 0.40% (2019: 1.02%) 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
2020
19.0%
15.4%
2019
16.2%
15.8%
The equity volatility used depends on term, moneyness and region. The figure shown is for a sample UK equity, at the money, with a ten-year
term.
Future regular bonuses
Annual bonus assumptions for 2021 have been set consistently with the year-end 2020 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
2020
2019
Assurances, pure endowments and deferred annuities before vesting
Nil or Axx00 adjusted
Nil or Axx00 adjusted
Pensions business after vesting and pensions annuities in payment
PMA08 HAMWP/PFA08 HAMWP
adjusted plus allowance for future
mortality improvement
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 difference 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 accrues to the
non-profit fund.
Guarantees and options
The provisions held in respect of guaranteed annuity options for the with-profits and the non-profit business are a prudent assessment of the
additional liability incurred under the option on a basis and method consistent with that used to value basic policy liabilities, and includes a
prudent assessment of the proportion of policyholders who will choose to exercise the option. For further details see note 45.
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Notes to the consolidated financial statements continued
43 – Insurance liabilities methodology and assumptions continued
(a) Long-term business continued
(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
2020
2019
2020 and 2019
0% to 4.5%
0% to 1.5%
0% to 4.5%
0% to 1.5%
TD73-77, TD88-90,
TH00-02, TF00-02,
H_AVDBS, F_AVDBS,
H_SSDBS, F_SSDBS
TGF05/TGH05
(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:
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
2020
0.0% to 1.5%
0.0% to 1.2%
-0.4% to 2.3%
Discount rate
2019
0.8% to 2.2%
0.8% to 2.2%
-0.2% to 2.7%
Mean term of liabilities
2020
2019
9 years
9 to 11 years
11 to 35 years
9 years
10 to 12 years
11 to 35 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 11 years depending on the geographical region.
At 31 December 2020, it is estimated that a 1% fall in the discount rates used would increase net claim reserves by approximately £130 million
(2019: £120 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 considers the latest available market information and studies and how these might impact Aviva’s
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.
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Notes to the consolidated financial statements continued
43 – Insurance liabilities methodology and assumptions continued
(b) General insurance and health continued
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. The balance sheet reserves in the UK have been calculated using the current
Ogden discount rate of -0.25%, as this is the enacted legislative rate that was announced by the Lord Chancellor in August 2019. The Ogden
discount rate is expected to be reviewed by the Lord Chancellor by summer 2024.
44 – Liabilities for investment contracts
This note analyses our gross liabilities for investment contracts by type of product and describes the calculation of these liabilities.
(a) Carrying amount
The liabilities for investment contracts (gross of reinsurance) at 31 December 2020 comprised:
Long-term business
Liabilities for participating investment contracts
Liabilities for non-participating investment contracts
Total
Less: Liabilities classified as held for sale
2020
£m
2019
£m
97,073
138,183
92,762
137,689
235,256
230,451
(12,425)
(8,324)
222,831
222,127
(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 43). They are not measured at fair value as there is currently no agreed definition
of fair valuation for discretionary participation features under IFRS. In the absence of such a definition, it is not possible to provide a range of
estimates within which a fair value is likely to fall. The IASB deferred consideration of participating contracts to the IFRS 17 insurance
standard, which is expected to apply to annual reporting periods beginning on or after 1 January 2023.
For participating business, the discretionary participation feature is recognised separately from the guaranteed element and is classified as
a liability, referred to as unallocated divisible surplus, except for the with-profits sub-fund supported by the RIEESA. Guarantees on long-term
investment products are discussed in note 45.
Investment contracts that do not contain a discretionary participation feature are referred to as non-participating contracts and the liability
is measured at either fair value or amortised cost. We currently have no non-participating investment contracts measured at amortised cost.
Of the non-participating investment contracts measured at fair value, £138,044 million at 31 December 2020 (2019: £137,040 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 54.
For non-participating investment contracts acquired in a business combination, an acquired value of in-force business asset is recognised in
respect of the fair value of the investment management services component of the contracts, which is amortised on a systematic basis over
the useful lifetime of the related contracts. The amount of the acquired value of in-force business asset is shown in note 18, which relates
primarily to the acquisition of Friends Life in 2015 and Friends First in 2018.
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Notes to the consolidated financial statements continued
44 – Liabilities for investment contracts continued
(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
Foreign exchange rate movements
Other movements3
Carrying amount at 31 December
2020
£m
92,762
4,691
(5,127)
343
92
330
76
405
4,003
(97)
2019
£m
90,455
6,991
(4,857)
4,751
173
204
103
7,365
(4,054)
(1,004)
97,073
92,762
1 Other movements recognised as an expense during 2020 relate to a special bonus distribution to with-profits policyholders in UK Life. In 2019 this related to a special bonus distribution and the recognition of unitised with-profits
annual management charges in UK Life.
2 Total interest expense for participating investment contracts recognised in profit or loss is £1,311 million (2019: £5,269 million).
3 Other movements include the reclassification in the UK from participating investment contracts to insurance contracts of £(97) million during 2020 (2019: £(972) million). Other movements in 2019 also included a reclassification
in the UK from participating investment contracts to outstanding claims reserves of £(32) million.
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 2020 of £0.3 billion is primarily due to higher bond and gilt values as a result of lower
interest rates and increases in US and Japanese equity markets; partially offset by decreases in UK and European 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 47, together with the impact of movements in related non-financial assets.
(ii) Non-participating investment contracts
Carrying amount at 1 January
Liabilities in respect of new business
Expected change in existing business
Variance between actual and expected experience
Impact of operating assumption changes
Impact of economic assumption changes
Other movements recognised as an expense
Change in liability
Effect of portfolio transfers, acquisitions and disposals1
Foreign exchange rate movements
Other movements2
Carrying amount at 31 December
2020
£m
137,689
4,187
(3,231)
6,970
19
6
—
7,951
(8,038)
583
(2)
2019
£m
120,354
5,520
(3,742)
16,345
(22)
(1)
2
18,102
—
(575)
(192)
138,183
137,689
1 The movement during 2020 relates to the disposal of FPI.
2 Other movements during 2019 relate to a reclassification from non-participating investment to outstanding claims reserves in the UK (£(180) 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 2020 of £7.0 billion is due to higher bond and gilt values as a result of lower
interest rates and increases in US and Japanese equity markets; partially offset by decreases in UK and European equity performance. In
addition more UK pension policies have remained in force due to increased pensions freedoms.
The impact of assumption changes in the above analysis shows the resulting movement in the carrying value of non-participating investment
contract liabilities. The impacts of assumption changes on profit are included in the effect of changes in assumptions and estimates during
the year shown in note 47, which combines participating and non-participating investment contracts together with the impact of movements
in related non-financial assets.
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Notes to the consolidated financial statements continued
45 – Financial guarantees and options
This note details the financial guarantees and options inherent in some of our insurance and investment contracts.
As a part of their operating activities, various Group companies have provided guarantees and options, including investment return
guarantees, on certain long-term insurance and fund management products.
(a) UK non-profit business
The Group’s UK non-profit funds are evaluated by reference to statutory reserving rules, which are based on the UK regulatory requirements
(grandfathered under IFRS 4), prior to the adoption of Solvency II, adjusted to remove certain regulatory reserves and margins in assumptions,
notably for annuity business.
(i) Guaranteed annuity options
The Group’s UK non-profit funds have written contracts which contain guaranteed annuity rate options (GAOs), where the policyholder has
the option to take the benefits from a policy in the form of an annuity based on guaranteed conversion rates. Provision for these guarantees
do not materially differ from a provision based on a market-consistent stochastic model, and amounts to £76 million at 31 December 2020
(2019: £82 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 £223 million at 31 December 2020 (2019: £178 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, provision for guarantees and options within realistic liabilities are measured using market-consistent
stochastic models. A stochastic approach includes measuring the time value of guarantees and options, which represents the additional cost
arising from uncertainty surrounding future economic conditions.
The material guarantees and options relating to this provision are:
(i) Maturity value and death benefit guarantees
Significant conventional and unitised with-profits business have minimum maturity (and in some cases death benefit) values reflecting the
sum assured plus declared annual bonus. 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 £1,587 million at 31 December 2020 (2019: £1,628 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 £137 million at 31 December 2020 (2019: £129 million).
(iv) Guaranteed minimum pension
The Group’s UK with-profits funds also have certain policies that contain a guaranteed minimum level of pension as part of the condition of
the original transfer from state benefits to the policy.
(v) Guaranteed minimum maturity payments on mortgage endowments
The with-profits funds made promises to certain policyholders in relation to their with-profits mortgage endowments. Top-up payments will
be made on these policies at maturity to meet the mortgage value up to a maximum of the 31 December 1999 illustrated shortfall.
(c) 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
45 – Financial guarantees and options continued
(d) 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 2020 (2019: no PAF was established).
The most significant of these contracts is the AFER Eurofund which has total liabilities of £38 billion at 31 December 2020 (2019: £37 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 1.70% for 2020 (2019: 1.85%) compared with an accounting income from the fund of 2.186% (2019: 2.336%).
Non-AFER contracts with guaranteed surrender values had liabilities of £11 billion at 31 December 2020 (2019: £11 billion) and all guaranteed
annual bonus rates are between 0% and 4.5% (2019: 0% to 4.5%). For non-AFER business the accounting income return exceeded guaranteed
bonus rates in 2020 (2019: 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.
(e) Italy
Guaranteed investment returns and guaranteed surrender values
The Group has written contracts containing guaranteed investment returns and guaranteed surrender values in Italy. Traditional
profit-sharing products receive an appropriate share of the investment return, assessed on a book value basis, subject to a guaranteed
minimum annual return of up to 4% on existing business. New business has a minimum guaranteed return of 0% applicable at certain policy
anniversaries. 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.
46 – Reinsurance assets
This note details the reinsurance assets on our insurance and investment contract liabilities.
(a) Carrying amount
The reinsurance assets at 31 December comprised:
Long-term business
Insurance contracts
Participating investment contracts
Non-participating investment contracts1
Outstanding claims provisions
General insurance and health
Outstanding claims provisions
Provisions for claims incurred but not reported
Provisions for unearned premiums
Less: Assets classified as held for sale
Total
2020
£m
2019
£m
7,176
1
3,860
11,037
87
11,124
794
1,139
1,933
299
2,232
6,369
1
4,006
10,376
93
10,469
683
1,004
1,687
275
1,962
13,356
(18)
12,431
(75)
13,338
12,356
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, £12,048 million (2019: £10,943 million) is expected to be recovered more than one year after this statement of financial
position.
(b) Assumptions
The assumptions, including discount rates, used for reinsurance contracts follow those used for insurance liabilities. Reinsurance assets are
valued net of an allowance for recoverability.
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Other information
Notes to the consolidated financial statements continued
46 – Reinsurance assets continued
(c) Movements
The following movements have occurred in the reinsurance assets during the year:
(i) Long-term business liabilities
Carrying amount at 1 January
Assets in respect of new business
Expected change in existing business assets
Variance between actual and expected experience
Impact of non-economic assumption changes
Impact of economic assumption changes
Other 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
2020
£m
10,376
1,539
(335)
763
(150)
503
(998)
1,322
(731)
63
7
2019
£m
9,846
954
(185)
274
(175)
193
(37)
1,024
—
(73)
(421)
11,037
10,376
1 Other movements recognised as an expense during 2020 primarily relate to the reclassification of collective investments in unit-linked funds in the UK following a restructure of a reinsurance treaty. The movement in 2019
primarily relates 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.
2 Change in assets does not reconcile with values in note 41(b) due to the inclusion of reinsurance assets classified as non-participating investment contracts where, for such contracts, deposit accounting is applied on the income
statement.
3 Movements in 2020 relate to the disposals of the FPI, Hong Kong and Singapore businesses.
4 Other movements in 2019 included £(427) million of negative reinsurance assets in the UK which were reclassified form insurance liabilities to reinsurance assets following a review of the presentation of negative 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 47), together with the impact of
movements in related liabilities and other non-financial assets.
(ii) General insurance and health claims liabilities
Carrying amount at 1 January
Impact of changes in assumptions
Reinsurers’ share of claim losses and expenses
Incurred in current year
Incurred in prior years
Reinsurers’ share of incurred claim losses and expenses
Less:
Reinsurance recoveries received on claims
Incurred in current year
Incurred in prior years
Reinsurance recoveries received in the year
Unwind of discounting
Change in reinsurance asset recognised as income (note 41(b))
Effect of portfolio transfers, acquisitions and disposals1
Foreign exchange rate movements
Other movements
Carrying amount at 31 December
1 The movement during 2020 relates to the disposal of the Singapore business.
2020
£m
1,687
81
521
(43)
478
(145)
(163)
(308)
8
259
(9)
(4)
—
2019
£m
1,611
73
195
96
291
(53)
(227)
(280)
10
94
—
(15)
(3)
1,933
1,687
The impact of COVID-19 on reinsurers’ share of incurred claim losses is estimated as £255 million. Further information on the impact of
COVID-19 on general insurance and health liabilities and associated reinsurance can be found within note 59.
(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 2020 relates to the disposal of the Singapore business.
2020
£m
275
725
(696)
29
(4)
—
300
2019
£m
254
683
(661)
22
—
(1)
275
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IFRS financial statements
Other information
Notes to the consolidated financial statements continued
47 – Effect of changes in assumptions and estimates during the year
This note analyses the impact of changes in estimates and assumptions from 2019 to 2020, 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
2020
£m
Effect on profit
2019
£m
(3,831)
111
(31)
81
384
14
3
(104)
(2,978)
(47)
(124)
(38)
830
9
—
(54)
(3,373)
(2,402)
The impact of change in 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 expense assumption changes on long-term business relates to the UK and Ireland, where reserves have decreased by
£111 million following a review of recent experience including the expense allocations.
The impact of persistency assumption changes on long-term business relates to the UK where reserves have increased by £31 million
following a review of recent experience on protection business.
The impact of change in mortality and morbidity assumptions for assurance contracts relates primarily to Singapore where prior to disposal
there was a reduction in reserves of £86 million following a review of recent experience. In addition, there has been a £40 million strengthening
of reserves in the UK as a result of COVID-19 partially offset by a £32 million reduction in reserves following a review of recent experience (not
related to COVID-19).
The impact of mortality assumption changes for annuitant contracts on long-term business relates primarily to a reduction in reserves of
£390 million in the UK. This is due to changes in assumptions on both individual and bulk purchase annuities arising from:
• Updates to base mortality to reflect recent experience of £224 million;
• Updates to the rate of mortality improvements, including moving to CMI 2019 and changing the long-term rate of future mortality
improvements for males of £210 million;
• Changes to assumptions for anti-selection on individual annuities of £(68) million;
• Net impacts arising from COVID-19 of £24 million.
In 2019 the impact of mortality for annuitant contracts on long-term business related primarily to a reduction in reserves of £799 million in
the UK comprising:
• 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 the general insurance and health business, a negative impact of £(104) million (2019: £(54) million negative) has arisen primarily as a result
of a decrease in the interest rates used to discount claim reserves for both periodic payment orders (PPOs) and latent claims.
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Other information
Notes to the consolidated financial statements continued
48 – Unallocated divisible surplus
An unallocated divisible surplus (UDS) is established where the nature of policy benefits is such that the division between shareholder
reserves and policyholder liabilities is uncertain at the reporting date. Therefore, the expected duration for settlement of the UDS is undefined.
This note shows the movements in the UDS during the year.
Carrying amount at 1 January
Change in participating fund assets
Change in participating fund liabilities
Other movements1
Change in liability recognised as an expense
Effect of portfolio transfers, acquisition and disposals2
Foreign exchange rate movements
Less: Classified as held for sale
Carrying amount at 31 December
2020
£m
9,597
2,925
(1,244)
8
1,689
(730)
414
10,970
(1,234)
2019
£m
5,949
9,411
(5,426)
—
3,985
—
(337)
9,597
—
9,736
9,597
1 Other movements relates to additional liabilities arising from the liability adequacy test for France of £8 million (2019: £nil).
2 The movement during 2020 relates to disposal of the Singapore business.
The amount of UDS at 31 December 2020 has increased to £9.7 billion (2019: £9.6 billion). The movement in UDS is mainly due to market
movements in Europe as a result of decreasing interest rates and narrowing credit spreads; partially offset by a decrease in the UK due to an
increase in liabilities for special bonus distributions, the disposal of the Singapore business and business now held for sale in Italy.
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 (2019: no material negative UDS).
49 – Tax assets and liabilities
This note analyses the tax assets and liabilities that appear in the statement of financial position and explains the movements in these
balances in the year.
(a) Current tax
Current tax assets recoverable and liabilities payable in more than one year are £121 million and £3 million (2019: £104 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. A recoverable balance of £108 million
is included within current tax assets.
(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
2020
£m
128
(1,889)
(1,761)
52
2019
£m
162
(2,155)
(1,993)
(11)
(1,709)
(2,004)
Amounts classified as held for sale
(2019: deferred tax assets £11 million).
include £9 million of deferred tax assets and £61 million of deferred tax
liabilities.
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IFRS financial statements
Other information
Notes to the consolidated financial statements continued
49 – Tax assets and liabilities continued
(b) Deferred tax continued
(ii) The net deferred tax liability arises on the following items:
Long-term business technical provisions and other insurance items
Deferred acquisition costs
Unrealised gains on investments
Pensions and other post-retirement obligations
Unused losses and tax credits
Subsidiaries, associates and joint ventures
Intangibles and additional value of in-force long-term business
Provisions and other temporary differences
Net deferred tax liability
Less: 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 subsidiaries
Amounts (charged) to income statement (note 14(a))
Amounts (charged)/credited to other comprehensive income (note 14(b))
Foreign exchange rate movements
Other movements
Net liability at 31 December
2020
£m
2,523
(211)
(3,354)
(477)
121
(19)
(397)
53
(1,761)
52
2019
£m
1,752
(198)
(2,875)
(425)
103
(13)
(413)
76
(1,993)
(11)
(1,709)
(2,004)
2020
£m
(1,993)
—
(1,993)
362
(57)
(58)
(14)
(1)
(1,761)
2019
£m
(1,700)
24
(1,676)
—
(387)
50
23
(3)
(1,993)
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 £920 million (2019: £1,270 million)
to carry forward against future taxable income of the necessary category in the companies concerned. Of these, trading losses of £11 million
(2019: £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 £581 million (2019: £612 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 2020 (2019: £nil).
50 – Pension deficits and other provisions
This note details the non-insurance provisions that the Group holds and shows the movements in these during the year.
(a) Carrying amounts
Total IAS 19 obligations to main staff pension schemes (note 51(a))
Deficits in other staff pension schemes
Total IAS 19 obligations to staff pension schemes
Restructuring provisions
Other provisions
Less: Liabilities classified as held for sale
Total provisions
2020
£m
746
77
823
48
565
2019
£m
770
66
836
29
700
1,436
1,565
(1)
—
1,435
1,565
Total Other provisions primarily include amounts set aside throughout the Group relating to product governance rectification and staff
entitlements.
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IFRS financial statements
Other information
Notes to the consolidated financial statements continued
50 – Pension deficits and other provisions continued
(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
Disposal of subsidiaries
Foreign exchange rate movements
At 31 December
Restructuring
provisions
£m
Other
provisions
£m
29
24
—
24
(5)
—
—
48
700
127
(53)
74
(200)
(11)
2
565
2020
Total
£m
729
151
(53)
98
(205)
(11)
2
613
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
Of the total restructuring and other provisions, £175 million (2019: £569 million) is expected to be settled more than one year after the
statement of financial position date.
Other provisions include a £45 million provision (2019: £229 million) and a £173 million provision (2019: £175 million) in respect of two product
governance issues in our UK Life business:
• The first 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. The reduction
in the value of the provision during 2020 of £183 million is due to utilisation in the period of £168 million and a release of £15 million. 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.
• The second 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 have completed
a review to identify affected customers and we will ensure those affected 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 £30 million (2019: £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.
51 – Pension obligations
(a) Introduction
The Group operates a number of defined benefit and defined contribution pension schemes. The material defined benefit schemes are in the
UK, Ireland and Canada. The assets and liabilities of these defined benefit schemes as at 31 December 2020 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
18,915
(16,623)
2,292
Ireland
£m
941
(1,123)
(182)
Canada
£m
2020
Total
£m
UK
£m
269
(345)
20,125
(18,091)
17,671
(15,416)
(76)
2,034
2,255
Surpluses included in other assets (note 31)
Deficits included in provisions (note 50)
Net IAS 19 surpluses/(deficits) in the schemes
2,780
(488)
2,292
—
(182)
(182)
—
(76)
(76)
2,780
(746)
2,034
2,746
(491)
2,255
Ireland
£m
833
(1,035)
(202)
—
(202)
(202)
Canada
£m
264
(341)
(77)
2019
Total
£m
18,768
(16,792)
1,976
—
(77)
(77)
2,746
(770)
1,976
This note relates to the defined benefit pension schemes included in the table above. There are a number of smaller schemes that are also
measured under IAS 19. These are included as a total within Deficits in other staff pension schemes (see note 50). Similarly, while the charges
to the income statement for the main schemes are shown in section (b)(i) below, the total charges for all pension schemes are disclosed in
section (d) below.
Under the IAS 19 valuation basis, the Group applies the principles of IFRIC 14, ‘IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction’, whereby a surplus is only recognised to the extent that the Company is able to access the surplus either
through an unconditional right of refund to the surplus or through reduced future contributions relating to ongoing service, which have been
substantively enacted or contractually agreed. The Group has determined that it can derive economic benefit from the surplus in the Aviva
Staff Pension Scheme (ASPS) via a reduction to future employer contributions for defined contribution members, which could theoretically
be paid from the surplus funds in the ASPS. In the RAC (2003) Pension Scheme and Friends Provident Pension Scheme (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.
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IFRS financial statements
Other information
Notes to the consolidated financial statements continued
51 – Pension obligations continued
(a) Introduction continued
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
2020
Number
43,698
39,447
83,145
2019
Number
45,748
39,038
84,786
2020
Number
2,458
882
3,340
Ireland
2019
Number
2,479
895
3,374
2020
Number
428
1,291
1,719
Canada
2019
Number
467
1,313
1,780
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 ASPS, the RAC Scheme, which was retained after the sale of RAC Limited in
September 2011, and the 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.
(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:
2020
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
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 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
18,768
—
—
—
350
(16,792)
(18)
(17)
(35)
(309)
350
(344)
1,746
(350)
1,396
—
—
—
1,396
211
2
(631)
(17)
46
—
—
—
(1,769)
43
182
(1,544)
—
(2)
631
17
(57)
1,976
(18)
(17)
(35)
41
6
1,746
(350)
1,396
(1,769)
43
182
(148)
211
—
—
—
(11)
20,125
(18,091)
2,034
1 Past service costs include a charge of £18 million relating to the estimated liability arising in the UK defined benefit pension schemes as a result of the requirement to equalise the cash equivalent transfer values paid to former
scheme members for the effects of Guaranteed Minimum Pension (GMP). This additional liability has arisen following the High Court judgement in November 2020 in the case involving Lloyds Banking Group.
2 Administrative expenses are expensed as incurred.
3 Net interest income of £58 million has been credited to investment income and net interest expense of £17 million has been charged to finance costs (see note 8).
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IFRS financial statements
Other information
Notes to the consolidated financial statements continued
51 – Pension obligations continued
(b) IAS 19 disclosures continued
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 financial 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 £120 million at 31 December 2020
(2019: £118 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 has been recognised as a 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.
The remeasurements recognised are also a result of falling interest rates over the period; as well as an update to the corporate bond portfolio
used to derive the discount rate, which reduces the liabilities under IAS 19. The impact of the change in corporate bond portfolio used to
derive the discount rate is recognised as a gain from change in financial assumptions within other comprehensive income.
(ii) Scheme assets
Scheme assets are stated at their fair values at 31 December 2020.
Total scheme assets are comprised by country as follows:
Bonds
Equities
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
UK
£m
19,702
—
352
4,182
—
2,714
(7,368)
19,582
(667)
18,915
Ireland
£m
921
31
—
272
13
—
(296)
941
—
941
Canada
£m
119
—
—
146
—
—
4
269
—
269
2020
Total
£m
20,742
31
352
4,600
13
2,714
(7,660)
20,792
UK
£m
17,343
—
392
4,497
60
1,977
(5,952)
18,317
(667)
(646)
20,125
17,671
Ireland
£m
723
—
—
283
4
—
(177)
833
—
833
Canada
£m
141
—
—
122
—
—
1
264
—
264
2019
Total
£m
18,207
—
392
4,902
64
1,977
(6,128)
19,414
(646)
18,768
1 Cash and other assets comprise cash at bank, receivables, payables, repurchase agreements and longevity swaps. At 31 December 2020, cash and other assets primarily consist of repurchase agreements of £5,168 million
(2019: £3,078 million).
2 As at 31 December 2020, the FPPS asset includes an insurance policy of £667 million (2019: £646 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 £2,047 million as at 31 December 2020 (2019: £1,331 million) included in the ASPS assets are transferable and so are not subject to consolidation.
