Finally, on 21 January 2020, I announced my intention to retire as Chairman during 2020. When I became Chairman in 2015, the Board asked me to commit to serving for at least five years. Now that Maurice has launched Aviva’s strategy, a new senior management team is in place and the Board has been refreshed, it is also time for a new Chairman. In the meantime, I remain committed to this great organisation which I am confident will deliver for all its stakeholders. It has been my privilege to serve as Chairman, and I would like to thank the Board and indeed all my colleagues at Aviva for their support during the last five years.
The Board of Directors has declared a final dividend of 21.40 pence per share (2018: 20.75 pence). This results in a full year dividend for 2019 of 30.9 pence per share (2018: 30.0 pence), an increase of 3%.
Number of markets in 2019: at or above market average: 7
Customers pay us premiums which we reinvest to provide them with income in their retirement, via a lump sum, regular payments or by releasing the money tied up in their property
• Deliver holistic client and customer led propositions that unlock new segments of the market
Our focus is on generating sustainable profitable growth through improving speed, simplicity and efficiency for our customers. In the UK, we have aligned our UK digital business with our UK General Insurance business to help deliver this. We will also build on our leading insurance expertise to expand our commercial lines business whilst continuing to optimise our potential in personal lines.
• Our Women in Leadership Programme designed to accelerate high potential women for substantial business roles evolved. 170 women have now gone through the programme with 41% subsequently being promoted or taking on a broader role.
Having acknowledged the growing numbers of our customers, colleagues and partners speaking up about the issue of plastics, our workplaces are now free of single-use plastic containers in all our markets bar one, which has a roadmap to do so in the first half of 2020.
At a Group level, the Chief Risk Officer provides Aviva’s Board Governance Committee1 with regular reporting on financial crime matters. These include Aviva’s anti-bribery and anti-corruption programme.
We conduct due diligence when recruiting and engaging external partners. At the end of 2019, 98% of our UK and Ireland registered suppliers have agreed to abide by our Code of Behaviour (or provided a reason why they didn’t do so, for example, because they have their own existing code of behaviour). Our Code of Behaviour outlines the way in which we commit to behave in our dealings with each other and includes guidance on financial crime laws and regulations.
Adjusted operating profit2 Life 1,820 1,848 Health 35 38 1,855 1,886
1 This is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section, note 5 ‘Segmental Information’ and ‘Other Information’ within the Annual report and accounts for further information.
• In November 2019 we merged Aviva Investors Real Estate SGP (Real Estate regulated business in France) into Aviva Investors France (all other regulated activities in France). This enabled us to simplify our Real Asset activities in France, and realise cost efficiencies.
We focus on our customers, with customer service at the heart of our business. The quality of our service has enabled us to win long-term relationships with four of the UK’s five largest banks to provide their insurance solutions.
2 Following the change in the definition of Group adjusted operating profit (see note 1(b) of the Annual report and accounts), COR now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets. Comparative amounts have been restated.
Solvency II return on capital3 and Solvency II operating capital generation (OCG)3 Europe Life Solvency II return on capital3 has increased by 3.4pp to 10.3% (2018: 6.9%) and Solvency II operating own funds generation increased to £574 million (2018: £384 million). This was primarily driven by modelling and assumption changes in Italy which are partly offset by a reduction in own funds generation from new business in France and Italy due to the impact of lower interest rates. 2018 included the adverse impact on own funds arising from the transfer of pensions business into a supplementary occupational pension fund (FRPS) in France (note the overall impact on capital generation was beneficial due to a significant reduction in solvency capital requirement).
France 408 418 Poland 174 177 Italy (excl. Avipop) 173 147 Ireland 59 40 Other Europe4 (excl. Spain) 13 10
• In Italy, adjusted operating profit2 was £173 million (2018 restated1: £147 million), an increase of 18% with significant net inflows to our hybrid product in 2017 and 2018 driving higher revenues on assets under management and an increase in profit from existing business.
In particular, as a composite insurer with around 1 million customers, Aviva is one the biggest providers of employee benefits and healthcare insurance in Singapore2.
Asia’s rapid growth in internet, social media and mobile activities continued in 2019, and China is a leader in the technology revolution and digital applications. Today, digital has become an essential part of our daily lives and we are strongly encouraged by various Asian governments’ support in Fintech, and consumers continued rapid adoption.