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Notes to the consolidated financial statements continued
51 – Pension obligations continued
(b) IAS 19 disclosures continued
Total scheme assets are analysed by those that have a quoted market price in an active market and other as follows:
Bonds
Equities
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
Quoted in an
active market
£m
16,770
31
—
128
12
—
(2,021)
14,920
—
14,920
Other
£m
3,972
—
352
4,472
1
2,714
(5,639)
5,872
(667)
20,742
31
352
4,600
13
2,714
(7,660)
20,792
(667)
5,205
20,125
14,399
—
—
178
9
—
(2,611)
11,975
—
11,975
2020
Total
£m
Quoted in an
active market
£m
2019
Total
£m
18,207
—
392
4,902
64
1,977
(6,128)
19,414
(646)
18,768
Other
£m
3,808
—
392
4,724
55
1,977
(3,517)
7,439
(646)
6,793
1 Cash and other assets comprise cash at bank, receivables, payables, repurchase agreements and longevity swaps. At 31 December 2020, cash and other assets primarily consist of repurchase agreements of £5,168 million
(2019: £3,078 million).
2 As at 31 December 2020, the FPPS asset includes an insurance policy of £667 million (2019: £646 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 £2,047 million as at 31 December 2020 (2019: £1,331 million) included in the ASPS assets 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 £2,530 million
(2019: £2,575 million) and transferable insurance policies with other Group companies of £2,047 million (2019: £1,331 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 IAS 19.
(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 2020.
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.
Financial assumptions
The main financial assumptions used to calculate scheme liabilities under IAS 19 are:
Inflation rate1
General salary increases2
Pension increases3
Deferred pension increases3
Discount rate4,5
Basis of discount rate
2020
3.0%/2.4%
4.75%
3.0%/2.4%
3.0%/2.4%
1.31%/1.37% (non-insured
members)
1.34%/1.22% (insured
members)
UK
2019
3.0%/2.2%
4.8%
3.0%/2.2%
3.0%/2.2%
1.9% (non-insured
members)
1.9%/1.8% (insured
2020
1.4%
2.9%
0.3%
1.4%
Ireland
2019
1.5%
3.0%
0.35%
1.5%
2020
2.0%
2.5%
1.25%
—
Canada
2019
2.0%
2.5%
1.25%
—
AA-rated corporate bonds
members) 0.75%/0.85%
1.1%/1.2%
AA-rated corporate bonds
2.375%
3.00%
AA-rated corporate bonds
1 For the UK schemes, assumptions provided for RPI/CPI. In the UK, relevant RPI/CPI swap curves are used, which are equivalent to the single rates shown for ASPS. In 2020, CPI is derived as RPI less 80 bps pre 2030 and RPI less
0 bps post 2030 (2019: RPI less 100 bps pre 2030 and RPI less 60 bps post 2030). The change in adjustment applied post 2030 reflects the reforms to the RPI set out in the joint consultation response issued by the UK Government
and UK Statistics Authority in November 2020.
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 for ASPS. The assumptions are also adjusted to reflect the relevant
caps/floors and the inflation volatility.
4 To calculate scheme liabilities in the UK, a discount rate of 1.31% is used for ASPS and RAC members and 1.37% for FPPS members not included in annuity policies held by the scheme. A discount rate of 1.34% is used for ASPS
members and 1.22% for FPPS members included in annuity policies held by the scheme. The different rates reflect the differences in the duration of the liabilities between the schemes.
5 For the Irish schemes, a discount rate of 0.75% and 0.85% 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.
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Notes to the consolidated financial statements continued
51 – Pension obligations continued
(b) IAS 19 disclosures continued
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 2020 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
88.0
(28.0)
86.8
(21.8)
87.4
(27.4)
89.8
(28.8)
86.7
(21.7)
89.4
(29.4)
88.4
(23.4)
89.4
(29.4)
92.8
(31.8)
89.0
(24.0)
89.8
(29.8)
89.6
(24.6)
90.2
(30.2)
91.5
(30.5)
89.1
(24.1)
92.0
(32.0)
91.5
(26.5)
92.3
(32.3)
94.4
(33.4)
91.1
(26.1)
87.1
(22.1)
88.6
(23.6)
89.6
(24.6)
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_2019 (S=7.25) Advanced with adjustments’ model (2019: ‘CMI_2018 (S=7.25) Advanced with adjustments’), with a
long-term improvement rate of 1.5% per annum (2019: 1.75% per annum) for males and 1.5% per annum (2019: 1.5% per annum) for females.
The CMI_2019 tables have been adjusted by adding 0.25% per annum (2019: 0.25% per annum) and 0.35% per annum (2019: 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_2019 is based), and uses the advanced parameters to taper the long-
term improvement rates to zero between ages 90 and 115 (2019: 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).
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 2020
Impact on present value of defined benefit obligation at 31 December 2019
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
(2,976)
(2,786)
3,950
3,713
2,647
2,627
(2,067)
(2,037)
1 year
younger1
£m
714
613
It is unlikely that the changes in assumptions would occur in isolation of one another as some of the assumptions may be correlated. 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.
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Other information
Notes to the consolidated financial statements continued
51 – Pension obligations continued
(b) IAS 19 disclosures continued
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)
Pensioner cash flows
Deferred member cash flows
(iv) Risk management and asset allocation strategy
2021
2049
2077
2105
500
400
300
200
100
-
(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
reduced 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. A further buy-in transaction with Aviva Life & Pensions UK Limited took place in October 2020, and covered
approximately £0.6 billion of liabilities relating to deferred pensioners and current pensioners.
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.
(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 2021 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.
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Notes to the consolidated financial statements continued
51 – Pension obligations continued
(d) Charge to staff costs in the income statement
The total pension charge to staff costs for all of the Group’s defined benefit and defined contribution schemes were:
Continuing operations
UK defined benefit schemes
Overseas defined benefit schemes
Total defined benefit schemes from continuing operations (note 11(b))
UK defined contribution schemes
Overseas defined contribution schemes
Total defined contribution schemes from continuing operations (note 11(b))
Charge for pension schemes from discontinued operations
Total charge for pension schemes
2020
£m
17
1
18
147
21
168
—
186
2019
£m
21
1
22
141
21
162
2
186
There were no significant contributions payable or prepaid in the consolidated statement of financial position as at either 31 December 2020
or 2019.
52 – Borrowings
Our borrowings are classified as either core structural borrowings, which are included within the Group’s capital employed, or operational
borrowings drawn by operating subsidiaries. This note shows the carrying values and contractual maturity amounts of each type and explains
their main features and movements during the year.
(a) Analysis of total borrowings
Total borrowings comprise:
Core structural borrowings, at amortised cost
Operational borrowings, at amortised cost
Operational borrowings, at fair value
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
4.000% £500 million subordinated notes 2055
4.000% C$450 million subordinated notes 2030
Senior notes
0.625% €500 million senior notes 2023
1.875% €750 million senior notes 2027
Commercial paper
Total
2020
£m
8,253
308
1,166
1,474
9,727
(43)
9,684
2019
£m
7,496
338
1,233
1,571
9,067
(28)
9,039
2020
£m
695
798
595
166
526
450
581
624
396
799
258
395
493
257
2019
£m
695
797
594
179
545
449
549
591
395
756
261
395
—
—
7,033
6,206
446
666
1,112
108
8,253
422
630
1,052
238
7,496
In 2020 the Group issued further subordinated debt and reduced the outstanding commercial paper balance. Further details are set out
below:
• On 3 June 2020, Aviva plc issued £500 million of subordinated debt at 4.000%, with final maturity in June 2055 and first call in June 2035.
• On 2 October 2020, Aviva plc issued C$450 million of subordinated debt at 4.000% which matures in October 2030.
• The outstanding commercial paper balance was reduced to £108 million (2019: £238 million) during 2020.
All borrowings are stated at amortised cost.
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Other information
Notes to the consolidated financial statements continued
52 – Borrowings continued
(b) Core structural 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
Principal
£m
528
948
930
—
5,864
8,270
Interest
£m
387
1,342
1,613
1,540
2,831
7,713
2020
Total
£m
915
2,290
2,543
1,540
8,695
15,983
Principal
£m
238
1,347
636
—
5,257
7,478
Interest
£m
372
1,255
1,451
1,417
2,636
7,131
2019
Total
£m
610
2,602
2,087
1,417
7,893
14,609
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 (2019: £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
2020
£m
2019
£m
308
338
1,166
1,474
1,233
1,571
All the above borrowings are stated at amortised cost, except for the loan notes issued in connection with the UK lifetime mortgage business
of £1,166 million (2019: £1,233 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
298
431
448
198
72
1,447
41
149
143
111
60
504
2020
Total
£m
339
580
591
309
132
Principal
£m
Interest
£m
294
392
559
59
212
46
173
148
116
109
592
2019
Total
£m
340
565
707
175
321
2,108
1,951
1,516
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
52 – Borrowings continued
(d) Description and features
(i) Subordinated debt
A description of each of the subordinated notes is set out in the table below:
Notional amount
£700 million
£800 million
£600 million
£162 million
£500 million
£450 million
€650 million
€700 million
£400 million
€900 million
C$450 million
£400 million
£500 million
C$450 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
3 June 2020
2 October 2020
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
3 June 2055
2 October 2030
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
3 March 2035
N/A
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%
Benchmark Gilt Rate + 4.70%
N/A
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 2020 was £8,233 million
(2019: £7,211 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 2020 was £1,217 million (2019: £1,134 million).
(iii) Commercial paper
The commercial paper consists of £108 million issued by the Company (2019: £238 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
Other non-recourse loans
Other loans
2020
£m
22
52
74
234
308
2019
£m
64
52
116
222
338
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 £22 million
(2019: £64 million) included in the table above relate to Property Funds.
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
2020 was £52 million (2019: £52 million).
Other loans of £234 million (2019: £222 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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Other information
Notes to the consolidated financial statements continued
52 – Borrowings continued
(e) Movements during the year
Movements in borrowings during the year were:
Core
Structural
£m
Operational
£m
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
754
(499)
(150)
105
177
499
—
(24)
—
757
7,496
8,253
(2)
(69)
—
(71)
36
(26)
(11)
—
(25)
(97)
1,571
1,474
660
9,067
9,727
2020
Total
£m
752
(568)
(150)
34
213
473
(11)
(24)
(25)
Core
Structural
£m
Operational
£m
—
(210)
19
(191)
(204)
210
—
(23)
5
(203)
7,699
7,496
75
(231)
—
(156)
(28)
(4)
38
—
—
(150)
1,721
1,571
2019
Total
£m
75
(441)
19
(347)
(232)
206
38
(23)
5
(353)
9,420
9,067
1 On 23 June 2020, notification was given that the Group would redeem 5.9021% £500 million direct capital instrument. At that date, the instruments were reclassified as a financial liability of £499 million, representing the fair
value at that date. On 27 July 2020 the instruments were redeemed in full at a cost of £500 million. The difference of £1 million between the carrying amount of £500 million and fair value of £499 million was charged to retained
earnings. 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 was charged to
retained earnings.
2 Gross issuances of commercial paper were £214 million in 2020 (2019: £505 million), offset by repayments of £364 million (2019: £486 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 2019 and 2020 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
2020
£m
—
1,700
1,700
2019
£m
—
1,650
1,650
(g) Subsequent events
On 3 March 2021 the Group approved the launch of £800 million of tender offers for certain series of its euro and sterling denominated notes
to expedite the delivery of the Group’s debt reduction targets.
53 – Payables and other financial liabilities
This note analyses our payables and other financial liabilities at the end of the year.
Payables arising out of direct insurance
Payables arising out of reinsurance operations
Deposits and advances received from reinsurers
Bank overdrafts (see below)
Derivative liabilities (note 60)
Amounts due to brokers for investment purchases
Obligations for repayment of cash collateral received
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
2020
£m
1,317
331
95
908
7,659
207
7,468
533
2,335
2019
£m
1,503
348
78
870
6,517
314
6,329
572
1,634
20,853
18,165
(186)
(27)
20,667
14,361
6,492
20,853
18,138
13,856
4,309
18,165
Bank overdrafts amount to £541 million (2019: £536 million) in life business operations and £367 million (2019: £334 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
54 – Other liabilities
This note analyses our other liabilities at the end of the year.
Deferred income
Reinsurers’ share of deferred acquisition costs
Accruals
Other liabilities
Total
Less: Liabilities classified as held for sale
Expected to be settled within one year
Expected to be settled in more than one year
2020
£m
108
28
1,346
1,625
3,107
(64)
3,043
2,721
386
3,107
2019
£m
135
23
1,197
1,799
3,154
(60)
3,094
2,399
755
3,154
55 – Contingent liabilities and other risk factors
This note sets out the main areas of uncertainty over the calculation of our liabilities.
(a) Uncertainty over claims provisions
Note 43 gives details of the estimation techniques used by the Group to determine the general insurance business outstanding claims
provisions and of the methodology and assumptions used in determining the long-term business provisions. These approaches are designed
to allow for the appropriate cost of policy-related liabilities, with a degree of prudence, to give a result within the normal range of outcomes.
However, the actual cost of settling these liabilities may differ, for example because experience may be worse than that assumed, or future
general insurance business claims inflation may differ from that expected, and hence there is uncertainty in respect of these liabilities.
In addition, COVID-19 has given rise to an increase in the uncertainty over the general insurance business outstanding claims provisions and
long-term business provisions. The impact on the Group’s insurance liabilities as a result of the global pandemic has been recognised (see
note 47 for long-term business and note 42(c(iv)) for general insurance and health business). However, due to the uncertainty around the
long-term impacts of COVID-19, actual experience may differ from that expected.
Business Interruption
On 15 January 2021, the Supreme Court handed down its judgement on the appeal for the FCA Test Case on business interruption cover.
Aviva was not a party to the Test Case, but fully supported the process. The Supreme Court judgement has been carefully considered and the
impact on claims related to business interruption policies assessed. In Canada, we are party to a number of litigation proceedings challenging
coverage under certain policies; however, we do not believe there is coverage under these policies. In the opinion of management, adequate
provisions have been established for such claims based on information available at the reporting date. For further information on our general
insurance risk management see note 59(f).
(b) Asbestos, pollution and social environmental hazards
In the course of conducting insurance business, various companies within the Group receive general insurance liability claims, and become
involved in actual or threatened related litigation arising therefrom, including claims in respect of pollution and other environmental hazards.
Amongst these are claims in respect of asbestos production and handling in various jurisdictions, including Europe, Canada and Australia.
Given the significant delays that are experienced in the notification of these claims, the potential number of incidents they cover and the
uncertainties associated with establishing liability, the ultimate cost cannot be determined with certainty. However, on the basis of current
information having regard to the level of provisions made for general insurance claims and substantial reinsurance cover now in place, the
directors consider that any additional costs arising are not likely to have a material impact on the financial position of the Group.
(c) Guarantees on long-term savings products
As a normal part of their operating activities, various Group companies have given guarantees and options, including interest rate guarantees,
in respect of certain long-term insurance and investment products. Note 45 gives details of these guarantees and options. In providing these
guarantees and options, the Group’s capital position is sensitive to fluctuations in financial variables including foreign currency exchange
rates, interest rates, property values and equity prices. Interest rate guaranteed returns, such as those available on guaranteed annuity
options, are sensitive to interest rates falling below the guaranteed level. Other guarantees, such as maturity value guarantees and guarantees
in relation to minimum rates of return, are sensitive to fluctuations in the investment return below the level assumed when the guarantee
was made. The directors continue to believe that the existing provisions for such guarantees and options are sufficient.
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Notes to the consolidated financial statements continued
55 – Contingent liabilities and other risk factors continued
(d) Regulatory compliance
The Group’s insurance and investment business is subject to local regulation in each of the countries in which it operates. A number of the
Group’s UK subsidiaries are dual regulated (directly authorised by both the PRA (for prudential regulation) and the FCA (for conduct
regulation)) while others are solo regulated (regulated solely by the FCA for both prudential and conduct regulation). Between them, the PRA
and FCA have broad powers including the authority to grant, vary the terms of, or cancel a regulated firm’s authorisation; to investigate
marketing and sales practices; and to require the maintenance of adequate financial resources. The Group’s regulators outside the UK
typically have similar powers, but in some cases they also operate a system of ‘prior product approval’.
The Group’s regulated businesses have compliance resources to respond to regulatory enquiries in a constructive way and take corrective
action when warranted. However, all regulated financial services companies face the risk that their regulator could find that they have failed
to comply with applicable regulations or have not undertaken corrective action as required.
The impact of any such finding (whether in the UK or overseas) could have a negative impact on the Group’s reported results or on its relations
with current and potential customers. Regulatory action against a member of the Group could result in adverse publicity for, or negative
perceptions regarding, the Group, or could have a material adverse effect on the business of the Group, its results, operations and/or financial
condition and divert management’s attention from the day-to-day management of the business.
(e) Structured settlements
The Group has purchased annuities from licensed Canadian life insurers to provide for fixed and recurring payments to claimants. As a result
of these arrangements, the Group is exposed to credit risk to the extent that any of the life insurers fail to fulfil their obligations. The Group’s
maximum exposure to credit risk for these types of arrangements is approximately £742 million as at 31 December 2020 (2019: £707 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 2020, 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 of subsidiaries and associates to parties outside the Aviva Group. In the opinion of the directors, no material
unprovisioned loss will arise in respect of these guarantees, indemnities and warranties.
There are a number of charges registered over the assets of Group companies in favour of other Group companies or third parties. In addition,
certain of the Company’s assets are charged in favour of certain of its subsidiaries as security for intra-Group loans.
56 – 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
2020
£m
833
167
46
123
2019
£m
853
115
62
241
1,169
1,271
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.
57 – 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 under the transitional approach to the UK’s withdrawal from the European Union.
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 are subject to the locally applicable
capital requirements in the jurisdictions in which they operate.
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
57 – Group capital management continued
(a) Group capital 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 £2,492 million at 31 December
2020 (2019: £2,501 million) and staff pension schemes in surplus of £1,179 million at 31 December 2020 (2019: £1,181 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 2020 Solvency II position includes a notional reset (£564 million increase in surplus) while the 31 December 2019 Solvency
II position included a formal, rather than notional, reset of the TMTP in line with the regulatory requirement to reset the TMTP at least every
two years and hence no adjustment was required; and
• A change in regulations announced in December 2019 allows French insurers to place a part of the Provision pour Participation aux
Excédents (PPE) into Solvency II own funds. At 31 December 2019 PPE was included in the France local regulatory own funds but was
excluded from the estimated Group regulatory and shareholder own funds, subject to confirmation of the appropriate treatment at Group
level. The treatment has since been confirmed and PPE of £385 million is included within Group regulatory own funds at 31 December 2020
but remains excluded from the shareholder position.
Estimated Solvency II regulatory own funds as at 31 December
Adjustments for:
Fully ring-fenced with-profits funds
Staff pension schemes in surplus
Notional reset of TMTP
PPE
Pro forma adjustments1
Estimated Solvency II shareholder own funds at 31 December
2020
£m
2019
£m
29,262
28,347
(2,492)
(1,179)
564
(385)
—
25,770
(2,501)
(1,181)
—
—
(117)
24,548
1 The 31 December 2019 Solvency II position includes pro forma adjustments for 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 2020 Solvency II position does not include proforma adjustments. Note that from
31 December 2020 no pro forma adjustments will be made for planned disposals.
Solvency II own funds are comprised of a combination of shareholders’ funds, preference share capital, direct capital instruments,
subordinated debt, and deferred tax assets measured on a Solvency II basis. During the year, the Group redeemed its £500 million 5.9021%
direct capital instrument in full (see note 37).
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 2020. 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 in line with a new dividend policy and capital framework
announced in November 2020.
The Group 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.
See note 59 for more information about the Group’s risk management approach;
• Retain financial flexibility by maintaining strong liquidity, access to a range of capital markets and significant unutilised committed credit
lines;
• Manage an appropriate level of leverage to ensure an efficient capital structure;
• Allocate capital rigorously to support value adding growth and return excess capital to shareholders where appropriate; and
• Operate a sustainable dividend policy with a level of dividend that is resilient in times of stress and is covered by the capital and cash
generated from the core markets of UK, Ireland and Canada.
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Notes to the consolidated financial statements continued
58 – Statement of cash flows
This note gives further detail behind the figures in the statement of cash flows. The comparative amounts in (a), (b) and (c) have been
re-presented from those previously published to reclassify certain operations in Asia as discontinued operations as described in note 1.
(a) The reconciliation of profit before tax to the net cash inflow from operating activities is:
Continuing operations
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
Changes in working capital
Increase in reinsurance assets
Increase in deferred acquisition costs
Decrease in insurance liabilities and investment contracts
Decrease/(Increase) in other assets
Net purchases of operating assets
Net purchases of investment property
Net proceeds on sale of investment property
Net purchases of financial investments
Total cash (used in)/generated from operating activities from continuing operations
2020
£m
2019
£m
2,613
3,821
(27)
57
(94)
79
(5)
4
(12)
(3,850)
(3,863)
372
(6,549)
(11)
(6,188)
103
37
17
(5)
23
46
81
319
(24)
85
84
323
787
1,528
536
(41)
176
(1,378)
(109)
16,922
2,345
17,780
(1,262)
1,004
(14,965)
(15,223)
(1,644)
(58)
2
(6)
(10,259)
(10,321)
(93)
(17,901)
38
(17,956)
93
62
2
14
13
22
51
109
(23)
101
23
383
593
3,616
545
(73)
349
(782)
(230)
32,146
(263)
30,871
(1,131)
1,294
(5,407)
(5,244)
6,392
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:
Continuing operations
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 from continuing operations
2020
£m
(11)
—
(11)
2019
£m
(20)
1
(19)
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Notes to the consolidated financial statements continued
58 – Statement of cash flows continued
(c) Cash flows in respect of the disposal of subsidiaries, joint ventures and associates comprised:
Continuing operations
Cash proceeds from disposal of subsidiaries, joint ventures and associates
Less: Net cash and cash equivalents divested with subsidiaries
Cash flow on disposals from continuing operations
Discontinued operations
Cash proceeds from disposal of subsidiaries, joint ventures and associates
Less: Net cash and cash equivalents divested with subsidiaries
Cash flow on disposals from discontinued operations
Total cash flow on disposals
The above figures form part of cash flows from investing activities.
(d) Cash and cash equivalents in the statement of cash flows at 31 December comprised:
Cash at bank and in hand
Cash equivalents
Bank overdrafts
Cash and cash equivalents reconciles to the statement of financial position as follows:
Cash and cash equivalents (excluding bank overdrafts)
Less: Assets classified as held for sale
2020
£m
2019
£m
14
(2)
12
1,208
(1,065)
143
155
12
—
12
—
—
—
12
2020
£m
6,495
10,595
17,090
(908)
2019
£m
6,722
13,582
20,304
(870)
16,182
19,434
2020
£m
17,090
(190)
16,900
2019
£m
20,304
(780)
19,524
59 – 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.
Our sustainability and financial strength are underpinned by an effective risk management process which helps us identify major risks to
which we may be exposed, establish appropriate controls and take mitigating actions for the benefit of our customers and investors. The
Group’s risk strategy is to invest its available capital to optimise the balance between return and risk while maintaining an appropriate level
of economic (i.e. risk-based) capital and regulatory capital.
The key elements of our risk management framework comprise our 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.
The Group’s overarching risk management and internal control system is actively responding to the challenges of the COVID-19 outbreak and
remains intact. We are focused on ensuring that the control environment remains robust in the current operating environment.
Risk environment
During the year, the Group has been impacted by the COVID-19 pandemic through its operations, insurance products and asset holdings as
well as ongoing difficult conditions in the global financial markets and the economy generally. General insurance products are impacted as
a result of disruption to business and travel insured by the Group; life protection products as a result of increased mortality; savings and asset
management revenues which are sensitive to asset values; and income protection, critical illness and health insurance products as a result
of increased morbidity, offset by a potential reduction in annuity payments.
We have seen COVID-19 have a significant impact on the global economy and markets. Key impacts have been observed from volatile equity
markets and falls in interest rates. We have taken a number of actions to reduce our exposure to equity and interest rate risk across all our
markets. We have also taken a number of actions to reduce our exposure to credit spread and counterparty default risk across our major
markets. The Group’s balance sheet exposure has been reviewed and actions are being taken to further reduce the sensitivity to economic
shocks.
The Group continues to maintain strong solvency and liquidity positions through a range of scenarios and stress testing. These scenarios
allow for the potential impacts of COVID-19 both directly on operations of the Group and also the wider macroeconomic environment. Key
financial actions taken in response to the crisis include significant de-risking to reduce sensitivity to equity and corporate credit spreads. We
have been closely engaging with regulators in both Europe and globally on their response to COVID-19. The FCA Business Interruption test
case judgement was broadly in line with expectations and reserves are not expected to materially change.
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Notes to the consolidated financial statements continued
59 – Risk management continued
Risk environment continued
Risks associated with business conduct and financial crime heightened in the year with COVID-19 becoming a pretext for phishing activity,
leading to pension and investment fraud. An increase in switching, churning and exaggerated or fraudulent GI claims is expected, particularly
if the economic impact is prolonged. Our controls have been effectively monitoring this situation.
In the current climate, areas of increased conduct risk have been identified across the Group in relation to the financial vulnerability of our
customers, product suitability and fair value. In response, our businesses have taken action to support the needs of different customer groups
and we continue to work with local regulators. Steps have been taken to support our customers and their local communities, whether that
be through extension of covers, additional support to customers and charitable donations.
The UK-EU Future Relationship Agreement came into effect on 1 January 2021, ending the Brexit transition period, for which the Group was
fully prepared. It provides scope for managed policy divergence or maintaining alignment, if the UK chooses. The agreement will have
evolving consequences in 2021 and beyond on future financial services and data regulation, UK-EU data transfers, EU market access and the
UK economy which will require careful monitoring.
Aviva remains committed to supporting a low carbon economy that will improve the resilience of our economy, society and the financial
system in line with the 2015 Paris Agreement target on climate change. We are acting now to mitigate and manage the impact of climate
change on our business. We calculate a Climate VaR against IPCC scenarios to assess the climate-related risks and opportunities under
different emission projections and associated temperature pathways. A range of different financial indicators are used to assess the impact
on our investments and insurance liabilities.
The Group is in the process of implementing the new international accounting standards for insurance contracts, IFRS 17 Insurance Contracts.
The impact of the adoption of IFRS 17 significantly impacts the measurement and presentation of the contracts in scope of the standard. It
is now expected that the standard will apply to annual reporting periods beginning on or after 1 January 2023.
(a) Risk management framework
For the purposes of risk identification and measurement, and aligned to Aviva’s risk policies, risks are usually grouped by risk type: credit,
market, liquidity, life insurance (including long-term health), general insurance (including short-term health), asset management and
operational risk. Risks falling within these types may affect a number of metrics including those relating to balance sheet strength, liquidity
and profit. They may also affect the performance of the products we deliver to our customers and the service to our customers and
distributors, which can be categorised as risks to our brand and reputation or as conduct risk.
To promote a consistent and rigorous approach to risk management across all businesses we have a set of risk policies and business
standards which set out the risk strategy, appetite, framework and minimum requirements for the Group’s worldwide operations. The
business Chief Executive Officers make an annual declaration supported by an opinion from the business Chief Risk Officers that the system
of governance and internal controls was effective and fit for purpose for their business throughout the year.
A regular top-down key risk identification and assessment process is carried out by the risk function. This includes the consideration of
emerging risks and is supported by deeper thematic reviews. This process is replicated at the business unit level. The risk assessment
processes are used to generate risk reports which are shared with the relevant risk committees.
Risk models are an important tool in our measurement of risks and are used to support the monitoring and reporting of the risk profile and
in the consideration of the risk management actions available. We carry out a range of stress (where one risk factor, such as equity returns, is
assumed to vary) and scenario (where combinations of risk factors are assumed to vary) tests to evaluate their impact on the business and
the management actions available to respond to the conditions envisaged. For those risk types managed through the holding of capital,
being our principal risk types except for liquidity risk, we measure and monitor our risk profile on the basis of the Solvency II SCR.
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. To further align with our strategic priority to transform customer experiences, the Customer, Conduct
and Reputation Committee was designated as a sub-committee of the Risk 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.
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.
The types of risks to which the Group is exposed have not changed significantly during the year and remain credit, market, liquidity, life and
health insurance, general insurance, asset management and operational risks. These risks are described 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.
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Notes to the consolidated financial statements continued
59 – Risk management continued
(b) Credit risk continued
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.
As a result of the financial market impact of COVID-19 we have taken a number of actions to reduce our exposure to credit spread and
counterparty default risk across our major markets. Actions include purchasing tactical derivative hedges, asset disposals and reallocation
and reducing new business sales in certain markets and products. We continue to monitor credit quality in our Commercial Mortgage and
Equity Release Mortgage portfolios, specific de-risking actions include phased sales and credit hedging.
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 2020
Fixed maturity securities
Reinsurance assets
Other investments
Loans
Total
As at 31 December 2019
Fixed maturity securities
Reinsurance assets
Other investments
Loans
Total
AAA
£m
9.7%
—
—
9.0%
AA
£m
34.0%
77.4%
0.1%
10.2%
A
£m
21.4%
21.0%
0.3%
7.9%
BBB
£m
Below BBB
£m
Not rated
£m
Carrying value
including held
for sale
£m
Less: Assets
classified as
held for sale
£m
Carrying value
£m
23.2%
—
—
0.4%
7.3%
—
—
—
4.4% 216,154
13,356
1.6%
51,627
99.6%
43,679
72.5%
324,816
(18)
(3,490)
—
(13,317) 202,837
13,338
48,137
43,679
(16,825) 307,991
AAA
£m
10.7%
3.3%
0.2%
18.3%
AA
£m
34.1%
75.8%
—
3.8%
A
£m
19.7%
9.2%
0.3%
0.1%
BBB
£m
Below BBB
£m
23.0%
7.8%
0.1%
—
8.0%
—
—
—
Carrying value
including held
for sale
£m
Less: Assets
classified as
held for sale
£m
199,481
12,431
51,935
38,580
(649)
(75)
(6,919)
(1)
Not rated
£m
4.5%
3.9%
99.4%
77.8%
Carrying
value
£m
198,832
12,356
45,016
38,579
302,427
(7,644)
294,783
At 31 December 2020, a significant portion of assets remain investment grade in line with 2019. We have remained focused on high quality
assets.
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 £4,580 million (2019: £4,095 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 2020
Loans
Receivables
Accrued income & interest
Other financial assets
Total
As at 31 December 2019
Loans
Receivables
Accrued income & interest
Other financial assets
Total
AAA
£m
3,920
—
—
—
3,920
AAA
£m
7,065
—
—
—
7,065
AA
£m
4,468
497
—
—
4,965
AA
£m
1,443
144
—
—
1,587
A
£m
3,453
539
—
—
3,992
A
£m
—
338
—
5
343
BBB
£m
—
459
—
—
459
BBB
£m
—
259
—
—
259
Below BBB
£m
Not rated
£m
—
2
—
—
2
153
4,555
283
12
5,003
Below BBB
£m
Not rated
£m
—
4
—
—
4
1,071
5,044
265
—
6,380
At the period end, the Group held cash and cash equivalents of £12,576 million (2019: £15,344 million) that met the SPPI criteria, of which all
(2019: £15,322 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.
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Notes to the consolidated financial statements continued
59 – Risk management continued
(b) Credit risk continued
(i) Financial exposures by credit ratings continued
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
46), loans (note 25) and receivables (note 29). The collateral in place for these credit exposures is disclosed in note 61.
(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.
(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’s 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 2.1% of the total shareholder assets.
(v) Reinsurance credit exposures
The Group is exposed to concentrations of risk with individual reinsurers due to the nature of the reinsurance market and the restricted range
of reinsurers that have acceptable credit ratings. The Group operates a policy to manage its reinsurance counterparty exposures, by limiting
the reinsurers that may be used and applying strict limits to each reinsurer. Reinsurance exposures are aggregated with other exposures to
ensure that the overall risk is within appetite. The Group Capital and Group Risk teams have an active monitoring role with escalation to the
Chief Financial Officer (CFO), Chief Risk Officer (CRO), Group ALCO and the Board Risk Committee as appropriate.
The Group’s largest reinsurance counterparty is Swiss Reinsurance Company Ltd (including subsidiaries). At 31 December 2020, the
reinsurance asset recoverable, including debtor balances, from Swiss Reinsurance Company Ltd was £2,399 million (2019: £3,097 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.
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Notes to the consolidated financial statements continued
59 – Risk management continued
(b) Credit risk continued
(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 2020
Fixed maturity securities
Reinsurance assets
Other investments
Loans
Receivables and other financial assets
As at 31 December 2019
Fixed maturity securities
Reinsurance assets
Other investments
Loans
Receivables and other financial assets
Financial assets that are past due but not impaired
0–3 months
£m
3–6 months
£m
6 months–
1 year
£m
Greater than
1 year
£m
—
—
—
—
18
—
—
—
—
—
6
—
—
—
8
—
—
—
—
—
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
—
—
—
—
51
—
—
—
—
14
6
—
—
—
10
—
—
—
—
9
Neither past
due nor
impaired
£m
1,573
9,478
1
13,840
9,326
Neither past
due nor
impaired
£m
1,455
8,361
2
10,260
8,911
Financial
assets that
have been
impaired
£m
—
—
—
—
—
Financial
assets that
have been
impaired
£m
—
—
—
—
—
Carrying
value
£m
1,579
9,478
1
13,840
9,352
Carrying
value
£m
1,461
8,361
2
10,260
8,995
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: £214,575 million of debt securities (2019: £198,020 million), £42,320 million of other investments
(2019: £44,836 million), £29,839 million of loans (2019: £28,319 million) and £3,860 million of reinsurance assets (2019: £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 included in the tables that would have been past due or impaired had the terms
not been renegotiated.
(c) Market risk
Market risk is the risk of adverse financial impact resulting, directly or indirectly from fluctuations in interest rates, inflation, foreign currency
exchange rates, equity and property prices. Market risk arises in business units due to fluctuations in both the value of liabilities and the value
of investments held. At Group level, it also arises in relation to the overall portfolio of international businesses and in the value of investment
assets owned directly by the shareholders. We actively seek some market risks as part of our investment and product strategy. However, we
have limited appetite for interest rate risk as we do not believe it is adequately rewarded.
The management of market risk is undertaken at business unit and at Group level. Businesses manage market risks locally using the Group
market risk framework and within local regulatory constraints. Group Capital is responsible for monitoring and managing market risk at the
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.
As a result of the significant financial market impact of COVID-19, particularly to equity markets and interest rates, we have taken a number
of actions to reduce our exposure to equity and interest rate risk across all our markets. Actions include purchasing tactical derivative hedges,
asset disposals and reallocations and reducing new business sales in certain markets and products. We are also exposed to the potential
impact of increased defaults and downgrades on our commercial mortgage loans although we maintain conservative loan-to-value across
this portfolio. Our capital position includes an allowance for the expected potential impacts from downgrades and defaults.
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.
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Notes to the consolidated financial statements continued
59 – Risk management continued
(c) Market risk continued
(i) Equity price risk continued
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 2020 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 2020, 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 45.
Exposure to interest rate risk is monitored through several measures that include duration, capital modelling, sensitivity testing and stress
and scenario testing. The impact of exposure to sustained low interest rates is considered within our scenario testing.
The Group typically manages interest rate risk by investing in fixed interest securities which closely match the interest rate sensitivity of the
liabilities where such investments are available. In particular, a key objective is to at least match the duration of our annuity liabilities with
assets of the same duration, and in some cases where appropriate cash flow matching has been used. These assets include corporate bonds,
residential mortgages and commercial mortgages. Should they default before maturity, it is assumed that the Group can reinvest in assets of
a similar risk and return profile, which is subject to market conditions. Interest rate risk is also managed in some business units using a variety
of derivative instruments, including futures, options, swaps, caps and floors.
Some of the Group’s products, principally participating contracts, expose us to the risk that changes in interest rates will impact on profits
through a change in the interest spread (the difference between the amounts that we are required to pay under the contracts and the
investment income we are able to earn on the investments supporting our obligations under those contracts). Markets where Aviva is
primarily exposed to this risk are the UK, France, Italy and some other Asian business units.
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.
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Notes to the consolidated financial statements continued
59 – Risk management continued
(c) Market risk continued
(iii) Interest rate risk continued
Details of material guarantees and options are given in note 45. In addition, the following table summarises the weighted average minimum
guaranteed crediting rates and weighted average book value yields on assets as at 31 December 2020 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
0.69%
0.20%
N/A
N/A
Weighted
average book
value yield on
assets
Participating
contract
liabilities
£m
1.94%
3.40%
N/A
72,620
23,941
45,237
N/A
141,798
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.
2018
2019
2020
1
Before realised and unrealised gains and losses and investment expenses
Portfolio
investment
yield1
2.28%
2.21%
1.88%
Average
assets
£m
14,651
14,350
15,023
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.
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 50% (2019: 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. The Group does not hedge
foreign currency revenues as these are substantially retained locally to support the growth of the Group’s business and meet local regulatory
and market requirements. However, the Group does use foreign currency forward contracts to hedge planned dividends from its subsidiaries.
Businesses aim to maintain sufficient assets in local currency to meet local currency liabilities, however movements may impact the value of
the Group’s consolidated shareholders’ equity which is expressed in sterling. This aspect of foreign exchange risk is monitored and managed
centrally, against pre-determined limits. These exposures are managed by aligning the deployment of regulatory capital by currency with the
Group’s regulatory capital requirements by currency. Currency borrowings and derivatives are used to manage exposures within the limits
that have been set. Except where the Group has applied net investment hedge accounting (see note 60(a)), foreign exchange gains and losses
on foreign currency borrowings are recognised in the income statement, whereas foreign exchange gains and losses arising on consolidation
from the translation of assets and liabilities of foreign subsidiaries are recognised in other comprehensive income. At 31 December 2020 and
2019, the Group’s net assets by currency including assets ‘held for sale’ was:
Net assets at 31 December 2020
Net assets at 31 December 2019
Sterling
£m
16,438
16,036
Euro
£m
2,374
819
CAD$
£m
635
397
Other
£m
Total
£m
1,113
1,433
20,560
18,685
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Notes to the consolidated financial statements continued
59 – Risk management continued
(c) Market risk continued
(v) Currency risk continued
A 10% change in sterling to euro/CAD$ period-end foreign exchange rates would have had the following impact on net assets.
Net assets at 31 December 2020
Net assets at 31 December 2019
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
(237)
(82)
237
82
(64)
(40)
64
40
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.
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 2020
Impact on profit before tax 31 December 2019
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
(48)
(67)
59
82
(31)
(18)
37
22
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 (£1,700 million) from a range of leading international banks
to further mitigate this risk.
A cautious approach on cash remittances is being taken across the Group with some markets retaining cash rather than remitting to Group
in the wake of the unprecedented challenges COVID-19 presents for businesses, households and customers, and the adverse and highly
uncertain impact on the global economy.
Maturity analyses
The following tables show the maturities of our insurance and investment contract liabilities, and of the financial and reinsurance assets held
to meet them. A maturity analysis of the contractual amounts payable for borrowings and non-hedge derivatives is given in notes 52 and 60,
respectively. Contractual obligations under leases and capital commitments are given in note 23 and note 56.
(i) Analysis of maturity of insurance and investment contract liabilities
For non-linked insurance business, the following table shows the gross liability at 31 December 2020 and 2019 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.
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IFRS financial statements
Other information
Notes to the consolidated financial statements continued
59 – Risk management continued
(d) Liquidity risk continued
(i) Analysis of maturity of insurance and investment contract liabilities continued
As at 31 December 2020
Long-term business
Insurance contracts – non-linked
Investment contracts – non-linked
Linked business
General insurance and health
Total contract liabilities
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
On demand or
within 1 year
£m
Total
£m
1-5 years
£m
5-15 years
£m
Over
15 years
£m
116,352
78,024
178,932
17,596
8,433
4,348
8,187
7,413
26,288
17,555
27,420
7,260
43,385
32,203
58,411
2,325
38,246
23,918
84,914
598
390,904
28,381
78,523 136,324 147,676
On demand or
within 1 year
£m
Total
£m
1-5 years
£m
5-15 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
Over
15 years
£m
34,008
20,818
76,619
597
380,476
38,151
79,383
130,900
132,042
(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 2020
Fixed maturity securities
Equity securities
Other investments
Loans
Cash and cash equivalents
As at 31 December 2019
Fixed maturity securities
Equity securities
Other investments
Loans
Cash and cash equivalents
On demand or
within 1 year
£m
Total
£m
1-5 years
£m
Over 5 years
£m
No
fixed term
£m
202,837
100,404
48,137
43,679
16,900
50,488
—
39,681
14,049
16,900
45,917 106,432
—
126
4,339
—
—
— 100,404
861
1
—
7,469
25,290
—
411,957 121,118
50,382 139,191 101,266
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
—
25
4,643
—
106,981
—
5,365
24,293
—
No
fixed term
£m
1,224
99,570
809
2
—
401,521
110,626
52,651
136,639
101,605
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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Notes to the consolidated financial statements continued
59 – Risk management continued
(e) Life 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 chooses to
take measured amounts of life 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.
We have reinsurance in place across all our markets to reduce our net exposure to potential losses. In the UK we have extensive quota share
reinsurance in place on Individual Protection business and for UK Group Life protection business we have surplus reinsurance for large
individual claims.
The impact of COVID-19 on the profile of our life insurance risks, primarily longevity, persistency, mortality and expense risk, has been limited
during 2020. We track the potential longer term impacts from the pandemic (e.g. morbidity impacts). 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. 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 51). 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.
In all of our markets, underwriting procedures on Individual Life Protection products limit our exposure to cohorts of the population at highest
risk of COVID-19. While we have greater potential net exposure through Group Life Protection, we have taken pricing actions to limit our
potential exposure from new business. We expect there to be some offset to increased protection claims as a result of COVID-19 from technical
provision releases on our UK annuity portfolio
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 44.
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Notes to the consolidated financial statements continued
59 – Risk management continued
(f) General insurance and health risk
The Group writes a balanced portfolio of general insurance risk (including personal motor; household; commercial motor; property and
liability) across a geographically diversified spread of markets, as well as global exposure to corporate specialty risks. This risk is taken on, in
line with our underwriting and pricing expertise, to provide an appropriate level of return for an acceptable level of risk. Underwriting
discipline and a robust governance process is at the core of the Group’s underwriting strategy.
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.
Provisions made for insurance liabilities are inherently uncertain. Due to this uncertainty, general and health insurance reserves are regularly
reviewed by qualified and experienced actuaries at the business unit and Group level in accordance with the Group’s reserving framework.
These and other key risks, including the occurrence of unexpected claims from a single source or cause and inadequate reinsurance
protection/risk transfer, are subject to an overarching risk management framework and various mechanisms to govern and control our risks
and exposures. We recognise that the severity and frequency of weather-related events has the potential to adversely impact provisions for
insurance liabilities and our earnings, with the result that there is some seasonality in our results from period to period. Large catastrophic
(CAT) losses arising as a result of these events are explicitly considered in our economic capital modelling to ensure we are resilient to such
CAT scenarios.
We continue to closely monitor the impact of COVID-19 on our General insurance and health business. Our exposures, together with mitigants,
are:
• Business Interruption: For the significant majority of the Group’s UK General Insurance commercial policies, where policy wordings are
determined by the company, cover is based on a specified list of diseases. These policies exclude business interruption due to new and
emerging diseases, like COVID-19. Business interruption losses stemming from the current COVID-19 outbreak are therefore not covered
under the significant majority of policies but there is a risk that litigation will be required to provide legal clarity in terms of the events and
the cover provided under broker determined business interruption policy wordings where we are the lead or follow insurer and many of
the issues were subject to the outcome of the FCA test case. Judgement in the FCA test case was received on 15 September 2020 and
followed by the Supreme Court appeal on 15 January 2021. Following the verdict the legal uncertainty in the UK around gross losses has
been significantly reduced. In order to provide clarity to policyholders and mitigate exposure to future events of a similar nature, exclusions
have been added to relevant policy wordings at renewal. In Canada, we are party to a number of litigation proceedings challenging coverage
under certain policies; however, we do not believe there is coverage under these policies. In Ireland, the vast majority of commercial
insurance products do not respond to business interruption losses arising from the COVID-19 pandemic. In respect of broker-led wordings,
Ireland continues to assess developments arising from the changing nature of Government restrictions and the outcome of both the FCA
case and test case litigation in the local market.
• Travel Insurance: We are potentially exposed to claims due to travel cancellation, disruption and sickness where this is insured by the
Group, primarily in the UK. We are only exposed to losses after recoveries have been made from travel providers (e.g. tour operators or
airlines) and agents. Travel disruption is not part of our Aviva UK Direct cover and was removed as a policy option on 9 March but is included
as standard in the majority of the added value accounts with our banking partners. COVID-19 wording has been clarified to eliminate
ambiguity, pricing adjusted to ensure risk is appropriately priced and further reinsurance cover has been purchased. These costs are offset
by reduced claims frequency as a result of the current low levels of international travel, and are also partially mitigated through profit
commission and future pricing agreements with distribution partners.
• Other: There have also been impacts in other product lines as a result of reduced economic activity, for example there has been a reduction
in claims frequency and a change in the severity of claims on motor lines. Private health insurance claims were also lower than expected
levels in 2020 as a result of the disruption caused by the COVID-19 pandemic, and in the UK we provided a fair value pledge to policyholders
to recognise the ongoing uncertainty around the ability to access treatment.
The Group purchases reinsurance protections on its property portfolio that includes coverage for business interruption and will seek
reinsurance recoveries of those of its business interruption losses that are covered by reinsurance. The continuing nature of the event means
that our final exposure is subject to a significant degree of uncertainty.
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 up to a 1 in 250
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 250 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. The Group’s property reinsurance programme and several of its smaller specialty programmes no longer provide
coverage for pandemic catastrophes following the 1 January 2021 renewal in line with the rest of the market.
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Notes to the consolidated financial statements continued
59 – Risk management continued
(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.
Due to the adverse impact of COVID-19 on the UK commercial property sectors, and in particular the difficulty in being able to assign values
to our commercial property portfolios, we temporarily suspended our unit-linked property funds to redemptions for six months in March
2020. We perform stress tests to ensure that our portfolios are managed within client mandates.
(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.
COVID-19 has resulted in an increased level of inherent operational risk through new practices including enforced remote working, staff
absences for sickness and childcare, market volatility and through our outsourcing arrangements. Additional risks relating to extensive
working from home; include cyber, data loss and occupational health. We have adapted and strengthened our processes and controls to
ensure operational risks remain at an acceptable level. Since the onset of the pandemic the Group has remained operationally resilient, with
key activities such as cash payments and transaction processing being maintained, IT systems remaining operational, and employees
including frontline customer facing staff being supported to ensure that that we are there to support our customers when they need us most.
Aviva has not seen a material increase in the volume of cyber incidents/attacks as a result of COVID-19 but has seen external threat actors
exploiting the COVID-19 pandemic within such attacks e.g. phishing, texts and phone calls. In response to this Aviva has put in place a
programme of communications to ensure Aviva employees are aware of such scams, published safe homeworking guides and run online
training for our employees and their families. Support has also been given to our customers, including the launch of an online reporting
facility to help combat fraud.
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 2020
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.
On 26 October 2020 the FCA published the outcome of its investigation into Aviva’s announcement on preference shares made in March 2018.
The FCA found that Aviva contravened certain provisions of the Listing Rules and the Disclosure and Transparency Rules by failing to take
reasonable care to ensure that information in the announcement was not misleading and did not omit anything likely to affect the import of
the information in the announcement. We have accepted the FCA decision and lessons have been learned.
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, and inadequate services, whether or not founded, could
impact our brands or reputation. Any of our brands or our reputation could also be affected if products or services recommended by us (or
any of our intermediaries) do not perform as expected (whether or not the expectations are founded) or customers’ expectations for the
product change. We seek to reduce this risk to as low a level as commercially sensible.
The FCA regularly considers whether we are meeting the requirement to treat our customers fairly and we make use of various metrics to
assess our own performance, including customer advocacy, retention and complaints. Failure to meet these requirements could also impact
our brands or reputation. During 2020, the FCA published their General Insurance Pricing Practices Report. We support the FCA’s intent to
bring greater clarity and consistency to consumers across general insurance pricing. This will be a significant area of focus for us over the next
12 months.
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.
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Notes to the consolidated financial statements continued
59 – Risk management continued
(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)
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%.
Long-term business sensitivities as at 31 December 2020
31 December 2020 Impact on profit before tax £m
Insurance participating
Insurance non-participating
Investment participating
Investment non-participating
Assets backing life shareholders’ funds
Total
31 December 2020 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%
10
(965)
(60)
(5)
(145)
(1,165)
(375)
1,215
75
5
180
1,100
(80)
(735)
—
—
(45)
(860)
(20)
(115)
(20)
5
(25)
(175)
(40)
100
20
(10)
25
95
(65)
(215)
(50)
(5)
—
(335)
20
(155)
—
—
—
(135)
(5)
(1,020)
—
—
—
(1,025)
Interest rates
+1%
Interest rates
-1%
Credit spreads
+0.5%
Equity/
property
+10%
Equity/
property
-10%
Expenses
+10%
Assurance
mortality
+5%
Annuitant
mortality
-5%
10
(965)
(60)
(5)
(195)
(1,215)
(375)
1,215
75
5
220
1,140
(80)
(735)
—
—
(50)
(865)
(20)
(115)
(20)
5
(25)
(175)
(40)
100
20
(10)
25
95
(65)
(215)
(50)
(5)
—
(335)
20
(155)
—
—
—
(135)
(5)
(1,020)
—
—
—
(1,025)
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Other information
Notes to the consolidated financial statements continued
59 – Risk management continued
(i) Risk and capital management continued
(iv) Sensitivity test results continued
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
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)
Changes in sensitivities between 2020 and 2019 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 2020
31 December 2020 Impact on profit before tax £m
Gross of reinsurance
Net of reinsurance
31 December 2020 Impact on shareholders’ equity before tax £m
Gross of reinsurance
Net of reinsurance
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
Interest rates
+1%
Interest rates
-1%
Credit spreads
+0.5%
Equity/
property
+10%
Equity/
property
-10%
(380)
(435)
445
490
(110)
(110)
100
100
(100)
(100)
Expenses
+10%
(145)
(145)
Interest rates
+1%
Interest rates
-1%
Credit spreads
+0.5%
(380)
(435)
445
490
(110)
(110)
Equity/
property
+10%
100
100
Equity/
property
-10%
(100)
(100)
Expenses
+10%
(25)
(25)
Interest rates
+1%
Interest rates
-1%
Credit spreads
+0.5%
Equity/
property
+10%
Equity/
property
-10%
(210)
(270)
165
215
(115)
(115)
185
185
(175)
(175)
Interest rates
+1%
Interest rates
-1%
Credit spreads
+0.5%
(210)
(270)
165
215
(115)
(115)
Equity/
property
+10%
185
185
Equity/
property
-10%
(175)
(175)
Expenses
+10%
(140)
(140)
Expenses
+10%
(25)
(25)
Gross loss
ratios
+5%
(325)
(305)
Gross loss
ratios
+5%
(325)
(305)
Gross loss
ratios
+5%
(315)
(300)
Gross loss
ratios
+5%
(315)
(300)
For general insurance and health, the impact of the expense sensitivity on profit also includes the increase in ongoing administration
expenses, in addition to the increase in the claims handling expense provision.