Key trends and movement Risk management Outlook Changes in public policy – any change in public policy (government or regulatory) could influence the demand for, and profitability of, our products. In some markets there are (or could be in the future) restrictions and controls on premium rates, rating factors and charges.
Data creation is likely to continue to grow, while effective use of “Big data” through artificial intelligence and advanced analytics will increasingly become a critical driver of competitive advantage for insurers, and subject to increasing regulatory scrutiny.
Global average temperatures over the last five years have been the hottest on record. Despite the UNFCCC Paris agreement, the current trend of increasing CO2e emissions is expected to continue, in the absence of radical action by governments, with global temperatures likely to exceed pre-industrial levels by at least 2oC and weather events (floods, droughts, windstorms) increasing in frequency and severity. Disclosure of potential impacts against various climate scenarios and time horizons will become increasingly common for all companies.
Total regulatory own funds2 28,347 27,567 1 Tier 3 regulatory own funds at 31 December 2019 consists of £259 million subordinated debt (2018: £253 million) plus £78 million net deferred tax assets (2018: £95 million). 2 Regulation was introduced in France that allows French insurers to place the Provision pour Participation aux Excedents (PPE) into Solvency II own funds. The PPE has been included in the France local regulatory own funds in 2019 but it is not included in the Group regulatory own funds.
Strategy Having achieved the targets set as part of our 2015 strategic response to climate change, this year our climate strategy took another important step forward. We are widening the scope from primarily focusing on investments, to create a broader, joined-up four-pillar approach covering investments, insurance, our operations and influence.
• We use carbon foot-printing and weighted average carbon intensity data (tCO2e/£m sales) to assess our assets exposure to a potential increase in carbon prices in shareholder funds and we continue to report on our operational carbon footprints.
We were delighted to welcome three new Non-Executive Directors to our Board this year, all with deep knowledge and experience of the financial services industry. Patrick Flynn, previously Chief Financial Officer of ING and of HSBC Insurance joined our Board on 16 July 2019 and became Audit Committee Chair on 4 November 2019. George Culmer was appointed as a Non-Executive Director of the Company on 25 September 2019, having previously been Chief Financial Officer of Lloyds Banking Group and of RSA Insurance Group plc. George assumed the role of Senior Independent Director on 1 January 2020 following the retirement of Glyn Barker. We also announced the appointment of Amanda Blanc to the Board with effect from 2 January 2020. Amanda was previously CEO at AXA UK & Ireland, and CEO, EMEA & Global Banking Partnerships at Zurich Insurance Group. I look forward to introducing our new NonExecutive Directors to our shareholders at our upcoming Annual General Meeting (AGM) on 26 May 2020.
International Experience1 Europe 7 2 13 Asia Pacific 2 1 3 The Americas 1 1 2 Middle East & Africa 1 1 1
Sir Adrian Montague, CBE ▲ Position: Chairman Nationality: British Committee Membership: Nomination Committee2 (Chair) Tenure: 7 years 2 months. Appointed to the Board as a Non-Executive Director in January 2013, as Chairman in April 2015 and Executive Chairman from October 2018 to March 2019 before reverting to NonExecutive Chairman. Skills and Experience: Having held appointments as Chairman of Anglian Water Group Ltd, Friends Provident plc, British Energy Group plc, Michael Page International plc and Crossrail Ltd, Sir Adrian possesses a wealth of experience as a Chairman. He has extensive leadership skills, together with a deep knowledge of the financial services industry, government affairs and regulatory matters. His diverse skill-set and strategic awareness facilitate open discussion and allow for constructive challenge in the boardroom. External Appointments: Chairman of The Manchester Airports Group and Cadent Gas Ltd. Chair of the Advisory Council of TheCityUK and a trustee of the Commonwealth War Graves Foundation.