Fund management and non-insurance business sensitivities as at 31 December 2020
31 December 2020 Impact on profit before tax £m
Total
31 December 2020 Impact on shareholders’ equity before tax £m
Total
Interest rates
+1%
Interest rates
-1%
Credit spreads
+0.5%
Equity/
property
+10%
Equity/
property
-10%
—
—
50
(10)
20
Interest rates
+1%
Interest rates
-1%
Credit spreads
+0.5%
Equity/
property
+10%
Equity/
property
-10%
—
—
50
(10)
15
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Other information
Notes to the consolidated financial statements continued
59 – Risk management continued
(i) Risk and capital management continued
(iv) Sensitivity test results continued
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
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
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.
60 – Derivative financial instruments and hedging
This note gives details of the various financial instruments the Group uses to mitigate risk.
The Group uses a variety of derivative financial instruments, including both exchange traded and over-the-counter instruments, in line with
the Group’s overall risk management strategy. The objectives include managing exposure to market, foreign currency and/or interest rate
risk on existing assets or liabilities, as well as planned or anticipated investment purchases.
In the narrative and tables below, figures are given for both the notional amounts and fair values of these instruments. The notional amounts
reflect the aggregate of individual derivative positions on a gross basis and so give an indication of the overall scale of the derivative
transaction. 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 61 for further information on collateral and net credit risk of
derivative instruments.
(a) Instruments qualifying for hedge accounting
The Group has formally assessed and documented the hedge effectiveness 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. The carrying value of the debt at 31 December 2020 was £2,460 million
(2019: £2,331 million) and its fair value at that date was £2,732 million (2019: £2,604 million).
Foreign exchange losses of £129 million (2019: gains of £138 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.
On 23 February 2021 the Group announced it had approved the sale of Aviva France to Aéma Groupe. The net investment hedge was deemed
to be prospectively ineffective and was discontinued at this date. The hedge has been fully effective during the year.
(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.
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Notes to the consolidated financial statements continued
60 – Derivative financial instruments and hedging continued
(b) Derivatives not qualifying for hedge accounting continued
(i) The Group’s non-hedge derivatives are as follows:
Contract/
notional amount
£m
Fair value
asset
£m
Fair value
liability
£m
Contract/
notional amount
£m
Fair value
asset
£m
2020
Foreign exchange contracts
OTC
Forwards
Interest rate and currency swaps
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
Fair value
liability
£m
(438)
(316)
(754)
(35)
(2,727)
(8)
(2)
51,342
9,338
60,680
1,359
488
1,847
(394)
(464)
(858)
54,269
6,937
61,206
3,345
49,114
212
259
11,744
64,674
254
6,420
1
126
(69)
(3,245)
(8)
(1)
35
(17)
6,836
(3,340)
688
50,549
213
944
11,438
63,832
1,094
141
1,235
63
4,685
2
151
52
(85)
4,953
(2,857)
10,201
138
(70)
13,712
8,388
2,329
20,918
9,492
11,848
42
259
439
56
544
(112)
(12)
(194)
(340)
(2,927)
8,583
2,427
24,722
10,088
14,136
74
74
225
373
18
518
167,612
9,722
(7,659)
173,984
7,097
(30)
(73)
(4)
(107)
(324)
(2,475)
(6,517)
Fair value assets of £9,722 million (2019: £7,097 million) are recognised as ‘Derivative financial instruments’ in note 28(a), while fair value
liabilities of £7,659 million (2019: £6,517 million) are recognised as ‘Derivative liabilities’ in note 53.
The Group’s derivative risk management policies are outlined in note 59.
(ii) The contractual undiscounted cash flows in relation to non-hedge derivative liabilities have the following maturities:
Within 1 year
Between 1 and 2 years
Between 2 and 3 years
Between 3 and 4 years
Between 4 and 5 years
After 5 years
2020
£m
1,261
639
550
493
386
4,495
7,824
2019
£m
1,098
593
448
434
358
3,996
6,927
(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 53 respectively. Collateral received and pledged by the Group
is detailed in note 61.
61 – Financial assets and liabilities subject to offsetting, enforceable master netting agreements and similar
arrangements
(a) Offsetting arrangements
Financial assets and liabilities are offset in the statement of financial position when the Group has a legally enforceable right to offset and
has the intention to settle the asset and liability on a net basis, or to realise the asset and settle the liability simultaneously.
Aviva mitigates credit risk in derivative contracts by entering into collateral agreements, where practical, and into ISDA master netting
agreements for each of the legal entities to facilitate its right to offset credit risk exposure. The credit support agreement will normally dictate
the threshold over which collateral needs to be pledged by Aviva or its counterparty.
Derivative transactions requiring Aviva or its counterparty to post collateral are typically the result of over-the-counter derivative trades,
comprised mostly of interest rate swaps, currency swaps and credit default swaps. These transactions are conducted under terms that are
usual and customary to standard long-term borrowing, derivative, securities lending and securities borrowing activities. The derivative assets
and liabilities in the table below are made up of the contracts described in detail in note 60.
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Notes to the consolidated financial statements continued
61 – Financial assets and liabilities subject to offsetting, enforceable master netting agreements and similar
arrangements continued
(a) Offsetting arrangements continued
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 53.
In other arrangements, securities are exchanged for other securities. The collateral received must be in a readily realisable form such as listed
securities and is held in segregated accounts. Transfer of title always occurs for the collateral received. In many instances, however, no market
risk or economic benefit is exchanged and these transactions are not recognised on the statement of financial position in accordance with
our accounting policies, and accordingly not included in the tables below.
2020
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
2019
Financial assets
Derivative financial assets
Loans to banks and repurchase arrangements1
Total financial assets
Financial liabilities
Derivative financial liabilities
Other financial liabilities
Total financial liabilities
Offset under IAS 32
Gross
amounts
£m
Amounts
offset
£m
Net amounts
reported in the
statement of
financial
position
£m
Amounts subject to enforceable netting arrangements
Amounts under a master netting
agreement but not offset under IAS 32
Financial
instruments
£m
Cash collateral
£m
Securities
collateral
received /
pledged
£m
Net amount
£m
8,279
12,330
20,609
(6,633)
(2,929)
(9,562)
—
—
—
—
—
—
8,279
12,330
(4,444)
—
(1,515)
(300)
(234)
(9,638)
20,609
(4,444)
(1,815)
(9,872)
2,086
2,392
4,478
(6,633)
(2,929)
(9,562)
4,415
—
4,415
96
—
96
1,092
2,929
4,021
(1,030)
—
(1,030)
Offset under IAS 32
Gross
amounts
£m
Amounts
offset
£m
Net amounts
reported in the
statement of
financial
position
£m
Amounts subject to enforceable netting arrangements
Amounts under a master netting
agreement but not offset under IAS 32
Financial
instruments
£m
Cash collateral
£m
Securities
collateral
received /
pledged
£m
Net amount
£m
6,570
8,830
15,400
(5,682)
(2,671)
(8,353)
—
—
—
—
—
—
6,570
8,830
15,400
(4,646)
—
(4,646)
(999)
(300)
(1,299)
(164)
(6,845)
(7,009)
761
1,685
2,446
(5,682)
(2,671)
(8,353)
3,961
—
3,961
40
—
40
1,130
2,671
3,801
(551)
—
(551)
1 Following a review of the securities collateral pledged on loans to banks and repurchase arrangements, comparative amounts have been amended from those previously reported. The effect of this change is to increase securities
collateral pledged on these assets by £3,865 million to £6,845 million.
Derivative assets are recognised as ‘Derivative financial instruments’ in note 28(a), while fair value liabilities are recognised as ‘Derivative
liabilities’ in note 53. £1,443 million (2019: £527 million) of derivative assets and £1,026 million (2019: £835 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 £12,330 million (2019: £8,830 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 53.
(b) Collateral
In the tables above, the amounts of assets or liabilities presented in the consolidated statement of financial position are offset first by financial
instruments that have the right of offset under master netting or similar arrangements with any remaining amount reduced by the amount
of cash and securities collateral. The actual amount of collateral may be greater than amounts presented in the tables above in the case of
over collateralisation.
The total amount of collateral received which the Group is permitted to sell or repledge in the absence of default, excluding collateral related
to balances recognised within ‘Loans to banks’ disclosed in note 25, was £19,550 million (2019: £20,984 million), all of which other than
£7,505 million (2019: £7,567 million) is related to securities lending arrangements. Collateral of £1,633 million (2019: £1,547 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 (2019: £nil).
The level of collateral held is monitored regularly, with further collateral obtained where this is considered necessary to manage the Group’s
risk exposure.
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Other information
Notes to the consolidated financial statements continued
62 – Related party transactions
This note gives details of the transactions between Group companies and related parties which comprise our joint ventures, associates and
staff pension schemes.
The Group undertakes transactions with related parties in the normal course of business. Loans to related parties are made on normal arm’s-
length commercial terms.
Services provided to, and by related parties
Associates
Joint ventures
Employee pension schemes
Income earned
in the year
£m
Expenses
incurred in the
year
£m
Payable at
year end
£m
Receivable at
year end
£m
Income earned
in the year
£m
Expenses
incurred in the
year
£m
Payable at
year end
£m
Receivable at
year end
£m
2020
2019
12
27
11
50
(1)
—
—
(1)
—
—
—
—
6
1
6
13
1
54
9
64
—
—
—
—
—
—
—
—
4
4
6
14
Transactions with joint ventures in the UK relate to the property management undertakings, the most significant 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 2020, other transactions with key
management personnel were not deemed to be significant either by size or in the context of their individual financial positions.
Our UK fund management companies manage most of the assets held by the Group’s main UK staff pension scheme, for which they charge
fees based on the level of funds under management. The main UK scheme holds investments in Group-managed funds and insurance policies
with other group companies, as explained in note 51(b)(ii). As at 31 December 2020, the Friends Provident Pension Scheme (‘FPPS’), acquired
in 2015 as part of the acquisition of the Friends Life business, held an insurance policy of £667 million (2019: £646 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 prior 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 implied a profit of £331 million, which did not include costs incurred by the Group associated with the transaction,
and was 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.
During the current period, the ASPS completed a further bulk annuity buy-in transaction with AVLAP. A premium of £873 million was paid by
the scheme to AVLAP, with AVLAP recognising gross liabilities of £737 million. The difference between the premium and the gross liabilities
implies a profit of £136 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 £579 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 2020, AVLAP recognised technical provisions of
£2,147 million (2019: £1,243 million) in relation to buy-in transactions with the ASPS which have been included within the Group’s gross
insurance liabilities, and the ASPS held a transferable plan asset of £1,858 million (2019: £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
2020
£m
10.7
—
1.4
12.8
0.6
25.5
2019
£m
12.3
3.2
1.3
12.7
1.0
30.5
Information concerning individual directors’ emoluments, interests and transactions is given in the Directors’ Remuneration report.
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Other information
Notes to the consolidated financial statements continued
63 – Organisational structure
The following chart shows, in simplified form, the organisational structure of the Group as at 31 December 2020. Aviva plc is the holding
company of the Group.
Parent company
Aviva plc
Subsidiaries
The principal subsidiaries of the Company at 31 December 2020 are listed below by country of incorporation.
A complete list of the Group’s related undertakings comprising of subsidiaries, joint ventures, associates and other significant holdings is
contained within note 64.
Aviva plc*
Aviva – COFCO Life
Insurance Company Limited**
Aviva Group Holdings Limited*
General Accident plc***
Friends Life
Holdings plc*
Avvia Life
Holdings UK
Limited*
Aviva Investors
Holdings
Limited*
Aviva Central
Services UK
Limited*
UK Life
Subsidiaries
Investment
Managament
Subsidiaries
Aviva
Employment
Services
Limited*
Incorporated in England and Wales
*
** Incorporated in People’s Republic of China.
*** Incorporated in Scotland
Aviva
International
Holdings
Limited*
Overseas
and other
Subsidiaries
Aviva Insurance
Limited***
Aviva
International
Insurance
Limited*
Overseas
and other
Subsidiaries
UK & Ireland
General
Insurance
Subsidiaries
Canada General
Insurance
Subsidiaries
United Kingdom
Aviva Central Services UK Limited
Aviva Employment Services Limited
Aviva Health UK Limited
Aviva Insurance Limited
Aviva International Insurance Limited
Aviva Investors Global Services Limited
Aviva Investors Pensions UK 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
Barbados
Victoria Reinsurance Company Limited
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 (99.9%) and its principal subsidiaries
Aviva Assurances SA (100%)
Aviva Investors France SA (99.3%)
Aviva Investors Real Estate France SA (100%)
Aviva Solutions (100%)
Aviva Vie SA (100%)
Locamat SAS (100%)
NEWCO (99.7%)
Ireland
Aviva Life and Pensions Ireland Designated Activity Company
Aviva Insurance Ireland Designated Activity Company
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Notes to the consolidated financial statements continued
63 – Organisational structure continued
Italy
Aviva Italia Holdings S.p.A and its principal subsidiaries:
Aviva S.p.A (50.0%)
Aviva Italia S.p.A (100%)
Aviva Life S.p.A(100%)
Aviva Life Vita S.p.A1 (80%)
Lithuania
Uždaroji akcinė gyvybės draudimo ir pensijų bendrovė "Aviva
Lietuva" (100%)
Poland
Aviva Powszechne Towarzystwo Emerytalne Aviva Santander
S.A.(90%)
Aviva Towarzystwo Ubezpieczen Na Zycie S.A. (90%)
Aviva Towarzystwo Ubezpieczen Ogolnych S.A.(90%)
Santander Aviva Towarzystwo Ubezpieczeń SA (51%)
Santander Aviva Towarzystwo Ubezpieczeń na Życie SA (51%)
Vietnam
Aviva Vietnam Life Insurance Company Limited1 (90%)
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 2020 are set out 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%)
India
Aviva Life Insurance Company India Limited (49%)
Turkey
AvivaSA Emeklike ve Hayat (40%)
Singapore
Aviva Singlife Holdings Pte. Ltd.(26%)
64 – Related Undertakings
The Companies Act 2006 requires disclosure of certain information about the Group’s related undertakings which is set out in this note.
Related undertakings comprise subsidiaries, joint ventures, associates and other significant holdings. Significant holdings are where the
Group either has a shareholding greater than or equal to 20% of the nominal value of any share class, or a book value greater than 20% of
the Group’s assets.
The definition of a subsidiary undertaking in accordance with the Companies Act 2006 is different from the definition under IFRS. As a result,
the related undertakings included within the list below may not be the same as the undertakings consolidated in the Group IFRS financial
statements. See accounting policies (D) Consolidation principles for further detail on principles of consolidation and definition of joint
ventures.
The Group’s related undertakings along with the country of incorporation, the registered address, the classes of shares held and the effective
percentage of equity owned at 31 December 2020 are disclosed below.
The direct related undertakings of the Company as at 31 December 2020 are listed below:
Name of undertaking
Country of incorporation
Registered address
Aviva-COFCO Life Insurance
Company Ltd
General Accident plc
Aviva Group Holdings Limited
China
United Kingdom
United Kingdom
12/F,15F, Block A, 27F Block B, Landgent Centre,
20 East Third Ring Middle Road, Beijing, 100022
Pitheavlis, Perth, Perthshire, PH2 0NH
St Helen’s, 1 Undershaft, London, EC3P 3DQ
Share class1
Ordinary shares
Ordinary shares
Ordinary shares
% held
50
100
100
1 See note 4(c) for further details in respect of operations classified as held for sale.
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Other information
Notes to the consolidated financial statements continued
64 – Related Undertakings continued
The indirect related undertakings of the Company as at 31 December 2020 are listed below:
99
% held
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Share Class1
Ordinary
Ordinary
Ordinary
Common Shares
Common Shares
Common Shares
Common Shares
Voting Interest
Common Shares
Common Shares
Common Shares
Common Shares
Common Shares
Common Shares
Common Shares
Company Name
Australia
c/o TMF Corporate Services (Aust) Pty Ltd, L16, 201 Elizabeth Street,
Sydney 2000, Australia
Aviva Investors Pacific Pty Ltd
Barbados
c/o USA Risk Group (Barbados) Ltd., 6th Floor, CGI Tower, Warrens, St.
Michael, BB22026, Barbados
Victoria Reinsurance Company Ltd.
Belgium
Avenue Louise 326 Boite 30, 1050 Ixelles, Belgium
Parnasse Square Invest
Bermuda
Cumberland House 7th Floor, 1 Victoria Street, Hamilton HM11,
Bermuda
Aviva Re Limited
Canada
10 Aviva Way, Markham ON L6G0G1, Canada
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
Pilot Insurance Company
S&Y Insurance Company
Scottish & York Insurance Co.
Limited
Traders General Insurance
Company
100 King Street West, Floor 49, Toronto ON M5X 2A2, Canada
Aviva Investors Canada Inc.
150 King Street West, Suite #2401, P.O. Box 16, Toronto ON M5H 1J9,
Canada
Prolink Insurance Inc.
555 Chabanel Ouest, Bureau 900, Montreal, QC H2N 2H8, Canada
Aviva Agency Services Inc.
Cayman Islands
PO Box 309, George Town, KY1-1104, Cayman Islands
GS Mezzanine Partners V Offshore
LP
China
12F, 15F Block A, 27F Block B Landgent Centre, 20 East Third Ring
Middle Road, Beijing, China, 100022, China
Aviva-Cofco Life Insurance Co. Ltd
Units 1805-1807, 18th Floor, Block H Office Building, Phoenix Land
Plaza, No. A5 Yard, Shuguangxili, Chaoyang District, Beijing, China
Aviva-COFCO Yi Li Asset
Management Co Ltd
Czech Republic
5/482, Ve Svahu, Prague 4, 147 00, Czech Republic
AIEREF Renewable Energy s.r.o.
France
6 Rue Menars, 75002 Paris 2, France
AFER CONVERTIBLES
10 Rue d’Uzès, 75002, Paris, France
PYTHAGORE
Common Shares
Common Shares
Common Shares
Private Equity Fund
Holding Company
Common Shares
Common Shares
Quota share
Common
Ordinary
Ordinary
Ordinary
FCP
100
100
100
100
100
100
100
100
100
34
99
21
50
Share Class1
Ordinary
Ordinary
Company Name
13 Rue du Moulin Bailly, 92270, Bois Colombes, France
Agents 3A
AVIVA ASSURANCES, Société
Anonyme d’Assurances Incendie,
Accidents et Risques Divers
14 Rue Roquépine, 75008, France
AFER Actions Amérique
AFER Actions Euro ISR
AFER Actions Monde
AFER Diversifie Durable
AFER Inflation Monde
AFER Marchés Emergents
AFER Oblig Monde Entreprises
AFER Patrimoine
Afer-Flore
Afer-Sfer
AI Inflation Euro HD
Aviva Actions Convex
AVIVA Actions Croissance
Aviva Actions Euro ISR
Aviva Actions Europe ISR
Aviva Actions France
Aviva Amérique
Aviva Asie
Aviva Conviction Opportunites
Aviva Conviction Patrimoine
Aviva Croissance Durable ISR
Aviva Flex
AVIVA Flexible Emergents A
Aviva Flexible Emergents I
Aviva France Opportunités
Aviva Grandes Marques ISR
Aviva Interoblig
Aviva Investors Actions Euro
Aviva Investors Alpha Yield
Aviva Investors Britannia
Aviva Investors Conviction
Aviva Investors Crédit Europe
Aviva Investors Euro Aggregate
Aviva Investors Euro Crédit 1-3
Hedged Duration
AVIVA Investors Euro Credit 1-3
Hedged Duration R
AVIVA Investors Euro Credit Bonds
Aviva Investors Euro Credit Bonds 1-
3
AVIVA Investors Euro Credit Bonds 1-
31
Aviva Investors Euro Credit Bonds
ISR
Aviva Investors Inflation Euro
Aviva Investors Japon ISR
Aviva Investors Portefeuille
Aviva Investors Reference Diversifié
Aviva Investors Sélection
Aviva Investors Small & Mid Caps
Euro A
Aviva Investors Small & Mid Caps
Euro I
Aviva Investors Valeurs
Aviva Investors Valeurs Europe
Aviva Investors Valorisation
Aviva Investors Yield Curves
Absolute Return
AVIVA JAPON
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
SICAV
FCP
FPS
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
SICAV
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
Aviva plc Annual Report and Accounts 2020
251
% held
50
100
100
100
100
100
100
100
100
100
97
100
50
100
100
100
100
100
100
100
100
100
100
100
100
100
99.99
90
100
95
94
100
98
69
76
100
100
100
99
99
100
44
100
100
100
100
100
100
100
83
94
100
100
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements continued
Share Class1
FCP
FCP
FCP
SICAV
FCP
SICAV
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FPS
FIPS
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
Ordinary
Ordinary
Ordinary
SICAV/Ordinary
Ordinary
Ordinary
SICAV/Ordinary
SICAV/Ordinary
SICAV/Ordinary
SICAV/Ordinary
SICAV/Ordinary
Company Name
Aviva Messine 5
Aviva Monétaire ISR
Aviva Monétaire ISR CT
Aviva Investors Monétaire ISR CT
Aviva Multigestion
Aviva Obliréa
Aviva Performance
Aviva Performance Diversifié
Aviva Rebond
Aviva Repo
Aviva Sélection Opportunités
Aviva Sélection Patrimoine
Aviva Signatures Europe
Aviva Small & Mid Caps Euro ISR
Aviva Structure Index 1
Aviva Structure Index 2
Aviva Structure Index 3
Aviva Structure Index 4
Aviva Structure Index 5
Aviva Valeurs Responsables
Aviva Valorisation Opportunités
Aviva Valorisation Patrimoine
Faraday
FPE Aviva Small & Midcap
Global Allocation M
Obligations 5-7 M
Rendement Diversifié M
UFF Cap Défensif
UFF Euro-Valeur 0-100 ISR A
UFF Global Allocation A
UFF Obligations 5-7 A
UFF Rendement Diversifié A
AFER – SFER
Aviva Convertibles
Aviva Developpement
Aviva Diversifie
Aviva Europe
Aviva Investors France
Aviva Oblig International
Aviva Patrimoine
Aviva Rendement Europe
Aviva Valeurs Francaises
Aviva Valeurs Immobilieres
14, Rue Bergere, 75009, Paris, France
Afer Avenir Senior
Afer Multi Foncier
159 Rue Montmartre, 75002, Paris, France
SACAF
20, Place Vendome, 75001 Paris, France
AXA LBO Fund IV
21 Rue de l’Arrivée, 95880 Enghien Les Bains, France
Assurances Kremer & FAU
24 – 26 Rue de la Pepiniere, 75008 Paris, France
100 Courcelles SAS
AFER Immo
AFER IMMO 2
Aviva Commerce Europe
Aviva Immo Selection
Aviva Investors Experimmo
Aviva Investors Experimmo Propco 1
Aviva Investors Experimmo Propco 2
Aviva Investors Real Estate France
S.A.
Aviva Patrimoine Immobilier
Erasmus-NL
Logiprime Europe
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary/SCI
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary/SCI
Ordinary
Ordinary
Private Equity Fund
SICAV
FCP
Ordinary
Ordinary
% held
100
99
35
35
98
97
100
100
88
100
99
99
99
100
100
100
100
100
100
100
100
100
100
100
86
82
96
100
98
100
98
100
99
74
99
94
96
99
67
97
96
91
26
100
100
100
38.81
50
100
100
100
65
100
100
100
100
100
100
74
92
Company Name
Primotel Europe
SCI 50 ANJOU
SCI La Coupole des Halles
SCI REIWA
Societe Civile Immobiliere Pleyel R2
Société Civile Immobilière Thomas
Edison
SPEKTRUM
WINDOW
3 Boulevard Saint Martin, 75003 Paris, France
Aviva Impact Investing France
Kroknet S. a. r. l.
32 Avenue d’Iena, 5016 Paris, France
CGP Entrepreneurs
Myria Asset Management
UFF Actions France A
UFF Allocation Optimum
UFF Cap Diversifié
UFF Croissance PME A
UFF Emergence A
UFF Euro Valeur ISR A
UFF Europe Opportunités A
UFF Global Foncières A
UFF Global Obligations A
UFF Global Réactif A
UFF Grandes Marques ISR A
UFF Sélection Alpha A
UFF Sélection Premium A
Ufifrance Gestion
Ufifrance Patrimoine
Union Financière de France Banque
36, Rue de Naples, 75008, Paris, France
UFIFRANCE Immobilier
37 Avenue des Champs Elysées, 75008, Paris, France
Bellatrix
Bételgeuse
Sirius
Société Française de Gestion et
d’Investissement
7 Rue Auber, 75009 Paris, France
Vip Conseils
70 Avenue de l’Europe, 92270, Bois-Colombes, France
AVIVA DÉVELOPPEMENT VIE
Aviva Epargne Retraite
Aviva France Ventures
Aviva Investissements
Aviva Retraite Professionnelle
AVIVA VIE, Société Anonyme
d’Assurances Vie et de
Capitalisation
CARPE DIEM Société Civile
Immobilière
Epargne Actuelle
NEWCO 5
NEWCO 6
SCI PESARO
Societe Civile Immobiliere Charles
Hermite
Societe Civile Immobiliere
Montaigne
ZELMIS
80 Avenue de l’Europe, 92270, Bois-Colombes, France
Aviva France
Aviva Solutions
Croissance Pierre II
Share Class1
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
FCP
Ordinary
Ordinary
Ordinary
SCPI
SICAV
SICAV
SICAV
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
% held
99
100
98
82
50
50
100
75
95
90
75
75
100
97
48
100
99
100
99
100
96
94
98
99
98
75
75
75
20
100
93
99
68
34
100
100
100
100
100
100
25
100
100
100
79
56
92
100
100
100
100
Aviva plc Annual Report and Accounts 2020
252
Share Class1
OEIC
% held
80
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements continued
% held
100
100
100
100
95
100
100
100
74
30
30
94
95
100
32
OEIC
Ordinary
Ordinary
Ordinary
Share Class1
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Company Name
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
9 Rue de Téhéran, F-75008 Paris, France
Pierrevenus
91-93 Boulevard Pasteur, 75015 Paris, France
SCI Campus Rimbaud St Denis
SCI Campus Medicis St Denis
Germany
Speditionstrasse 23, 40221, Düsseldorf, Germany
Projektgesellschaft Hafenspitze
Thurn-und-Taxis-Platz 6, 60313, Frankfurt am Main, Germany
Reschop Carré Hattingen GmbH
Reschop Carré Marketing GmbH
Warburg Invest KAG mbh Ferdinandstraße 75 20095 Hamburg
Germany
Warburg – Multi-Smart-Beta Aktien
Europa
Guersney
PO Box 155 Mill Court, La Charroterie, St Peter Port, GY1 4ET,
Guernsey
Paragon Insurance Company
Guernsey Limited
PO Box 255, Trafalgar Court, Les Banques, St Peter Port, GY1 3QL,
Guernsey
BMO Commercial Property Trust
Limited
India
2nd floor, Prakash Deep Building, 7 Tolstoy Marg, New Delhi, 110001,
India
Aviva Life Insurance Company India
Limited
A-47 (L.G.F), Hauz Khas, New Delhi, Delhi, India
Sesame Group India Private Limited
Pune Office Addresses 103/P3, Pentagon, Magarpatta City, Hadapsar,
Pune – 411013, India
A.G.S. Customer Services (India)
Private Limited
Ireland
1 Custom House Plaza, IFSC, Dublin 1, DO1 V9X5, Ireland
Blackrock Emerging markets Bond
Hard Currency Fam Fund
Eurizon Flexible Equity Strategy FAM
Fd
JPMorgan US Equity Value FAM
Fund
Robeco BP Global Premium Eq FAM
Fd
Threadneedle Global Equities Inc
FAM Fd
Vontobel Global Equity FAM Fd
OEIC
1st Floor, 2 Ballsbridge Park, Ballsbridge, Dublin 4, Ireland
Unit Trust
BlackRock Index Selection Fund
Market Advantage Strategy
3rd Floor, 2 Harbourmaster Place, IFSC, Dublin 1, DO1 X5P3, Ireland
KBI Institutional Dividend Plus
Eurozone Equity Fund EUR B
78 Sir John Rogersons Quay Dublin 2, DO2 HD32, Ireland
Ordinary
Ordinary
Ordinary
Ordinary
OEIC
OEIC
OEIC
OEIC
OEIC
OEIC
33
22
76
22
26
35
29
27
100
100
47
47
49
Company Name
Acadian Multi-Asset Absolute Return
UCITS
SSgA GRU Euro Index Equity Fund
Gross Roll Up Unit
Trust
Gross Roll Up Unit
Trust
IUT
OEIC
Ordinary
Liquidity Fund
Liquidity Fund
Liquidity Fund
OEIC
OEIC
OEIC
OEIC
SSgA GRU World ex Euro Index
Equity Fund
State Street IUT Balanced Fund S30
Charlotte House, Charlemont St., Dublin 2, Ireland
Mercer Diversified Retirement Fund
Mercer Multi Asset Defensive Fund
Mercer Multi Asset Growth Fund
Mercer Multi Asset Moderate Growth
Fund
MGI UK Equity Fund
Friends First House, Cherrywood Science & Technology Park,
Loughlinstown, Dublin, Co. Dublin, Ireland
Ashtown Management Company
Limited
Georges Court, 54-62 Townsend Street, Dublin 2, Ireland
Ordinary
FPPE Fund Public Limited Company
Merrion Managed Fund
Unit Trust
IFSC House, International Financial Services Centre, Ireland
Liquidity Fund
Aviva Investors Liquidity Funds plc
Aviva Investors Euro Liquidity Fund
Aviva Investors Liquidity Funds plc
Aviva Investors Sterling Government
Liquidity Fund
Aviva Investors Liquidity Funds plc
Aviva Investors Sterling Liquidity
Fund
Aviva Investors Sterling Liquidity
Plus Fund
Aviva Investors US Dollar Liquidity
Fund
One Park Place, Hatch Street, Dublin 2
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
Peak Re Designated Activity
Company
Italy
14 Via Scarsellini, 20161, Milan, Italy
Aviva Italia Servizi Scarl
Aviva Vita S.p.A
Corso Venezia, 18, 20122 Milan, Italy
Fondo Tages Helios II – CL 3
P.zza Lina Bo Bardi, 3, 20124 Milan, Italy
Aviva Immobiliare
Via Scarsellini 14, 20161, Milan, Italy
Aviva Italia Holding S.p.A
Aviva Italia S.p.A
Aviva Life SPA
Aviva SPA
Via Valtellina, Milan, Italy
Fondo Armilla – Fondo Immobiliare
Chiuso A Distr
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Alternative Investment
Alternative Investment
Alternative Investment
Ordinary
Ordinary
Liquidity Fund
Ordinary
Ordinary
Ordinary
Ordinary
49
37
31
29
29
35
26
61
50
100
33
80
97
77
100
100
92
92
100
100
92
100
100
100
36
80
24
100
100
100
100
50
68
Aviva plc Annual Report and Accounts 2020
253
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements continued
Share Class1
Ordinary
Fund
Fund
Ordinary
Ordinary
Fund
Fund
Fund
Unit Trust
Private Equity Fund
Fund
Fund
Fund
Fund
Fund
Fund
Fund
Fund
Fund
Fund
Fund
Company Name
Jersey
22 Grenville Street, St. Helier, JE4 8PX, Jersey
Axa Sun Life Private Equity
Slas Axa Private Equity
3rd Floor, One The Esplanade, St Helier, JE2 3QA, Jersey
Crieff Road Limited
FF UK Select Limited
Gaspé House, 66-72 Esplanade, St Helier, JE1 3PB, Jersey
Aviva Investors Jersey Unit Trusts
Management Limited
11-12 Hanover Square Unit Trust
130 Fenchurch Street Unit Trust
20 Gracechurch Unit Trust
20 Station Road Unit Trust
30 Station Road Unit Trust
30-31 Golden Square Unit Trust
40 Spring Gardens Unit Trust
50-60 Station Road Unit Trust
Barratt House Unit Trust
Bermondsey Yards Unit Trust
New Broad Street House Unit
Trust
Irongate House Unit Trust
Pegasus House and Nuffield
House Unit Trust
Quantum Unit Trust
Southgate Unit Trust
The Designer Retail Outlet
Centres Unit Trust
The Designer Retail Outlet
Centres (Mansfield) Unit Trust
The Designer Retail Outlet
Centres (York) Unit Trust
1 Fitzroy Place Jersey Unit Trust
2 Fitzroy Place Jersey Unit Trust
COW Real Estate Investment
Unit Trust
Lithuania
Lvovo g. 25, Vilnius, LT-09320, Lithuania
Uždaroji akcinė gyvybės draudimo ir
pensijų bendrovė "Aviva Lietuva"
(Joint Stock Limited Life Insurance
and Pension Company Aviva
Lietuva)
Luxembourg
14, Porte de France, Esch-sur-Alzette, L4360, Luxembourg
Alternative Investment
Aviva Investors Cells Fund
Aviva Investors Perpetual Capital
Alternative Investment
15 Avenue JF Kennedy, L1616, Luxembourg
Tir Europe Forestry Fund 2
15 Boulevard Raiffeisen, L2411, Luxembourg
Negentropy – Debt Select Fund
16 Avenue de la Gare, L1610, Luxembourg
AFRP Sarl
AIEREF Holding 1
AIEREF Holding 2
Aviva Investors Alternative Income
Solutions General Partner S.à r.l.
Aviva Investors EBC S.à r.l.
Aviva Investors E-RELI (GP) SARL
Aviva Investors European
Renewable Energy S.A.
Aviva Investors Luxembourg
Services S.à r.l.
Ordinary
Ordinary
Ordinary
Fund
Fund
Fund
Alternative Investment
Alternative Investment
Ordinary
Equity
Capital
Ordinary
Ordinary
Ordinary
Fund
Fund
% held
100
100
100
100
100
50
100
25
100
100
50
100
100
50
100
50
50
50
50
50
100
100
100
50
50
100
90
40
53
23
32
100
100
100
100
100
100
100
100
Company Name
Aviva Investors Perpetual Capital
(GP) SARL
Hexagone S.à r.l.
MPS L014 S.à r.l.
Sapphire Ile de France 1 S.à.r.l.
Sapphire Ile de France 2 S.à r.l.
Victor Hugo 1 S.à r.l.
Aviva Investors Alternative
Income Solutions SCSp
VH German Mandate
AIEREF - Aviva Investors
European Renewable Energy
S.A.
1c, Rue Gabriel Lippmann, L5365, Luxembourg
Patriarch Classic B&W Global
Freestyle
2 Rue du Fort Bourbon, L1249, Luxembourg
Aviva Investors Asian Equity Income
Fund
Aviva Investors Climate Transition
European Equity Fund
Aviva Investors Emerging Markets
Bond Fund
Aviva Investors Emerging Markets
Corporate Bond Fund
Aviva Investors Emerging Markets
Equity Income Fund
Aviva Investors Emerging Markets
Equity Small Cap Fund
Aviva Investors Emerging Markets
Local Currency Bond Fund
Aviva Investors European Corporate
Bond Fund
Aviva Investors European Equity
Fund
Aviva Investors European Equity
Income Fund
Aviva Investors European High Yield
Bond Fund
Aviva Investors European Real
Estate Securities 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 Equity
Unconstrained Fund
Aviva Investors Global High Yield
Bond Fund
Aviva Investors Global Investment
Grade Corporate Bond Fund
Aviva Investors Global Sovereign
Bond Fund
Aviva Investors Investment
Solutions Emerging Markets Debt
Fund
Aviva Investors Luxembourg
Aviva Investors Multi-Strategy Fixed
Income Fund
Share Class1
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Fund
Fund
Fund
FCP
SICAV
SICAV
SICAV
SICAV
% held
100
100
100
100
100
100
65
100
100
37
99
99
83
84
SICAV
100
SICAV
SICAV
SICAV
SICAV
85
90
64
67
SICAV
100
SICAV
SICAV
SICAV
SICAV
42
66
78
41
SICAV
100
SICAV
SICAV
90
99
SICAV
100
SICAV
SICAV
SICAV
68
88
96
SICAV
100
Ordinary
SICAV
100
29
Aviva plc Annual Report and Accounts 2020
254
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements continued
Share Class1
SICAV
SICAV
Limited Partnership
Company Name
Aviva Investors Multi-Strategy Target
Income Fund
Aviva Investors Multi-Strategy Target
Return Fund
Aviva Investors Perpetual Capital
SCSp SICAV-RAIF
Aviva Investors Short Duration
Global High Yield Bond Fund
Aviva Investors Sustainable Income
& Growth Fund
Aviva Investors US Equity Income
Fund
UK Listed Equity High Alpha Fund
Aviva Investors Climate Transition
Global Equity Fund
Aviva Investors US Investment
Grade Bond Fund
Aviva Investors Investment
Solutions Fixed Maturity Plan –
Series I Fund
Aviva Investors Global EUR
ReturnPlus Fund
Aviva Investors Global GBP
ReturnPlus Fund
Aviva Investors Aviva France Global
High Yield Fund
Aviva Investors Global Aggregate
Bond Fund
Aviva Investors UK Equity Focus
Fund
Aviva Investors E-RELI SCSp
Aviva Investors European
Infrastructure Debt Strategy
FCP-RAIF
2, Boulevard Konrad Adenauer, L1115 Luxembourg
Xtrackers II Eurozone Government
Bond 15-30 UCITS ETF
AIDE-Aviva Infrastructure Debt
Europe I S.A.
AIESIC - Aviva Investors
European Secondary
Infrastructure Credit SV S.A
20 Rue de la Poste, L2346 Luxembourg
Algebris NPL Partnership 3
SICAV
SICAV
SICAV
SICAV
SICAV
SICAV
SICAV
SICAV
SICAV
SICAV
SICAV
SICAV
Fund
Fund
SICAV
Fund
Fund
Alternative Investment
SICAV
Ordinary
FCP
Ordinary
Ordinary
SICAV
24-26, Avenue de la Liberte, L1930 Luxembourg
Greenman Open Fund Class H
28 Boulevard D’Avranches, L1160, Luxembourg
Goodman European Business Park
Fund (Lux) S.àr.l.
3 rue des Labours, L1912, Luxembourg
Haspa TrendKonzept V
46a Avenue John F Kennedy, L1855, Luxembourg
Aviva Investors Polish Retail S.à r.l.
Centaurus CER (Aviva Investors) Sarl
5, Allée Scheffer, L2520, Luxembourg
Amundi Investment Funds – EMU
Equity
Pramerica Pan-European Real
Estate Fund II
Tikehau Italy Retail Fund II SCSP-
AREA12
Tikehau Residential I
Tikehau Senior Loan III
5, Rue Heienhaff, L1736 Senningerberg, Luxembourg
Alternative Investment
Alternative Investment
Alternative Investment
Alternative Investment
% held
75
48
100
41
98
69
94
100
100
100
100
100
100
100
100
20
100
32
100
67
96
21
50
47
100
100
34.4
28.4
24
25
25
UCITS
UCITS
Ordinary
Share Class1
SICAV
UCITS
UCITS
Ordinary
UCITS
Alternative Investment
Alternative Investment
Private Equity Fund
Unit Trust
Alternative Investment
Alternative Investment
Alternative Investment
Alternative Investment
Company Name
Robeco QI Global Multi-Factor
Bonds
6 Rue Eugene Ruppert, L2453, Luxembourg
Riverrock Brownfield Infra Fund I
6H Rue de Trèves, L2633 Senningerberg, Luxembourg
Archmore Infrastructure Equity III
Malta
Central North Business Centre, Level 1, Sqaq il-Fawwara, Sliema
APCIM Real Estate Finance
ATUM Growth Fund I
Herakles
Herakles II
Netherlands
Schiphol Boulevard 269, 1118 BH, Schipol, Netherlands
DIF Infrastructure III
EIF USPF IV Blocker Fund
Poland
AI Jana Pawla II 25, 00-854, Warsaw, Poland
Wroclaw BC sp. z.o.o
Inflancka 4b, 00-189, Warsaw, Poland
AdRate Sp. z o.o.
Aviva Investors Fio Malych Spolek
kat Z
Aviva Investors Fio Niskiego Ryzyka
kat Z
Aviva Investors Fio Nowoczesnych
Technologii kat Z
Aviva Investors Fio Obligacji kat Z
Aviva Investors Fio Polskich Akcji kat
Z
Aviva Investors Poland Towarzystwo
Funduszy Inwestycyjnych S.A.
Aviva Investors Sfio – Aviva Investors
Akcyjny
Aviva Investors Sfio – Aviva Investors
Dluzny
Aviva Investors Sfio – Aviva Investors
Krótkoterminowych Obligacji
Aviva Investors Sfio – Aviva Investors
Papierów Nieskarbowych
Aviva Investors Sfio – Aviva Investors
Spółek Dywidendowych
Aviva Investors Sfio Akcyjny
Aviva Investors Sfio Dluzny
Aviva Investors Sfio Dużych Spółek
Aviva Investors Sfio
Krotkoterminowych Obligacji
Aviva Investors Sfio Pap
Nieskarbowych
Aviva Investors Sfio Spolek
Dywidend
Aviva Investors Sfio Stabilnego
Dochodu
Aviva Investors Specjalistyczny
Fundusz Inwestycyjny Otwarty
Stabilnego Dochodu
Aviva Powszechne Towarzystwo
Emerytalne Aviva Santander S.A.
Aviva Services Spółka z ograniczoną
odpowiedzialnością
Aviva Sfio – Aviva Oszczędnościowy
Aviva Sfio Subfundusz Aviva
Globalnych Strategii
Aviva Spółka z ograniczoną
odpowiedzialnością
Aviva Towarzystwo Ubezpieczen Na
Zycie S.A.
Non UCITS (AIF)
Non UCITS (AIF)
Non UCITS (AIF)
Non UCITS (AIF)
Ordinary A,
B,C,D – Zlo
Ordinary
Non UCITS (AIF)
Non UCITS (AIF)
Non UCITS (AIF)
Non UCITS (AIF)
Non UCITS (AIF)
Non UCITS (AIF)
Non UCITS (AIF)
Non UCITS (AIF)
Non UCITS (AIF)
Non UCITS (AIF)
Non UCITS (AIF)
Parent Interest
Ordinary – Zlo
Ordinary
% held
87
40
22
100
100
67
100
100
100
100
90
46
34
66
67
55
95
100
100
100
99
100
100
100
100
100
99
100
41
62
81
100
67
67
90
90
Aviva plc Annual Report and Accounts 2020
255
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements continued
% held
81
90
90
51
51
90
90
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Unit Trust
Unit Trust
Unit Trust
Share Class1
Ordinary A, B, C,
D, E, F
Ordinary
Ordinary
Ordinary A, B
Company Name
Aviva Towarzystwo Ubezpieczen
Ogolnych S.A.
Expander Advisors Sp. z o.o.
Life Plus Sp. z o.o.
Santander Aviva Towarzystwo
Ubezpieczeń na Życie Spółka
Akcyjna
Santander Aviva Towarzystwo
Ubezpieczeń Spółka Akcyjna
Prosta 69, 00-838, Warsaw, Poland
porowneo.pl Sp. z o.o.
ul. Burakowska 5/7, 01-066, Warsaw, Poland
Berkley Investments S.A.
Singapore
1 Raffles Quay, #27-13, South Tower, 048583, Singapore
Aviva Investors Asia Pte. Limited
12 Marina View, #18-02 Asia Square Tower 2, 018961, Singapore
Nikko AM Global Green Bond Fund
Nikko AM Shenton Asia Pacific Fund
Nikko AM Shenton Income Fund
6 Temasek Boulevard, 29th Floor, Suntec Tower 4, 038986, Singapore
Aviva Asia Management Pte. Ltd.
Aviva Global Services (Management
Services) Private Ltd.
83 Clemenceau Avenue, #11-01 UE Square, 239920, Singapore
Aviva Singlife Holdings Pte. Ltd.
Spain
1D, 13 Edificio América Av. de Bruselas, 28108, Alcobendas, Madrid,
Spain
Eólica Almatret S.L.
Avda Andalucia, 10 -12, Malaga, Spain
Ahorro Andaluz, S.A
Nanclares de Oca, numero 1-B, 28022, Madrid, Spain
San Ramon Hoteles
TODO Real Est Investments
Switzerland
Leutschenbachstrasse 45, 8050 Zurich, Switzerland
Aviva Investors Schweiz GmbH
Turkey
Saray Mah., Adnan Büyüjdeniz Cad. No:12 34768, Umraniye, Istanbul,
Turkey
AvivaSA Emeklilik ve Hayat
United Kingdom
1 Filament Walk, Suite 203, London, SW18 4GQ, United Kingdom
Freetricity South East Limited
1 London Wall Place, London EC2Y 5AU, United Kingdom
Schroder QEP US Core Fund
12 Throgmorton Avenue, London EC2N 2DL, United Kingdom
BlackRock Market Advantage Fund
180 Great Portland Street, London, W1W 5QZ, United Kingdom
Quantum Property Partnership
(General Partner) Limited
Quantum Property Partnership
(Nominee) Limited
2nd Floor, 36 Broadway, London, SW1H 0BH, United Kingdom
Fred. Olsen CBH Limited
42 Dingwall Road, Croydon, Surrey, CR0 2NE, United Kingdom
Ballard Investment Company
Limited
47 Bermondsey Street, London, SE1 3XT, United Kingdom
Neos Ventures Limited
4th Floor, New London House, 6 London Street, London, EC3R 7LP,
United Kingdom
Polaris U.K. Limited
5 Lister Hill, Horsforth, Leeds, LS18 5AZ, United Kingdom
Aspire Financial Management
Limited
Ordinary
Ordinary
Ordinary/Preference
Unit Trust
Unit Trust
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100
45
66
30
100
100
26
50
46
100
100
100
40
100
45
48
50
50
49
25
81
39
47
Share Class1
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary/
Reedeemable
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Company Name
Living in Retirement Limited
Tenet & You Limited
Tenet Business Solutions Limited
Tenet Client Services Limited
Tenet Compliance Services Limited
Tenet Financial Services Limited
OEIC
OEIC
OEIC
Ordinary
OEIC
OEIC
OEIC
OEIC
OEIC
Private Equity Fund
Ordinary
Ordinary
Tenet Group Limited
Tenet Limited
TenetConnect Limited
TenetLime Limited
TenetConnect Services Limited
5 Old Broad Street, London EC2N 1AD, United Kingdom
Architas Multi-Manager Diversified
Protector 70
Architas Multi-Manager Diversified
Protector 80
50 Lothian Road, Festival Square, EH3 9WJ, Edinburgh, United
Kingdom
ASL Infrastructure Equity Fund
50 Stratton Street, London W1J 8LL, United Kingdom
Lazard Multicap UK Income Fund
7 Lochside View, Edinburgh, EH12 9DH, United Kingdom
Origo Services Limited
7 Newgate Street, London EC1A 7NX, United Kingdom
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, United Kingdom
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
Limited
London and Edinburgh Insurance
Company Limited
RAC Pension Trustees Limited
Solus (London) Limited
Synergy Sunrise (Broadlands)
Limited
57-59 St James’s Street, London SW1A 1LD, United Kingdom
Artemis UK Special Situations Fund
Wellington Row, York, YO90 1WR, United Kingdom
Aviva (Peak No.2) UK Limited
Aviva Administration 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
(General Partner) Limited
Aviva Life Investments International
(Recovery) Limited
Aviva Life Services UK Limited
Aviva Pension Trustees UK Limited
Aviva Savings Limited
Aviva Trustees UK Limited
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Unit Trust
Ordinary
Ordinary
Ordinary
% held
47
47
47
47
47
37
47
47
47
47
47
50
37
100
48
22
32
91
85
90
94
100
100
100
100
100
100
50
100
100
100
100
25
100
100
100
100
100
100
100
100
100
100
100
100
100
Aviva plc Annual Report and Accounts 2020
256
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements continued
100
49
49
Ordinary
100
100
100
52
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
% held
100
100
100
100
100
100
100
100
100
100
100
100
100
Share Class1
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Company Name
Aviva Wrap UK Limited
CGNU Life Assurance Limited
Friends AELRIS Limited
Friends Provident Pension Scheme
Trustees Limited
Lancashire and Yorkshire
Reversionary Interest Company
Limited /The
Undershaft (NULLA) Limited
Voyager Park South Management
Company Limited
c/o ANESCO Limited, The Green, Easter Partk, Benyon Road, Reading,
RG7 2PQ , United Kingdom
ANESCO Mid Devon Limited
ANESCO South West Limited
Free Solar (Stage 1) Limited
Homesun 2 Limited
Homesun 3 Limited
Homesun 4 Limited
Homesun 5 Limited
Homesun Limited
New Energy Residential Solar
Limited
Norton Energy SLS Limited
TGHC Limited
c/o Harper MacLeod LLp, The Cadoro, 45 Gordon Street, Glasgow, G1
3PE, United Kingdom
Brockloch Rig Windfarm Limited
Crystal Rig III Limited
c/o James Fletcher, Mainstay, Whittington Hall, Whittington Road,
Worcester, England, WR5 2ZX, United Kingdom
Aviva Investors GR SPV1 Limited
100
Aviva Investors GR SPV2 Limited
100
Aviva Investors GR SPV3 Limited
100
Aviva Investors GR SPV 4 Limited
100
Aviva Investors GR SPV 5 Limited
100
Aviva Investors GR SPV 6 Limited
100
Aviva Investors GR SPV 7 Limited
100
Aviva Investors GR SPV 8 Limited
100
Aviva Investors GR SPV 9 Limited
100
Aviva Investors GR SPV10 Limited
100
Aviva Investors GR SPV 11 Limited
100
Aviva Investors GR SPV 12 Limited
100
Aviva Investors GR SPV 13 Limited
100
Aviva Investors GR SPV 14 Limited
100
Aviva Investors GR SPV 15 Limited
100
Aviva Investors GR SPV16 Limited
100
100
Aviva Investors GR SPV17 Limited
Calton Square, 1 Greenside Row, Edinburgh EH1 3AN, United Kingdom
20
Baillie Gifford International Fund
Baillie Gifford UK Equity Core Fund
20
Centrium 1, Griffiths Way, St Albans , Hertfordshire , AL1 2RD,
United Kingdom
Opal (UK) Holdings Limited
Opal Information Systems Limited
Outsourced Professional
Administration Limited
Synergy Financial Products Limited
East Farmhouse, Cams Hall Estate, Fareham, PO16 8UT,
United Kingdom
IQUO Limited
67
Exchange House, Primrose Street, London EC2A 2HS, United Kingdom
86
BMO Diversified Growth Fund
43
BMO Emerging Markets Equity Fund
99
BMO European Growth & Income
Fund
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
SICAV
OEIC
SICAV
OEIC
OEIC
29
29
29
Ordinary
Ordinary
29
67
38
31
31
51
43
96
30
37
OEIC
OEIC
OEIC
OEIC
OEIC
OEIC
OEIC
OEIC
SICAV
24
43
Ordinary
% held
33
OEIC
OEIC
Share Class1
OEIC
Ordinary
Ordinary
Company Name
BMO Global Total Return Bond (GBP
Hdg) Fund
BMO Global Total Return Bond Fund
I EUR Acc
BMO North American Equity Fund
F&C Emerging Markets Fund Share
Class 2
F&C Multi Strategy Global Equity
Fund OEIC
Liontrust Fund Partners LLP, 2 Savoy Court, London WC2R 0EZ, United
Kingdom
Liontrust Sustainable Future
Corporate Bond Fund
Liontrust Sustainable Future
European Growth Fund
Liontrust Sustainable Future Global
Growth Fund
Liontrust Sustainable Future
Managed Fund
Liontrust Sustainable Future
Managed Growth Fund
Liontrust Sustainable Future UK
Growth Fund
54
Liontrust UK Ethical Fund
Melrose House , 42 Dingwall Road, Croydon, CR0 2NE, United Kingdom
43
Cannock Consortium LLP
37
Cannock Designer Outlet (GP
Holdings) Limited
Cannock Designer Outlet (GP)
Limited
Cannock Designer Outlet (Nominee
1) Limited
Cannock Designer Outlet (Nominee
2) Limited
Health & Case Management Limited
Old Bourchiers Hall New Road, Aldham, Colchester, Essex, C06 3QU,
United Kingdom
County Broadband Holdings
Limited
Pitheavlis, PERTH, Perthshire, PH2 0NH, United Kingdom
Aviva (Peak No.1) UK Limited
Aviva Insurance Limited
Aviva Investors (FP) Limited
Aviva Investors (GP) Scotland
Limited
General Accident plc
Medium Scale Wind No.2 Limited
Aviva Investors (FP) LP
Aviva Investors PEP 2008
Partnership
Pixham End, Dorking, Surrey, RH4 1QA, United Kingdom
Aviva Investment Solutions UK
Limited
Aviva Management Services UK
Limited
Bankhall Support Services Limited
Friends AEL Trustees Limited
Friends AELLAS Limited
Friends Life and Pensions Limited
Friends Life Assurance Society
Limited
Friends Life Company Limited
Friends Life FPG Limited
Friends Life FPL Limited
Friends Life FPLMA Limited
Friends Life Holdings plc
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Fund
Fund
Ordinary
Ordinary
Ordinary
Ordinary
100
100
100
100
100
100
100
100
100
100
Ordinary/Preference
100
100
100
100
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100
100
100
40
100
100
37
29
37
25
Aviva plc Annual Report and Accounts 2020
257
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements continued
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Share Class1
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Company Name
Friends Life Limited
Friends Life WL 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
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
Samuel House, 6 St. Albans Street, 4th floor, London, SW1Y 4SQ,
United Kingdom
Acre Platforms Limited
Shakespeare House, 42 Newmarket Road, Cambridge, CB5 8EP,
United Kingdom
Hillswood Management Limited
St Helen’s, 1 Undershaft, London, EC3P 3DQ, United Kingdom
10-11 GNS Limited
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 Nominee 2
Limited
1-5 Lowndes Square Management
Company Limited
20 Gracechurch (General Partner)
Limited
20 Lowndes Square Management
Company Limited
2015 Sunbeam Limited
2-10 Mortimer Street (GP No 1)
Limited
2-10 Mortimer Street GP Limited
30 Station Road Nominee 1 Limited
30 Station Road Nominee 2 Limited
30-31 Golden Square Nominee 1
Limited
30-31 Golden Square Nominee 2
Limited
41-42 Lowndes Square Management
Company Limited
43 Lowndes Square Management
Company Limited
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
% held
100
100
100
100
100
100
100
100
100
100
100
75
100
100
100
100
100
100
100
100
100
40
24
100
50
50
100
100
100
76
50
77
100
50
50
100
100
50
50
78
77
Company Name
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
Ascot Real Estate Investments GP
LLP
Atlas Park Management Company
Limited
Aviva Brands Limited
Aviva Commercial Finance Limited
Aviva Company Secretarial Services
Limited
Aviva Credit Services UK Limited
Aviva Employment Services Limited
Aviva Europe SE
Aviva Group Holdings Limited
Aviva Insurance Services UK Limited
Aviva International Holdings Limited
Aviva International Insurance
Limited
Aviva Investors 30 70 GLobal Eq Ccy
Hedged Ind Fund
Aviva Investors 40 Spring Gardens
(General Partner) Limited
Aviva Investors Commercial Assets
GP Limited
Aviva Investors Commercial Assets
Nominee Limited
Aviva Investors Continental Euro
Equity Index Fund
Aviva Investors EBC GP Limited
Aviva Investors Energy Centres No.1
GP Limited
Aviva Investors Funds ACS AI Asia
Pacific Ex Japan Fund
Aviva Investors Funds ACS AI
Balanced Life Fund
Aviva Investors Funds ACS AI
Balanced Pension Fund
Aviva Investors Funds ACS AI
Cautious Pension Fund
Aviva Investors Funds ACS AI
Continental European Equity Alpha
Fund
Aviva Investors Funds ACS AI
Distribution Life Fund
Aviva Investors Funds ACS AI Europe
Equity EX UK Fund
Aviva Investors Funds ACS AI Global
Equity Alpha Fund
Aviva Investors Funds ACS AI Global
Equity Fund
Aviva Investors Funds ACS AI Index
Linked Gilt Fund
Aviva Investors Funds ACS AI Japan
Equity Alpha Fund
Aviva Investors Funds ACS AI JAPAN
EQUITY FUND
Aviva Investors Funds ACS AI Money
Market VNAV Fund
Aviva Investors Funds ACS AI North
American Equity Fund
Share Class1
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Company Limited by
Guarantee
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Parent Company
Ordinary
Collective Investment
Scheme
Ordinary
Ordinary
Ordinary
Collective Investment
Scheme
Ordinary
Ordinary
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
% held
76
100
100
76
50
100
100
100
100
100
100
92
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Aviva plc Annual Report and Accounts 2020
258
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements continued
Company Name
Aviva Investors Funds ACS AI Pre-
Annuity Fixed Interest Fund
Aviva Investors Funds ACS AI
Sterling Corporate Bond Fund
Aviva Investors Funds ACS AI
Sterling Gilt Fund
Aviva Investors Funds ACS AI
Stewardship Fixed Interest Fund
Aviva Investors Funds ACS AI
Stewardship International Equity
Fund
Aviva Investors Funds ACS AI
Stewardship UK Equity Fund
Aviva Investors Funds ACS AI
Stewardship UK Equity Income
Fund
Aviva Investors Funds ACS AI
Strategic Global Equity Fund
Aviva Investors Funds ACS AI UK
Equity Alpha Fund
Aviva Investors Funds ACS AI UK
Equity Dividend Fund
Aviva Investors Funds ACS AI UK
Equity Fund
Aviva Investors Funds ACS AI UK
Equity Income Fund
Aviva Investors Funds ACS AI US
Large Cap Equity Fund
AI UK equity ex tobacco fund
AI Japan equity alpha fund
AI non-gilt bond up to 5 years index
fd
AI Pacific ex Japan equity index fund
AI UK gilts up to 5 years index fund
Aviva Investors High Yield Bond
Fund
Aviva Investors UK Equity Fund
Aviva Investors Global Services
Limited
Aviva Investors Ground Rent GP
Limited
Aviva Investors Ground Rent Holdco
Limited
Aviva Investors Holdings Limited
Aviva Investors Infrastructure GP
Limited
Aviva Investors Infrastructure
Income B Limited
Aviva Investors Infrastructure
Income Midco 6.1 Limited
Aviva Investors Infrastructure
Income No.1 Limited
Aviva Investors Infrastructure
Income No.2 Limited
Aviva Investors Infrastructure
Income No.2B Limited
Aviva Investors Infrastructure
Income No.3 Limited
Aviva Investors Infrastructure
Income No.4A Limited
Share Class1
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
OEIC
OEIC
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
% held
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Company Name
Aviva Investors Infrastructure
Income No.4B Limited
Aviva Investors Infrastructure
Income No.5 Limited
Aviva Investors Infrastructure
Income No.6 Limited
Aviva Investors Infrastructure
Income No.6B Limited
Aviva Investors Infrastructure
Income No.7 Limited
Aviva Investors Investment Funds
ICVC Aviva Investors Cash Fund
Aviva Investors Investment Funds
ICVC Aviva Investors Corporate
Bond Fund
Aviva Investors Investment Funds
ICVC Aviva Investors Global Equity
Income Fund
Aviva Investors Investment Funds
ICVC Aviva Investors International
Index Tracking Fund
Aviva Investors Investment Funds
ICVC Aviva Investors Managed High
Income Fund
Aviva Investors Investment Funds
ICVC Aviva Investors Strategic Bond
Fund
Aviva Investors Investment Funds
ICVC Aviva Investors UK Equity
Income Fund
Aviva Investors Investment Funds
ICVC Aviva Investors UK Index
Tracking Fund
Aviva Investors Manager of Manager
ICVC (ICVC2) Aviva Investors Japan
Equity MoM 1 Fund
Aviva Investors Manager of Manager
ICVC (ICVC2) Aviva Investors UK
Equity MoM 1 Fund
Aviva Investors Manager of Manager
ICVC (ICVC2) Aviva Investors UK
Opportunities Fund
Aviva Investors North American
Equity Index Fund
Aviva Investors Passive Funds ACS AI
40 60 Global Equity Index Fund
Aviva Investors Passive Funds ACS AI
50 50 Global Equity Index Fund
Aviva Investors Passive Funds ACS AI
60 40 Global Equity Index Fund
Aviva Investors Passive Funds ACS AI
Developed Asia Pacific Ex Japan
Equity Index Fund
Aviva Investors Passive Funds ACS AI
Developed European Ex UK Equity
Index Fund
Aviva Investors Passive Funds ACS AI
Developed Overseas Government
Bond (Ex UK) Index Fund
Aviva Investors Passive Funds ACS AI
Developed World Ex UK Equity Index
Fund
Aviva Investors Passive Funds ACS AI
Index-Linked Gilts Over 5 years
Index Fund
Share Class1
Ordinary
% held
100
Ordinary
100
Ordinary
Ordinary
Ordinary
OEIC
OEIC
OEIC
OEIC
OEIC
OEIC
Collective Investment
Scheme
OEIC
OEIC
OEIC
OEIC
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
59
32
64
56
93
81
45
63
41
51
68
73
87
95
100
100
100
100
100
100
100
100
100
Aviva plc Annual Report and Accounts 2020
259
Strategic report
Governance
IFRS financial statements
Other information
% held
100
100
100
100
100
100
100
100
100
100
100
100
50
41
74
70
81
100
80
Notes to the consolidated financial statements continued
Company Name
Aviva Investors Passive Funds ACS AI
Japanese Equity Index Fund
Share Class1
Collective Investment
Scheme
Aviva Investors Passive Funds ACS AI
Multi-Asset (40-85% Shares) Index
Fund
Aviva Investors Passive Funds ACS AI
Non-gilt Bond All Stocks Index Fund
Aviva Investors Passive Funds ACS AI
Non-Gilt Bond Over 15 years Index
Fund
Aviva Investors Passive Funds ACS AI
UK Equity Index Fund
Aviva Investors Passive Funds ACS AI
UK Gilts All Stocks Index Fund
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
Collective Investment
Scheme
Aviva Investors Passive Funds ACS AI
UK Gilts over 15 years Index fund
Collective Investment
Scheme
Aviva Investors Passive Funds ACS AI
US Equity Index Fund
Aviva Investors Pensions Limited
Aviva Investors Pip Solar PV (General
Partner) Limited
Aviva Investors Pip Solar PV No.1
Limited
Aviva Investors Polish Retail GP
Limited
Aviva Investors Portfolio Funds ICVC
Aviva Investors Multi-asset Fund III
Aviva Investors Portfolio Funds ICVC
Aviva Investors Multi-asset Fund IV
Aviva Investors Portfolio Funds ICVC
Aviva Investors Multi-Manager 20-
60% Shares Fund
Aviva Investors Portfolio Funds ICVC
Aviva Investors Multi-Manager 40-
85% Shares Fund
Aviva Investors Portfolio Funds ICVC
Aviva Investors Multi-Manager
Flexible Fund
Aviva Investors Property Fund
Management Limited
Aviva Investors Property Funds ICVC
Aviva Investors Asia Pacific Property
Fund
Aviva Investors Property Funds ICVC
Aviva Investors European Property
Fund
Aviva Investors Real Estate Limited
Aviva Investors Secure Income REIT
Limited
Aviva Investors Social Housing GP
Limited
Aviva Investors Social Housing
Limited
Aviva Investors UK CRESD GP
Limited
Aviva Investors UK Eq Ex Aviva Inv
Trusts Index Fund
Aviva Investors UK Fund Services
Limited
Aviva Overseas Holdings Limited
Aviva plc
Aviva Public Private Finance Limited
Aviva Special PFI GP Limited
Aviva Staff Pension Trustee Limited
Aviva UK Digital Limited
Collective Investment
Scheme
Ordinary
Ordinary
Ordinary
Ordinary
OEIC
OEIC
OEIC
OEIC
OEIC
Ordinary
OEIC
OEIC
73
Ordinary
Ordinary
Ordinary
Company Limited by
Guarantee
Ordinary
Collective Investment
Scheme
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100
100
100
100
100
100
100
100
100
100
100
100
100
Company Name
Aviva UKLAP De-risking Limited
Axcess 10 Management Company
Limited
Barratt House Nominee 1 Limited
Barratt House Nominee 2 Limited
Barwell Business Park Nominee
Limited
Bermondsey Yards General Partner
Limited
Bermondsey Yards Nominee 1
Limited
Bermondsey Yards Nominee 2
Limited
Biomass UK No. 3 Limited
Biomass UK No.1 LLP
Biomass UK No.2 Limited
Biomass UK No.4 Limited
Boston Biomass Limited
Boston Wood Recovery Limited
Building a Future (Newham Schools)
Limited
Cara Renewables Limited
CGU International Holdings BV
Chesterford Park (General Partner)
Limited
Chesterford Park (Nominee) Limited
Commercial Union Corporate
Member Limited
Commercial Union Life Assurance
Company Limited
Cornerford Limited
Den Brook Energy Limited
Dilkes Energy Limited
EES Operations 1 Limited
Electric Avenue Ltd
Fitzroy Place GP 2 Limited
Fitzroy Place Management Co
Limited
Fitzroy Place Residential Limited
Free Solar (Stage 2) Limited
Gobafoss General Partner Limited
Gobafoss Partnership Nominee No 1
Ltd
Heath Farm Energy Limited
Hooton Bio Power Limited
Houlton Commercial Management
Company Limited
Igloo Regeneration (General
Partner) Limited
Igloo Regeneration (Nominee)
Limited
Igloo Regeneration Developments
(General Partner) Limited
Irongate House Nominee 1 Limited
Irongate House Nominee 2 Limited
Jacks Lane Energy Limited
Lime Property Fund (General
Partner) Limited
Lime Property Fund (Nominee)
Limited
Matthew Parker Street (Nominee No
2) Limited
Mayfair Healthcare (Durham)
Limited
Share Class1
Ordinary
Company Limited by
Guarantee
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Deferred
Member Capital
Ordinary
Deferred Shares
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
% held
100
100
50
50
100
100
100
100
100
75
100
100
100
100
100
100
100
100
100
100
100
100
100
64
100
100
50
50
50
100
100
100
64
56
50
50
50
50
50
50
100
100
100
100
100
Aviva plc Annual Report and Accounts 2020
260
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements continued
Company Name
Mayfair Healthcare (Harrogate)
Limited
Mayfair Healthcare (Knaresborough)
Limited
Mayfair Healthcare (Oulton) Limited
Mayfair Healthcare (Wetherby)
Limited
Mayfair Healthcare Holdings Limited
Medium Scale Wind No.1 Limited
Minnygap Energy 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 Nominee 1
Limited
New Broad Street House Nominee 2
Limited
NIRO Renewables Limited
Norwich Union (Shareholder GP)
Limited
NU 3PS Limited
NU Developments (Brighton)
Limited
NU Library For Brighton Limited
NU Local Care Centres (Bradford)
Limited
NU Local Care Centres (Chichester
No.1) Limited
NU Local Care Centres (Chichester
No.2) Limited
NU Local Care Centres (Chichester
No.3) Limited
NU Local Care Centres (Chichester
No.4) Limited
NU Local Care Centres (Chichester
No.5) Limited
NU Local Care Centres (Chichester
No.6) Limited
NU Local Care Centres (Farnham)
Limited
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 (GP) Limited
Pegasus House and Nuffield House
Nominee 1 Limited
Pegasus House and Nuffield House
Nominee 2 Limited
Porth Teigr Management Company
Limited
Protricity Ltd
Quarryvale One Limited
RDF Energy No.1 Limited
Renewable Clean Energy 3 Limited
Share Class1
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Company Limited by
Guarantee
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
% held
98
100
100
100
100
100
100
50
50
50
50
50
50
50
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
50
50
50
100
100
57
100
Company Name
RENEWABLE CLEAN ENERGY
LIMITED
Rugby Radio Station (General
Partner) Limited
Rugby Radio Station (Nominee)
Limited
Solar Clean Energy Limited
Southgate General Partner Limited
Southgate LP (Nominee 1) Limited
Southgate LP (Nominee 2) Limited
Spire Energy Ltd
Station Road General Partner LLP
Stonebridge Cross Management
Limited
SUE GP LLP
SUE GP Nominee Limited
Sunrise Renewables (Hull) Limited
The Designer Retail Outlet Centres
(Mansfield) General Partner Limited
The Designer Retail Outlet Centres
(York) General Partner Limited
The Ocean Marine Insurance
Company Limited
The Square Brighton Limited
Turncole Wind Farm Limited
Tyne Assets (No 2) Limited
Tyne Assets Limited
Undershaft Limited
Welsh Insurance Corporation
Limited/The
Westcountry Solar Solutions Limited
Woolley Hill Electrical Energy
Limited
Yorkshire Insurance Company
Limited /The
2-10 Mortimer Street Limited
Partnership
Ascot Real Estate Investments LP
Igloo Regeneration Partnership
Rugby Radio Station Limited
Partnership
SUE Developments Limited
Partnership
Station Road Cambridge LP
1 Fitzroy Place Limited Partnership
11-12 Hanover Square LP
130 Fenchurch Street LP
2 Fitzroy Place Limited Partnership
20 Gracechurch Limited Partnership
20 Station Road LP
30 Station Road LP
30-31 Golden Square Limited
Partnership
50-60 Station Road LP
Aviva Investors EBC Limited
Partnership
Aviva Investors Energy Centres No.1
Limited Partnership
Aviva Investors Polish Retail Limited
Partnership
Aviva Special PFI Limited
Partnership
Barratt House LP
Bermondsey Yards Limited
Partnership
Chesterford Park Limited
Partnership
Share Class1
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
LLP
Company Limited by
Guarantee
LLP
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
% held
100
50
50
100
50
50
50
100
100
100
50
50
75
100
100
100
100
100
100
100
100
100
100
100
100
Fund
50%
Fund
Fund
Fund
50%
40%
50%
Fund
50%
Fund
Fund
Fund
Fund
Fund
Fund
Fund
Fund
Fund
Fund
Fund
55%
50%
50%
100%
50%
50%
50%
50%
50%
50%
100%
Fund
100%
Fund
100%
Fund
100%
Fund
Fund
50%
100%
Fund
50%
Aviva plc Annual Report and Accounts 2020
261
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements continued
% held
100
Share Class1
Alternative Investment
Company Name
Annaly Credit Opportunities Ireland
ICAV
200 Clarendon Street, 55th Floor, Boston, Massachusetts. United
States
2222 Grand Avenue, Des Moines IA 50312, United States
Aviva Investors North America
Holdings, Inc
251 Little Falls Drive, Wilmington DE 19808, United States
AI-RECAP Carry I, LP
AI-RECAP GP I, LLC
2711 Centreville Road, Suite 400, Wilmington, New Castle, Delaware,
19808, United States
UKP Holdings Inc.
100
Cogency Global Inc., 850 New Burton Road, Suite 201, Dover Delaware
Kent County 19904, United States
Exeter Properties Inc.
Ordinary
Sole Member
Common Stock
Common
82
100
Ordinary
100
95
Winslade Investments Inc.
Common Stock
100
Vietnam
Mipec Tower, 229 Tay Son, Dong Da, Ha Noi, Vietnam
Aviva Vietnam Life Insurance
Company Limited
Ordinary
90
Fund
Fund
100%
% held
50%
50%
50%
Fund
Fund
Share Class1
Fund
Fund
Fund
Fund
50%
50%
100%
Company Name
Igloo Regeneration Developments
LP
Igloo Regeneration Partnership LP
Igloo Regeneration Property Unit
Trust
Irongate House LP
New Broad Street House LP
Norwich Union Public Private
Partnership Fund
Paddington Central III Limited
Partnership
Pegasus House and Nuffield House
LP
Southgate Limited Partnership
The Designer Retail Outlet Centres
(Mansfield) Limited Partnership
The Designer Retail Outlet Centres
(York) Limited Partnership
The Gobafoss Partnership
Swan Court Waterman’s Business Park, Kingsbury Crescent, Staines,
Surrey, TW18 3BA, United Kingdom
Healthcode Limited
20
Tec Marina Terra Nova Way, Penarth, Cardiff, Wales, CF64 1SA, United
Kingdom
Wealthify Group Limited
Wealthify Limited
United States
1209 Orange Street, Wilmington DE 19801, United States
Aviva Investors Americas LLC
1211 Avenue of the Americas New York, NY 10036, United States
AEP Feed Fund V
Ordinary
Ordinary
Sole Member
Fund
Fund
50%
97%
Unit Trust
100
100
Ordinary
100%
Fund
Fund
50%
97%
100
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 2020
262
Strategic report
Governance
IFRS financial statements
Other information
Notes to the consolidated financial statements continued
65 – Subsequent events
• For details of subsequent events relating to disposals see note 4(f).
• For details of subsequent events relating to borrowings see note 52(g).
Aviva plc Annual Report and Accounts 2020
263
Strategic report
Governance
IFRS financial statements
Other information
Financial statements of the Company
Income statement
For the year ended 31 December 2020
Income
Net investment income
Expenses
Operating expenses
Finance costs
(Loss)/profit for the year before tax
Tax credit
(Loss)/profit for the year after tax
Statement of comprehensive income
For the year ended 31 December 2020
(Loss)/profit for the year
Items that will not be reclassified to income statement
Remeasurement of pension scheme
Other comprehensive expense, net of tax
Total comprehensive (expense)/income for the year
Note
A
B
C
D
Note
H
2020
£m
192
192
(251)
(500)
(751)
(559)
116
(443)
2019
£m
1,688
1,688
(195)
(537)
(732)
956
92
1,048
2020
£m
2019
£m
(443)
1,048
(1)
(1)
(1)
(1)
(444)
1,047
Where applicable, the accounting policies of the Company are the same as those of the Group. The Company notes identified alphabetically
are an integral part of these separate financial statements. Where the same items appear in the Group financial statements, reference is made
to the Group notes identified numerically.
Aviva plc Annual Report and Accounts 2020
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 2020
Ordinary
share
capital
£m
Preference
share capital
£m
Share
premium
£m
Capital
redemption
reserve
£m
Merger
reserve
£m
Equity
compensation
reserve
£m
Note
Retained
earnings
£m
Direct capital
instrument
£m
Total equity
£m
Balance at 1 January
Loss for the year
Other comprehensive expense
Total comprehensive expense for the year
Dividends and appropriations
Reserves credit for equity compensation plans
Shares issued under equity compensation plans
Reclassification of DCI to financial liabilities1
Reclassification of tier 1 notes to financial liabilities
Forfeited dividend income
Aggregate tax effect
16
34
33
37,L
37,L
H
D
Balance at 31 December
980
—
—
—
—
—
2
—
—
—
—
982
200
—
—
—
—
—
—
—
—
—
—
200
1,239
—
—
—
—
—
3
—
—
—
—
1,242
44
—
—
—
—
—
—
—
—
—
—
44
6,438
—
—
—
—
—
—
—
—
—
—
6,438
120
—
—
—
—
37
(51)
—
—
—
—
106
3,910
(443)
(1)
(444)
(280)
—
46
1
—
2
—
3,235
500
—
—
—
—
—
—
(500)
—
—
—
13,431
(443)
(1)
(444)
(280)
37
—
(499)
—
2
—
—
12,247
1 On 23 June 2020, notification was given that the Group would redeem the 5.9021% £500 million DCI and the instrument was reclassified as a financial liability. See note 37 for further information.
For the year ended 31 December 2019
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
Reclassification of DCI to financial liabilities
Reclassification of tier 1 notes to financial liabilities2
Forfeited dividend income
Aggregate tax effect
Balance at 31 December
Note
16
34
33
37,L
37,L
H
D
Ordinary
share
capital
£m
Preference
share capital
£m
Share
premium
£m
Capital
redemption
reserve
£m
975
—
—
—
—
—
5
—
—
—
—
980
200
—
—
—
—
—
—
—
—
—
—
200
1,214
—
—
—
—
—
25
—
—
—
—
1,239
44
—
—
—
—
—
—
—
—
—
—
44
Merger
reserve
£m
6,438
—
—
—
—
—
—
—
—
—
—
6,438
Equity
compensation
reserve
£m
120
—
—
—
—
62
(62)
—
—
—
—
120
Direct capital
instrument
and fixed rate
tier 1 notes
£m
724
—
—
—
—
—
—
—
(224)
—
—
Total equity
£m
13,741
1,048
(1)
1,047
(1,244)
62
23
—
(210)
4
8
500
13,431
Retained
earnings
£m
4,026
1,048
(1)
1,047
(1,244)
—
55
—
14
4
8
3,910
2 On 17 October 2019, notification was given that the Group would redeem the 6.875% £230 million tier 1 notes and the instrument was reclassified as a financial liability. See note 37 for further information.
Where applicable, the accounting policies of the Company are the same as those of the Group. The Company notes identified alphabetically
are an integral part of these separate financial statements. Where the same items appear in the Group financial statements, reference is made
to the Group notes identified numerically.
Aviva plc Annual Report and Accounts 2020
265
Strategic report
Governance
IFRS financial statements
Other information
Financial statements of the company continued
Statement of financial position
As at 31 December 2020
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
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 3 March 2021
Jason Windsor
Chief Financial Officer
Note
2020
£m
2019
£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
3,791
9
108
35,819
812
20
191
31,788
123
5,025
9
85
37,030
241
13
74
36,842
37,358
982
200
1,182
1,242
44
6,438
106
3,235
—
980
200
1,180
1,239
44
6,438
120
3,910
500
12,247
13,431
7,195
12,430
48
19,673
366
4,456
100
24,595
36,842
6,534
12,675
47
19,256
238
4,344
89
23,927
37,358
Where applicable, the accounting policies of the Company are the same as those of the Group. The Company notes identified alphabetically
are an integral part of these separate financial statements. Where the same items appear in the Group financial statements, reference is made
to the Group notes identified numerically.
Aviva plc Annual Report and Accounts 2020
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 2020
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 joint venture
Net disposal of financial investments
Net cash from investing activities
Cash flows from financing activities
Proceeds from issue of ordinary shares
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 financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Exchange gains on cash and cash equivalents
Cash and cash equivalents at 31 December
1 2020 includes redemption of the £500 million DCI. 2019 includes redemption of 6.875% £210 million tier 1 notes.
2 2020 includes a £2 million (2019: £5 million) donation of forfeited dividend income to a charitable foundation and £13 million (2019: £nil) in respect of payments relating to equity compensation plans.
2020
£m
2019
£m
—
2
2
3
(2)
967
(862)
105
(330)
(17)
(236)
2
(27)
632
(15)
115
117
74
—
191
5
—
5
27
(9)
505
(696)
(191)
(316)
(17)
(1,184)
4
(43)
1,807
(5)
73
78
15
(19)
74
Where applicable, the accounting policies of the Company are the same as those of the Group. The Company notes identified alphabetically
are an integral part of these separate financial statements. Where the same items appear in the Group financial statements, reference is made
to the Group notes identified numerically.
Aviva plc Annual Report and Accounts 2020
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
Dividends received from joint venture
Interest receivable from group loans held at amortised cost
Other income
Unrealised loss on FX forward contracts
Total
B – Operating expenses
(i) Operating expenses
Operating expenses comprise:
Equity compensation plans (see (ii) below)
Other operating costs
Net foreign exchange losses
Total
Note
O(iii)
O(iii)
O(i)
2020
£m
101
6
89
—
(4)
192
2020
£m
15
236
—
251
2019
£m
1,590
5
92
1
—
1,688
2019
£m
19
175
1
195
(ii) 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 on group loans held at amortised cost
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
Deferred tax
Origination and reversal of temporary differences
Total deferred tax
Total tax credited to income statement
Note
O(ii)
2020
£m
342
158
500
2020
£m
(108)
(9)
(117)
1
1
(116)
2019
£m
325
212
537
2019
£m
(90)
(2)
(92)
—
—
(92)
(ii) Tax credited to other comprehensive income
Tax credited to other comprehensive income in the year amounted to £1 million (2019: £nil) in respect of obligations under pension and post-
retirement benefit schemes.
(iii) Tax credited to equity
Tax credited directly to equity in the year amounted to £nil (2019: £8 million in respect of coupon payments on the direct capital instrument and
fixed rate tier 1 notes).
Aviva plc Annual Report and Accounts 2020
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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 (loss)/profit before tax differs from the theoretical amount that would arise using the tax rate of the home country
of the Company as follows:
(Loss)/profit before tax
Tax calculated at standard UK corporation tax rate of 19.00% (2019: 19.00%)
Reconciling items
Adjustment to tax charge in respect of prior years
Non-assessable dividend income
Losses surrendered intra-group for nil value
Tax on interest amounts charged direct to equity
Total tax credited to income statement
2020
£m
(562)
(107)
(9)
(20)
25
(5)
(116)
2019
£m
956
182
(2)
(303)
31
—
(92)
During 2020, the reduction in the UK corporation tax rate that was due to take effect from 1 April 2020 was cancelled and as a result, the rate
has remained at 19%. This results in an increase in the Company’s deferred tax assets of £1 million. The resulting credit of £1 million is
recognised in other comprehensive income.
E – Investments in subsidiaries and joint venture
(i) Subsidiaries
At 31 December 2020, the Company has two wholly owned subsidiaries, both incorporated in the UK. These are General Accident plc (GA)
and Aviva Group Holdings Limited (AGH). AGH is an intermediate holding company, while GA has preference shares listed on the London
Stock Exchange. At 31 December 2020, the Company’s investments in subsidiaries have a cost of £31,788 million (2019: £31,788 million). The
principal subsidiaries of the Aviva Group at 31 December 2020 are set out in note 63 to the Group consolidated financial statements.
(ii) Joint venture
At 31 December 2020, the Company’s investment in the joint venture, Aviva-COFCO Life Insurance Co. Limited has a cost of £123 million
(2019: £123 million).
F – Receivables and other financial assets
Loans due from subsidiaries held at amortised cost
Amounts 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
Note
O(i)
O(iii)
2020
£m
4,346
257
4,603
812
3,791
4,603
2019
£m
5,025
241
5,266
241
5,025
5,266
Fair value of these assets is approximate to their carrying amounts.
G – Tax assets and liabilities
(i) Current tax
Current tax assets recoverable in more than one year are £108 million (2019: £85 million).
Assets for prior years’ tax settled by Group Relief of £94 million (2019: £106 million) are included within Receivables and other financial assets
(note F), of which £94 million are recoverable in less than one year.
(ii) Deferred tax
(a) The balance at 31 December comprises:
Pensions and other post retirement obligations
Net deferred tax assets
(b) The movement on the net deferred tax asset was as follows:
Net asset at 1 January
Amounts charged to profit
Amounts credited to other comprehensive income
Net asset at 31 December
2020
£m
9
9
2020
£m
9
(1)
1
9
2019
£m
9
9
2019
£m
9
—
—
9
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Notes to the financial statements of the company continued
H – Reserves
Balance at 1 January 2019
Arising in the year:
Profit for the year
Remeasurement of pension scheme
Forfeited dividend income2
Dividends and appropriations
Reserves credit for equity compensation plans
Issue of share capital under equity compensation plans
Reclassification of tier 1 notes to financial liabilities3 (note L)
Aggregate tax effect
Balance at 31 December 2019
Arising in the year:
Loss for the year
Remeasurement of pension scheme
Forfeited dividend income2
Dividends and appropriations
Reserves credit for equity compensation plans
Issue of share capital under equity compensation plans
Reclassification of DCI to financial liabilities4 (note L)
Aggregate tax effect
Balance at 31 December 2020
Merger
reserve
£m
6,438
Equity
compensation
reserve1
£m
Retained
earnings
£m
120
4,026
—
—
—
—
—
—
—
—
—
—
—
—
62
(62)
—
—
6,438
120
—
—
—
—
—
—
—
—
—
—
—
—
37
(51)
—
—
1,048
(1)
4
(1,244)
—
55
14
8
3,910
(443)
(1)
2
(280)
—
46
1
—
6,438
106
3,235
1 See notes 34(d) and 38 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% £230 million tier 1 notes and the instrument was reclassified as a financial liability. See note 37 for further information.
4 On 23 June 2020, notification was given that the Group would redeem the 5.9021% £500 million DCI and the instrument was reclassified as a financial liability. See note 37 for further information.
Tax effect of £nil (2019: £8 million) is recognised in respect of coupon payments on the DCI (2019: £43 million in respect of coupon payments on
the DCI 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.
2020
£m
48
48
2019
£m
47
47
2020
£m
6,341
1,112
108
7,561
2019
£m
5,482
1,052
238
6,772
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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
366
448
930
—
5,864
7,608
Interest
£m
338
1,330
1,613
1,540
2,831
2020
Total
£m
704
1,778
2,543
1,540
8,695
7,652
15,260
Principal
£m
238
686
635
—
5,251
6,810
Interest
£m
311
1,194
1,451
1,417
2,636
7,009
2019
Total
£m
549
1,880
2,086
1,417
7,887
13,819
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 (2019: £49 million).
The fair value of the subordinated debt at 31 December 2020 was £7,514 million (2019: £6,446 million), calculated with reference to quoted
prices. The fair value of the senior debt at 31 December 2020 was £1,217 million (2019: £1,134 million), calculated with reference to quoted
prices. The fair value of the commercial paper is considered to be the same as its carrying value.
Further details of these borrowings and undrawn committed facilities can be found in the Group consolidated financial statements, note 52,
with details of the fair value hierarchy in relation to these borrowings in note 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)
2020
£m
12,430
4,456
16,886
4,456
12,430
16,886
2019
£m
12,675
4,344
17,019
4,344
12,675
17,019
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.
The £500 million direct capital instrument was redeemed on 27 July 2020 at a cost of £500 million, see details in note 37. These were reflected
in the Company financial statements at a value of £499 million following the reclassification to financial liability on the notification date. The
resulting difference of £1 million has been charged to the Company retained earnings.
M – Contingent liabilities
Details of the Company’s contingent liabilities are given in the Group consolidated financial statements, note 55.
N – Risk management
Risk management in the context of the Group is considered in the Group consolidated financial statements, note 59.
The business of the Company is managing its investments in subsidiaries and joint venture operations. Its risks are considered to be the same
as those in the operations themselves, and full details of the major risks and the Group’s approach to managing these are given in the Group
consolidated financial statements, note 59. Such investments are held by the Company at cost in accordance with accounting policy D.
Financial assets, other than investments in subsidiaries and joint ventures, largely consist of amounts due from subsidiaries. As at the balance
sheet date, these receivable amounts were neither past due nor impaired. The credit quality of receivables and other financial assets is
monitored by the Company, and provisions are made for expected credit losses. There are no material expected credit losses over the lifetime
of the financial assets.
Financial liabilities owed by the Company as at the balance sheet date are largely in respect of borrowings (details of which are provided in
note J and the Group consolidated financial statements, note 52) and loans owed to subsidiaries. Loans owed to subsidiaries were within
agreed credit terms as at the balance sheet date.
Interest rate risk
Loans to and from subsidiaries are at either fixed or floating rates of interest, with the latter being exposed to fluctuations in these rates. The
choice of rates is designed to match the characteristics of financial investments (which are also exposed to interest rate fluctuations) held in
both the Company and the relevant subsidiary, to mitigate as far as possible each company’s net exposure.
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Notes to the financial statements of the company continued
N – Risk management continued
Interest rate risk continued
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 52.
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 £114 million (2019: 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 59(c)(v).
The Company faces exposure to foreign currency risk through some of its borrowings which are denominated in Euros. However, most of
these borrowings have been on-lent to a subsidiary which holds investments in Euros, generating the net investment hedge described in the
Group consolidated financial statements, note 60(a).
Liquidity risk
Liquidity risk is the risk of not being able to make payments as they become due because there are insufficient assets in cash form. The
Company’s main sources of liquidity are liquid assets held within the Company and its subsidiary Aviva Group Holdings Limited, and
dividends received from the Group’s insurance and asset management businesses. Sources of liquidity in normal markets also include a
variety of short and long-term instruments including commercial papers and medium and long-term debt. In addition to the existing liquid
resources and expected inflows, the Company maintains significant undrawn committed borrowing facilities from a range of leading
international banks to further mitigate this risk.
Maturity analysis of external borrowings and amounts due to and by subsidiaries are provided in notes 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. From January 2021, as a result of LIBOR being abolished,
loans previously accruing interest at specific basis points above LIBOR will now be set at a fixed rate for 5 years or up to maturity. The maturity
analysis of the related party loans is as follows:
(i) Loans owed by subsidiaries
Maturity analysis
Within 1 year
1 – 5 years
Over 5 years
Total
2020
£m
555
3,311
480
4,346
2019
£m
—
3,792
1,233
5,025
The interest received on these loans is £89 million (2019: £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 £224 million (2019: £212 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 £849 million (2019: £1,563 million).
On 27 June 2016, the Company provided an unsecured loan of C$446 million to Aviva Group Holdings Limited, its subsidiary, with a maturity
date of 27 June 2046. The loan accrues interest at 348 basis points above 6 month CDOR. As at the statement of financial position date, the
total amount drawn was £256 million (2019: £259 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 £555 million
(2019: £661 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 £582 million
(2019: £551 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 £627 million
(2019: £593 million).
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Notes to the financial statements of the company continued
O – Related party transactions continued
(i) Loans owed by subsidiaries continued
• 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 £805 million
(2019: £762 million).
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 £448 million (2019: £424 million).
(ii) Loans owed to subsidiaries
Maturity analysis of contractual undiscounted cash flows:
Within 1 year
1 – 5 years
Total
Principal
£m
—
12,430
12,430
Interest
£m
93
178
271
2020
Total
£m
93
12,608
12,701
Principal
£m
—
12,675
12,675
Interest
£m
182
395
577
2019
Total
£m
182
13,070
13,252
The interest paid on these loans is £158 million (2019: £212 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 2020 was £2,900 million
(2019: £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 2020, the loan balance outstanding was £9,530 million
(2019: £9,630 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
2020
Income earned
in year
£m
Receivable at
year end
£m
Income earned
in year
£m
2019
Receivable
at year end
£m
107
257
1,595
241
Income earned relates to dividends. 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
2020
Payable
at year end
£m
Expense
incurred
in year
£m
2019
Payable
at year end
£m
239
4,456
175
4,344
Expenses incurred relates to operating expenses. The Company incurred expenses in the year of £0.7 million (2019: £0.6 million) representing
audit fees paid by the Company on behalf of subsidiaries. The Company did not recharge subsidiaries for these expenses.
The related parties’ payables are not secured and no guarantees were given in respect thereof. The payables will be settled in accordance
with normal credit terms. Details of guarantees, indemnities and warranties given by the Company on behalf of related parties are given in
note 55(f).
Key management
The directors and key management of the Company are considered to be the same as for the Group. Information on both the Company and
Group key management compensation can be found in note 62.
P – Subsequent events
For details of subsequent events relating to borrowings please see note 52(g).
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Other information
Other Information
In this section
Alternative Performance Measures
Shareholder services
Page
275
284
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Alternative Performance Measures
Alternative
Performance
Measures
In order to fully explain the performance of our business, we discuss
and analyse our results in terms of financial measures which include
a number of alternative performance measures (APMs). APMs are
non-GAAP measures which are used to supplement the disclosures
prepared in accordance with other regulations such as International
Financial Reporting Standards (IFRS) and Solvency II. We believe
these measures provide useful
information to enhance the
understanding of our financial performance. However, APMs should
be viewed as complementary to, rather than as a substitute for, the
figures determined according to other regulations.
Throughout, the symbol ‘#’ denotes an APM that is also a key
performance indicator used as a base to determine or modify
remuneration.
The APMs utilised by Aviva may not be the same as those used by
other insurers and may change over time. The calculation of APMs is
consistent with previous periods unless otherwise stated.
Following the announcement of our strategic priorities on 6 August
2020, the financial performance of our ‘Core markets’ are presented
as UK & Ireland Life, General Insurance (which brings together our UK
& Ireland general insurance businesses and Canada) and Aviva
Investors. Our ‘Manage-for-value’ markets consist of our remaining
international businesses: France, Italy, Poland, Asia and Other. The
2019 comparative results for our APMs have been restated from those
previously published to reclassify operations on this basis.
In addition, the 2019 comparative amounts have been re-presented
from those previously published to reclassify the amounts relating to
Aviva Singapore, Friends Provident International Limited (FPI), Hong
Kong, Indonesia and Vietnam as discontinued operations. Where
relevant, these discontinued operations are presented as ‘Manage-
for-value’ markets.
At 31 December 2020, the estimated Solvency II shareholder cover
ratio APM has been amended to no longer make adjustments for
planned acquisitions and disposals when deriving the shareholder
view. This change in approach is considered more relevant because
prior to completion there is uncertainty in relation to the progression
and final terms of such transactions. Comparative amounts have not
been restated for this change as the impacts were not material at
31 December 2019.
controllable
this metric
At 30 June 2020, we removed the operating expenses APM, having
disclosed
at
alongside
31 December 2019. The controllable costs metric aligns to our capital
markets day target announced in November 2019 and excludes
premium based taxes, fees and levies that vary directly with premium
volumes. Therefore, controllable costs
is considered more
representative of operational expenses that are controllable by
management and is considered more useful and relevant than the
operating expenses metric.
costs
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.
Further details on APMs derived from IFRS measures and APMs
derived from Solvency II measures are provided in the following
sections. A further section describes Other APMs.
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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 is used in managing the performance
of our operating segments excludes the impact of economic
variances, to provide a comparable measure year on year.
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, acquisition and disposal activity which we view as
strategic in nature, hence they are excluded from the Group adjusted
operating profit APM as this is principally used to manage the
performance of our operating segments when reporting to the Group
chief operating decision maker.
Other items
These items are, in the directors’ view, required to be separately
disclosed by virtue of their nature or incidence to enable a full
understanding of the Group’s financial performance. Other items in
2020 comprise:
• A charge of £16 million relating to costs on contracts that have
become onerous following the disposals of FPI, Singapore,
Indonesia and Hong Kong. This was disclosed outside of Group
adjusted operating profit as the onerous contracts arise as a result
of disposal transactions which we consider to be strategic in
nature; and
• A charge of £18 million relating to the estimated additional liability
arising in the UK defined benefit pension schemes as a result of the
requirement to equalise members’ benefits for the effects of
Guaranteed Minimum Pension (GMP) for former members. This
was disclosed outside of Group adjusted operating profit as the
additional liability arose as a consequence of a further High Court
judgement in November 2020 in the case involving Lloyds Banking
Group, and does not reflect the financial performance of the Group
for the year.
Other items in 2019 comprised:
• 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. Consistent with the presentation of the change in the
Ogden discount rate in 2016 and 2018, this was 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 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 for the year 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.
UK & Ireland Life
General Insurance
UK & Ireland GI
Canada
Aviva Investors
Core markets
Manage-for-value
Other Group activities
Corporate centre
Group debt costs and other interest
Group adjusted operating profit before tax
attributable to shareholders’ profits from
continuing operations
Group adjusted operating profit before tax
attributable to shareholders’ profits from
discontinued operations
Group adjusted operating profit before tax
attributable to shareholders’ profits
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, 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
Profit/(loss) on the disposal and re-measurement of
subsidiaries, joint ventures and associates
Other
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
2020
£m
2019
£m
1,907
1,974
213
287
85
2,492
999
(22)
3,469
(250)
(370)
297
191
96
2,558
899
(21)
3,436
(183)
(320)
2,849
2,933
312
251
3,161
3,184
174
(64)
(104)
(30)
(76)
654
167
(54)
(15)
(87)
(278)
(406)
725
(34)
313
3,474
(634)
70
(564)
2,910
(22)
(47)
190
3,374
(668)
(43)
(711)
2,663
The difference between the Group adjusted operating profit before
tax attributable to shareholders’ profit from discontinued operations
of £312 million (2019: £251 million) and profit before tax attributable
to shareholders’ profits from discontinued operations of £904 million
(2019: £54 million) is a net profit of £592 million (2019: £197 million
loss). This is included in the total adjustments in the table above of
£313 million (2019: £190 million) and comprises a net gain of
£713 million (2019: £28 million loss) relating to profit on the disposal
and re-measurement of subsidiaries, joint ventures and associates;
offset by losses of £50 million (2019: £29 million loss) relating to
investment return variances and economic assumption changes on
long-term business; losses of £1 million (2019: £4 million loss) relating
to impairment of goodwill, associates and joint ventures; losses of
£6 million (2019: £10 million loss) in relation to amortisation and
impairment of intangibles acquired in business combinations; and
losses of £64 million (2019: £126 million loss) relating to amortisation
and impairment of acquired in-force business.
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IFRS financial statements
Other information
Alternative Performance Measures continued
Combined operating ratio (COR)
COR is a useful financial measure of general insurance underwriting
profitability calculated as total underwriting costs in our insurance
entities expressed as a percentage of net earned premiums. It is used
to monitor the profitability of lines of business. A COR below 100%
indicates profitable underwriting.
The Group COR is shown below.
Continuing operations
Incurred claims – GI & Health (as per note 5)1
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)2
Commission and expenses – GI & Health (as per note 5)
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)3
Total underwriting costs from continuing operations
2020
£m
2019
£m
(6,267)
(6,448)
423
104
—
491
54
45
(5,740)
(5,858)
(3,545)
(3,275)
23
49
21
12
252
19
(45)
20
5
259
(3,188)
(3,017)
(8,928)
(8,875)
Total underwriting costs from discontinued operations
(12)
(17)
Total underwriting costs
Net earned premiums – GI & Health
Adjusted for:
Net earned premiums – Health
Net earned premiums (included in COR) from continuing
operations
Net earned premiums (included in COR) from
discontinued operations
Net earned premiums (included in COR)
(8,940)
(8,892)
9,914
9,805
(638)
(700)
9,276
9,105
12
15
9,288
9,120
Combined operating ratio – continuing operations
96.2%
97.5%
Combined operating ratio
96.2%
97.5%
1 Corresponds to the sum of claims and benefits paid, net of recoveries from reinsurers and the change in
insurance liabilities, net of reinsurance per note 5.
Includes Aviva Re.
2
3 Commission and expenses (included in COR) is comprised of £2,031 million earned commission
(2019: £1,900 million) and £1,157 million earned expenses (2019: £1,116 million). It includes Aviva Re.
Claims, commission, and expense ratios
Financial measures of the performance of our general insurance
business which are calculated as
incurred claims, earned
commissions or earned expenses expressed as a percentage of net
earned premiums, which can be derived 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 direct capital
instrument 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. A
reconciliation between operating EPS and basic EPS can be found in
note 15.
Controllable costs
Controllable costs is a useful measure of the controllable operational
overheads associated with maintaining our businesses. These
predominantly consist of staff costs, central costs, property and IT
related costs and other expenses. Controllable costs also include
indirect acquisition costs, such as underwriting overheads, and
claims handling costs. These are considered to be controllable by the
operating segments.
Controllable costs exclude impairment of goodwill, associates and
joint ventures; amortisation and impairment of other intangible
assets acquired in business combinations; and amortisation and
impairment of acquired value of in-force business. These items relate
to merger, acquisition and disposal activity which we view as
strategic in nature, hence they are excluded from controllable costs
which is principally used to manage the performance of our
operating segments.
Controllable costs exclude costs in relation to product governance
and mis-selling. These costs represent compensation and redress
payments made to policyholders and are excluded from controllable
costs because they have characteristics of claims payments. In 2019
these costs included a £175 million 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.
Controllable costs exclude 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.
Controllable costs also excludes other amounts
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 controllable costs trend such as GI instalment income.
that,
Following a review of the presentation of claims handling costs, to
achieve consistency in our reporting, comparative amounts have
been restated by £83 million for the year ended 31 December 2019 to
include previously excluded claims handling costs attributable to the
Life & Health businesses from the UK, Ireland and Poland in
controllable costs.
A reconciliation of other expenses in the IFRS consolidated income
statement to controllable costs is set out below:
Continuing operations
Other expenses (IFRS income statement)
Add: other acquisition costs
Add: claims handling costs1
Less: impairment of goodwill, associates and joint
ventures and other amounts expensed
Less: amortisation and impairment of intangibles
acquired in business combinations
Less: amortisation and impairment of acquired value
of in-force business
Less: foreign exchange (losses)/gains
Less: product governance and mis-selling costs2
Less: premium based income taxes, fees and levies
Add: other costs
Controllable costs from continuing operations
Controllable costs from discontinued operations
Controllable costs
2020
£m
3,037
1,028
366
(17)
(71)
(214)
(109)
(50)
(192)
—
3,778
157
3,935
Restated1
2019
£m
3,057
947
422
(2)
(76)
(280)
109
(225)
(180)
57
3,829
193
4,022
1 Following a review of the presentation of claims handling costs, to achieve consistency in our reporting,
comparative amounts have been restated by £83 million for the year ended 31 December 2019 to include
previously excluded claims handling costs attributable to the Life & Health businesses from the UK, Ireland
and Poland in controllable costs.
2 Product governance and mis-selling costs, previously included within other costs, have been presented as a
discrete item in the reconciliation in order to improve transparency.
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IFRS financial statements
Other information
Alternative Performance Measures continued
At 30 June 2020, we have removed the operating expenses APM,
having disclosed this metric alongside controllable costs at
31 December 2019. The controllable costs metric aligns to our target
announced in 2019 and excludes premium based taxes, fees and
levies that vary directly with premium volumes. Therefore,
controllable costs is considered more representative of operational
expenses that are controllable by management and is considered
more useful and relevant than the operating expenses metric.
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).
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 is meaningful as a measure of the value generated by the
Group in terms of the equity shareholders’ face value per share
investment.
Equity attributable to shareholders of Aviva plc at
31 December1 (£m)
Number of shares in issue at 31 December (in millions)
IFRS NAV per share
1 Excluding preference shares of £200 million (2019: £200 million).
2020
2019
19,354 17,008
3,921
3,928
493p
434p
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 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 £40 billion (2019: £36 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 position1
Financial investments
Investment properties
Loans
Cash and cash equivalents
Other
Less: third party funds and UK Platform included
above
Assets managed on behalf of third parties2
Aviva Investors
UK Platform3
Other
Total AUM4
2020
£bn
2019
£bn
369
11
44
17
5
446
(26)
420
74
34
7
115
535
351
11
39
20
1
422
(17)
405
67
29
9
105
510
Includes assets classified as held for sale.
1
2 AUM managed on behalf of third parties cannot be directly reconciled to the financial statements.
3 UK Platform relates to the assets under management in the UK long-term savings business.
4
Includes AUM of £366 billion (2019: £346 billion) managed by Aviva Investors.
Net flows
Net flows is one of the measures of growth used by management and
is a component of the movement in the life and platform business
AUM 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
redemptions and surrenders under
It
investment contracts).
excludes market and other movements.
(being
In previous periods, this APM was labelled net fund flows and this has
been updated for consistency.
APMs derived from Solvency II measures
The Group is a regulated entity under the Solvency II regulatory
framework and therefore uses a number of APMs that are derived
from Solvency II measures in addition to those that are derived from
IFRS based measures.
The Solvency II regulatory framework 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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IFRS financial statements
Other information
Alternative Performance Measures continued
The reconciliation from total Group equity on an IFRS basis to
Solvency II regulatory own funds is presented below. The key
differences between the two bases are as follows:
• Elimination of goodwill and other intangible assets
• Valuation adjustments to reflect insurance assets and liabilities
valued on a best estimate basis using market-implied assumptions
• Valuation adjustments and the impact of the difference between
consolidation methodologies under Solvency II and IFRS
• Tax effect of all other reconciling items in the table above which are
shown gross of tax
• Recognition of subordinated debt capital, non-controlling
interests and adjustments for ring-fenced funds restrictions.
Total Group equity on an IFRS basis
Elimination of goodwill and other intangible
assets
Goodwill
Acquired value of in-force business
Deferred acquisition costs (net of deferred income)
Other intangibles
Liability valuation differences (net of transitional
deductions)
Inclusion of risk margin (net of transitional
deductions)
Revaluation of subordinated liabilities
Other accounting differences
Net deferred tax
Estimated Solvency II net assets (gross of non-
controlling interests)
Difference between Solvency II net assets and own
funds
Estimated Solvency II own funds
2020
£m
2019
£m
20,560
18,685
(1,805)
(1,742)
(3,154)
(704)
(1,855)
(2,479)
(3,221)
(869)
16,159
(3,245)
19,564
(3,122)
(795)
(69)
(1,191)
(716)
(99)
(1,220)
24,014
24,668
• 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 2020 position includes a
notional reset while the 31 December 2019 position included a
formal, rather than notional, reset of the TMTP in line with the
regulatory requirement to reset the TMTP at least every two years.
• A change in regulations announced in December 2019 allows
French insurers to place a part of the Provision pour Participation
aux Excédents (PPE) into Solvency II own funds. At December 2019
PPE was included in the France local regulatory own funds but was
excluded from the estimated Group regulatory and shareholder
own funds, subject to confirmation of the appropriate treatment at
Group level. The treatment has since been confirmed and PPE is
now included within Group regulatory own funds but remains
excluded from the shareholder position.
• Pro forma adjustments are made if the Solvency II shareholder
cover ratio does not fully reflect the effect of future regulatory
changes that are known as at each reporting date. These
adjustments are made in order to show a more representative view
of the Group’s solvency position.
• In a change to previous practice, pro forma adjustments are no
longer made for planned acquisitions and disposals. This change
in approach is considered more relevant because prior to
completion there is uncertainty in relation to the progression and
final terms of such transactions. Comparative amounts have not
been restated for this change as the impacts were not material at
31 December 2019.
5,248
3,679
29,262
28,347
A reconciliation of the Solvency II regulatory surplus to the Solvency II
shareholder surplus is provided below:
A number of key performance measures relating to Solvency II are
utilised to measure and monitor the Group’s performance and
financial strength:
• Solvency II shareholder cover ratio#
• Value of new business on an adjusted Solvency II basis (VNB)
• Solvency II operating capital generation (OCG)#
• Solvency II operating own funds generation
• Solvency II return on capital
• 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.
2020
Estimated Solvency II regulatory surplus
Adjustments for:
Fully ring-fenced with-profit funds
Staff pension schemes in surplus
Notional reset of TMTP
PPE
Pro forma adjustments
Estimated Solvency II shareholder
surplus
2019
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
£m
SCR
£m
Surplus
£m
29,262
(16,441) 12,821
(2,492)
(1,179)
564
(385)
—
2,492
1,179
—
—
—
—
—
564
(385)
—
25,770
(12,770) 13,000
Own funds
£m
SCR
£m
Surplus
£m
28,347
(15,517)
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). The 31 December 2020 Solvency II position does not
include proforma adjustments. Note that from 31 December 2020 no pro forma adjustments will be made for
planned disposals.
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
Estimated Shareholder Cover Ratio
2020
£m
2019
£m
25,770
(12,770)
24,548
(11,910)
13,000
202%
12,638
206%
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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, and other
differences as set out in the footnote to the table below.
A reconciliation between VNB and the Solvency II own funds impact
of new business is provided below:
Full year 2020
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)
Full year 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 &
Ireland Life
£m
Aviva
Investors
£m
Manage-
for-value
£m
Group
£m
675
(108)
113
(106)
(125)
9
—
—
(9)
—
576
1,260
(209)
(317)
96
209
(5)
(209)
(120)
(334)
449
—
249
698
UK &
Ireland Life
£m
Aviva
Investors
£m
Manage-for-
value
£m
Group
£m
600
(83)
12
—
612
1,224
(181)
(264)
97
—
99
196
(138)
(103)
(12)
—
(8)
(236)
(158)
(339)
Matching Adjustment (MA)
The matching adjustment is an addition to the rate used to discount
Solvency II best-estimate liabilities, to reflect the return on the
matching assets used. An 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 an MA to certain obligations in UK
Life, using methodology which is set out in the Solvency and
Financial Condition Report (SFCR).
The matching adjustment used for 2020 UK new business (where
applicable) was 98 bps (2019: 95 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.
The table below presents a reconciliation of sales to IFRS net written
premiums.
Present value of new business premiums
Investment sales
General insurance and health net written premiums
Long-term health and collectives business
Total sales
Effect of capitalisation factor on regular premium
long-term business1
JVs and associates2
Annualisation impact of regular premium long-term
business3
Deposits4
Investment sales5
IFRS gross written premiums from existing long-term
business6
Long-term insurance and savings business premiums
2020
£m
43,358
5,270
10,232
(3,647)
2019
£m
45,665
4,621
10,224
(3,563)
55,213
56,947
(14,686)
(226)
(15,294)
(286)
(399)
(9,936)
(5,270)
(327)
(10,917)
(4,621)
5,066
5,057
(3,101)
(2,879)
26,661
27,680
25,377
26,527
1,284
1,153
26,661
27,680
16,429
10,232
26,661
17,456
10,224
27,680
373
—
286
659
ceded to reinsurers
1 Other includes the impact of ‘look through profits’ in service companies (where not included in Solvency II) of
£(69) million (2019: £(78) million), the reduction in value when moving to a net of non-controlling interests
basis of £(37) million (2019: £(57) million), 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 £(47) million (2019: £(37) million), and the assumed take up of tax-free lump sum payments
at retirement (not included in Solvency II Own Funds) on BPAs of £(4) million (2019: £nil)
Total IFRS net written premiums
Analysed as:
IFRS net written premiums from continuing business
IFRS net written premiums from discontinued
operations
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.
Analysed as:
Long-term insurance and savings net written
premiums
General insurance and health net written premiums
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.
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IFRS financial statements
Other information
Alternative Performance Measures continued
Solvency II operating capital generation (OCG)#
Solvency II 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 expected investment returns assumed within Solvency II OCG
are consistent with the returns used for Group adjusted operating
profit.
Solvency II 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, Solvency II OCG is determined on start
of period economic assumptions and therefore excludes economic
variances and economic assumption changes.
An analysis of the components of Solvency II OCG is presented below,
including an analysis of Solvency II operating own funds generation
which is the own funds component of Solvency II 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
Operating own funds generation from other1
Group debt costs
Solvency II operating own funds generation
Solvency II operating SCR impact
Solvency II OCG
2020
£m
698
721
562
6
(296)
2019
£m
659
507
431
944
(284)
1,691
2,257
241
2
1,932
2,259
1 Other includes the impact of capital actions, non-economic assumption changes and other non-recurring
items.
Solvency II 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.
2020 Shareholder view
Group Solvency II shareholder surplus
at 1 January
Opening restatements1
Operating capital generation
Non-operating capital generation
Dividends2
Hybrid debt
Acquisitions and disposals
Estimated Solvency II shareholder
surplus at 31 December
Own funds
£m
SCR
£m
Surplus
£m
24,548 (11,910)
(202)
241
(963)
—
—
64
78
1,691
(741)
(549)
257
486
12,638
(124)
1,932
(1,704)
(549)
257
550
25,770 (12,770)
13,000
1 Opening restatements allows for adjustments to the estimated position presented in the preliminary
announcement and the final position in the Solvency and Financial Condition Report (SFCR).
2 Dividends includes £17 million of Aviva plc preference dividends and £21 million of General Accident plc
preference dividends, and £511 million for the interim dividends in respect of the 2019 and 2020 financial
years.
2019 Shareholder view
Group Solvency II shareholder surplus
at 1 January
Opening restatements1
Operating capital generation
Non-operating capital generation
Dividends2
Share buy-back
Hybrid debt repayments
Acquisitions and disposals
Own funds
£m
SCR
£m
Surplus
£m
23,551
58
2,257
120
(1,222)
—
(210)
(6)
(11,569)
6
2
(368)
—
—
—
19
11,982
64
2,259
(248)
(1,222)
—
(210)
13
Estimated Solvency II shareholder surplus
at 31 December
24,548
(11,910)
12,638
1 Opening restatements allows for differences between the shareholder view presented in the 2018 preliminary
announcement and the 2018 SFCR.
2 Dividends includes £17 million of Aviva plc preference dividends and £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
Solvency II 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 Solvency II OCG in future years. The calculation
approach is consistent with prior periods.
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
The expected
methodology used in the Group adjusted operating profit.
returns are consistent with
investment
Solvency II operating own funds generation
Solvency II operating own funds generation measures the amount of
Solvency II own funds generated from operating activities. Solvency
II operating own funds generation is the own funds component of
Solvency II OCG and follows the methodology and assumptions
outlined in Solvency II OCG.
Solvency II Return on Equity (RoE)#
Solvency II RoE is calculated as:
• Operating own funds generation less preference dividends, 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.
redemption
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Other information
Alternative Performance Measures continued
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:
Regulatory view
Unrestricted regulatory tier 1 own funds
Restricted Tier 1
Tier 2
Tier 31
Estimated Solvency II regulatory own funds
2020
£m
20,850
1,317
6,740
355
29,262
2019
£m
20,377
1,839
5,794
337
28,347
1 Tier 3 regulatory own funds at 31 December 2020 consists of £259 million subordinated debt
(2019: £259 million) plus £96 million net deferred tax assets (2019: £78 million).
2020
UK & Ireland Life
UK & Ireland General Insurance2
Canada
Aviva Investors
Manage-for-value markets
Group centre costs and Other2
Solvency II return on capital
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
PPE2
Pro forma adjustments1
Unrestricted shareholder tier 1 own funds
2020
£m
2019
£m
20,850
20,377
31 December
Less: Senior debt
Less: Subordinated debt
(2,492)
(1,179)
564
(385)
—
17,358
(2,501)
(1,181)
—
—
(117)
16,578
Solvency II operating own funds
generation at 31 December
Direct capital instrument
Preference shares3
Net deferred tax assets
Solvency II return on equity at
31 December
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).
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 Group regulatory own funds in
2020 but it is not included in the Group shareholder own funds.
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 RoE is shown below:
Solvency II operating own funds generation
Less: preference share dividends
Less: DCI and tier 1 note coupons
Opening unrestricted shareholder tier 1 own funds
Solvency II Return on Equity
2020
£m
2019
£m
1,691
(38)
(27)
1,626
16,578
2,257
(38)
(34)
2,185
15,296
9.8%
14.3%
Solvency II return on capital
Solvency II return on capital is calculated as Solvency II operating
own funds generation excluding the costs of servicing external debt
(including direct capital instrument coupons and preference share
dividends) divided by opening shareholder Solvency II own funds. It
is an unlevered economic value measure as it is used to assess
growth and performance in our markets before taking debt into
account.
For UK general insurance only, capital held for internal risk appetite
purposes is used instead of opening shareholder Solvency II own
funds. This removes any distortions arising from our general
insurance legal entity structure and therefore ensures consistency in
measuring performance across markets. This is only applicable to UK
general insurance Solvency II return on capital and not to the
aggregated Group Solvency II return on capital and Solvency II return
on equity measures.
A reconciliation of Solvency II return on capital by market to the
Group level Solvency II return on capital and Solvency II return on
equity is provided below.
Solvency II
operating
own funds
generation
£m
Opening
shareholder
own funds
£m
Return on
capital/equity
%
1,057
329
287
67
497
(250)
14,241
2,509
1,442
488
8,010
(2,142)
7.4%
13.1%
19.9%
13.7%
6.2%
N/A
1,987
24,548
8.1%
(12)
(284)
—
(6,942)
1,691
(27)
(38)
—
(500)
(450)
(78)
—
—
—
—
—
1,626
16,578
9.8%
Solvency II
operating
own funds
generation
£m
1,247
333
203
70
850
(162)
Opening
shareholder
own funds
£m
Return on
capital/equity
%
13,733
2,326
1,330
509
7,453
(1,800)
9.1%
14.3%
15.3%
13.7%
11.4%
N/A
2,541
23,551
10.8%
(12)
(272)
—
(6,979)
—
—
—
—
—
Less: Management actions and other1
(6)
—
—
Solvency II return on equity
(excluding management actions)
1,620
16,578
9.8%
1 Other includes the impact of capital actions, non-economic assumption changes and other non-recurring
items.
2 For UK general insurance only, capital held for internal risk appetite purposes is used instead of opening
shareholder Solvency II own funds to ensure consistency in measuring performance across markets. This is
only applicable to UK general insurance Solvency II return on capital and not to the aggregated Group
Solvency II return on capital and Solvency II return on equity measures, with the reversal of the impact
included in Group centre costs and Other opening own funds.
3 Preference shares includes £21 million of dividends and £250 million of capital in respect of General Accident
plc.
2019
UK & Ireland Life
UK & Ireland General Insurance2
Canada
Aviva Investors
Manage-for-value markets
Group centre costs and Other2
Solvency II return on capital at
31 December
Less: Senior debt
Less: Subordinated debt
Solvency II operating own funds generation
at 31 December
Direct capital instrument and Tier 1 notes
Preference shares3
Net deferred tax assets
2,257
(34)
(38)
—
(731)
(450)
(95)
Solvency II return on equity at
31 December
Less: Management actions and other1
Solvency II return on equity (excluding
management actions)
2,185
15,296
(944)
—
14.3%
(6.2)%
1,241
15,296
8.1%
1 Other includes the impact of capital actions, non-economic assumption changes and other non-recurring
items.
2 For UK general insurance only, capital held for internal risk appetite purposes is used instead of opening
shareholder Solvency II own funds to ensure consistency in measuring performance across markets. This is
only applicable to UK general insurance Solvency II return on capital and not to the aggregated Group
Solvency II return on capital and Solvency II return on equity measures, with the reversal of the impact
included in Group centre costs and Other opening own funds.
3 Preference shares includes £21 million of dividends and £250 million of capital in respect of General Accident
plc.
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IFRS financial statements
Other information
Alternative Performance Measures continued
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 closing 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:
Unrestricted tier 1 shareholder Solvency II own funds (£m) 17,358 16,578
3,921
Number of shares in issue at 31 December (in millions)
3,928
Solvency II NAV per share
442p
423p
2020
2019
Solvency II debt leverage ratio
Solvency II debt leverage ratio is calculated as total debt expressed
as a percentage of Solvency II regulatory own funds plus senior debt
includes
and commercial paper. Where Solvency
subordinated debt, preference share capital and direct capital
instrument. The Solvency II debt leverage ratio provides a measure
of the Group’s financial strength.
II debt
Solvency II regulatory debt
Senior notes
Commercial paper
Total debt
Estimated Solvency II regulatory own funds,
senior debt and commercial paper
Solvency II debt leverage ratio
2020
£m
8,316
1,112
108
9,536
2019
£m
7,892
1,052
238
9,182
30,482
31%
29,637
31%
A reconciliation from IFRS subordinated debt to Solvency II
regulatory debt is provided below:
IFRS borrowings
Less borrowings not classified as Solvency II
regulatory debt
Senior notes
Commercial paper
Operational borrowings
IFRS subordinated debt
Revaluation of subordinated liabilities
Other movements
Solvency II subordinated debt
Preference share capital and direct capital instrument
Solvency II regulatory debt
2020
£m
2019
£m
9,727
9,067
(1,112)
(108)
(1,474)
7,033
795
38
7,866
450
8,316
(1,052)
(238)
(1,571)
6,206
716
20
6,942
950
7,892
Other APMs
Cash remittances#
Cash paid by our operating businesses to the Group, for the period
between March and the end of the month preceding preliminary
results announcements, 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 are considered a useful
measure as they support the payments of external dividends.
Cash remittances eliminate on consolidation and hence are not
directly reconcilable to the Group’s IFRS consolidated statement of
cash flows.
The table below shows a breakdown of total Group cash remittances
by market.
UK & Ireland Life1,2,3
UK & Ireland General Insurance1,4
Canada1,5
Aviva Investors
Core markets
Manage-for-value markets1
Other
Total
2020
£m
1,007
171
131
50
1,359
127
14
1,500
2019
£m
1,394
273
156
86
1,909
613
75
2,597
1 We use a wholly owned, UK domiciled reinsurance subsidiary for internal capital and cash management
purposes. Some remittances otherwise attributable to the operating businesses arise from this internal
reinsurance vehicle.
2 UK & Ireland Life cash remittances in 2019 included a special remittance of £500 million from UK Life which
was not repeated in 2020.
3 UK & Ireland Life cash remittances include £250 million (2019: £nil) received in February 2021 in respect of 2020
activity.
4 UK & Ireland General Insurance cash remittances include £74 million (2019: £83 million) received in February
2021 in respect of 2020 activity.
5 Canada General Insurance cash remittances include £115 million (2019: £141 million) received in February
2021 in respect of 2020 activity.
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.
Centre liquidity
Centre liquidity comprises cash and liquid assets and represents
amounts as at the end of the month preceding preliminary results
announcements. It 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.
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 single
premiums written in the period. This provides useful information on
sales and new business when considered alongside VNB.
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. The
expected investment returns assumed within the spread margin are
consistent with the returns used for Group adjusted operating profit.
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 Investors revenue
Aviva Investors revenue represents segmental profit before tax
excluding controllable expenses. It is a useful measure of the revenue
earned from fund management activities, adjusted for fee and
commission expenses.
Aviva plc Annual Report and Accounts 2020
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Other information
Shareholder services
Shareholder services
2021 Financial Calendar
Ordinary dividend timetable:
Final
Interim**
Ordinary ex-dividend date
8 April 2021
26 August 2021
Dividend record date
9 April 2021
27 August 2021
Last day for Dividend Reinvestment
22 April 2021 10 September 2021
Plan and currency election
Dividend payment date*
14 May 2021
1 October 2021
Other key dates:
Annual General Meeting
Quarter one market update**
2021 interim results announcement**
Quarter three market update**
2pm on 6 May 2021
27 May 2021
12 August 2021
25 November 2021
* 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 2021 AGM will be held at St Helen’s, 1 Undershaft, London
EC3P 3DQ, on Thursday, 6 May 2021, at 2pm, with facilities to attend
electronically.
Details of arrangements for the meeting in light of Government
restrictions in relation to the COVID-19 pandemic, 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 2021 AGM will be accessible on the
Company’s website at www.aviva.com/agm shortly after the
meeting.
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)
We are open Monday to Friday, 8.30am to 6pm US Eastern
Standard Time, excluding public holidays. Please call
+1 781 575 4555 if calling from outside of the US.
• By email: Citibank@shareholders-online.com
• In writing: Citibank Shareholder Services, PO Box 43077,
Providence, Rhode Island, 02940-3077 USA.
Group Company Secretary
Shareholders may contact the Group Company Secretary:
• By email: Aviva.shareholders@aviva.com
• In writing: Kirstine Cooper, Group Company Secretary, St Helen’s,
1 Undershaft, London, EC3P 3DQ.
• By telephone: +44 (0)20 7283 2000
Aviva plc Annual Report and Accounts 2020
284
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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).
This announcement contains, and we may make other verbal or written ‘forward-looking statements’ with respect to certain of Aviva’s plans
and current goals and expectations relating to future financial condition, performance, results, strategic initiatives and objectives. Statements
containing the words ‘believes’, ‘intends’, ‘expects’, ‘projects’, ‘plans’, ‘will’, ‘seeks’, ‘aims’, ‘may’, ‘could’, ‘outlook’, ‘likely’, ‘target’, ‘goal’,
‘guidance’, ‘trends’, ‘future’, ‘estimates’, ‘potential’ and ‘anticipates’, and words of similar meaning, are forward-looking. By their nature, all
forward-looking statements involve risk and uncertainty. Accordingly, there are or will be important factors that could cause actual results to
differ materially from those indicated in these statements. Aviva believes factors that could cause actual results to differ materially from those
indicated in forward-looking statements in the announcement include, but are not limited to: the impact of ongoing difficult conditions in
the global financial markets and the economy generally; the impact of simplifying our operating structure and activities; the impact of various
local and international political, regulatory and economic conditions; market developments and government actions (including those arising
from the evolving 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 in pricing and reserving for insurance business (particularly with regard to mortality and morbidity trends, lapse rates and policy
renewal rates), longevity and endowments; a cyclical downturn of the insurance industry; the impact of natural and man-made catastrophic
events (including the impact of COVID-19) on our business activities and results of operations; the transitional and physical risks associated
with climate change; our reliance on information and technology and third-party service providers for our operations and systems; the
inability of reinsurers to meet obligations or unavailability of reinsurance coverage; increased competition in the UK and in other countries
where we have significant operations; regulatory approval of extension of use of the Group’s internal model for calculation of regulatory
capital under the UK’s version of Solvency II rules; the impact of actual experience differing from estimates used in valuing and amortising
deferred acquisition costs (DAC) and acquired value of in-force business (AVIF); the impact of recognising an impairment of our goodwill or
intangibles with indefinite lives; changes in valuation methodologies, estimates and assumptions used in the valuation of investment
securities; the effect of legal proceedings and regulatory investigations; the impact of operational risks, including inadequate or failed internal
and external processes, systems and human error or from external events (including cyber attack); risks associated with arrangements with
third parties, including joint ventures; our reliance on third-party distribution channels to deliver our products; funding risks associated with
our participation in defined benefit staff pension schemes; the failure to attract or retain the necessary key personnel; the effect of systems
errors or regulatory changes on the calculation of unit prices or 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, execution
and separation issues and other risks associated with our disposals; and the timing/regulatory approval impact and other uncertainties, such
as diversion of management attention and other resources, relating to announced and future 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, Canada 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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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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