Tenure: 6 years 3 months. Appointed to the Board in December 2013. Skills and Experience: Patricia is an experienced company director with over 20 years’ experience of serving on multiple ASX-30 boards including Macquarie Group Ltd and Macquarie Bank Ltd, National Australia Bank, Wesfarmers Ltd, AMP Ltd, and Qantas Airways Ltd. She is the founding Chair of the 30% Club in Australia. Patricia has held several Australian government positions, including with the Financial Sector Advisory Council, Companies and Securities Advisory Committee, Panel of Experts to the Australian Financial Centre Forum and Sydney APEC Business Advisory Council. Patricia has served on a wide range of not for profit boards, including the Murdoch Children’s Research Institute, and she was a founding Director of The Grattan Institute. In 2001, Patricia received the Australian Centenary Medal for service to Australian society through the finance industry and was awarded Life Fellowship of the Australian Institute of Company Directors in 2018. Having started her career in the U.S. Government working in foreign affairs, Patricia had a long career in senior executive roles in large international banking and investment management organisations. External Appointments: Chair of the Commonwealth Superannuation Corporation, and Ambassador for the Australian Indigenous Education Foundation.
• Approved the full year results and Annual report and accounts, and the half year results
Committee Purpose The main purpose of the Committee is oversight of the balance of skills, knowledge, experience and diversity on the Board to enable it to identify and respond appropriately to current and future opportunities and challenges. To assist in identifying and nominating candidates for the Board, the Committee monitors the succession plans for senior management and Executive and NonExecutive Directors. The Committee also oversees diversity and inclusion initiatives and talent development for the wider Group. During the year, the Board and Committees’ 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 to include oversight of governance, regulatory compliance and organisational change. More information on the Board and Committees’ structure can be found in the Directors’ and Corporate Governance report.
The Committee works closely with the Remuneration and Audit Committees. The cross membership between these Committees promotes a good understanding of issues and efficient communication.
Regulatory, governance and internal audit • Received risk and control updates from certain business units as part of an updated programme of risk deep-dive reviews • Reviewed the Group Own Risk and Solvency Assessment (ORSA)
The creation of UKI customer operations, working across both our Life and Insurance businesses, was monitored by the Committee to ensure positive outcomes for the customer. The Committee regularly reviewed the balanced scorecard of customer metrics to better understand our customers’ needs.
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.
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.
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.
Location in the Annual report and accounts 12 Shareholder waivers of dividends IFRS Financial Statements – note 35 13 Shareholder waivers of future dividends IFRS Financial Statements – note 35
This section of the report sets out how Aviva has implemented its Policy for EDs during the course of 2019. This is in accordance with the requirements of the Large & Medium Sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended).
RNPS 20.0% 3 8 11 6.5 17.0% MPH (% growth) 10.0% 5% 8% 11% 1.7% 0.0% Total strategic measures 30.0% — — — — 17.0% Scorecard outcome 100.0% 101.1%
The bonus scorecard outcome as determined under step I may be modified by consideration of performance in these areas.
Any vesting of the operating EPS1,2 element of the LTIP is subject to two gateway hurdles – SII RoE3 and SII shareholder cover ratio3,4. The SII RoE3 hurdle is 12% p.a. and the SII shareholder cover ratio3,4 is to meet or exceed the minimum of the stated working range (in 2019, this was 160% to 180%).
Payments for loss of office (audited information) We announced on 24 April 2019 that the Board and Andy Briggs had decided that Andy would step down as CEO UK Insurance and as a Director of the Company with immediate effect. • Andy was placed on garden leave for six months with effect from 30 April 2019 to 23 October 2019. During this period, he continued to receive his salary and contractual benefits. For the period 25 April 2019 to 23 October 2019 these totalled £500,592 • Andy received a pro-rated bonus in respect of 2019, reflecting the portion of the year worked prior to going on garden leave. The bonus was determined on the normal timetable and can be found in the bonus section in table 4 • Reflecting his performance during his tenure, leadership and commitment demonstrated during the Group CEO transition, the Committee exercised discretion to treat Andy as a good leaver under the ABP and LTIP – Andy’s outstanding deferred share awards under ABP will continue to vest on the normal vesting dates. All outstanding awards will remain subject to malus and clawback – Andy’s 2019 LTIP award lapsed on his departure. Andy’s 2017 and 2018 LTIP awards were allowed to continue to vest, pro-rated for the time from the date of grant to his leave date and remained subject to performance vesting. Following confirmation of his new role at Phoenix Group, these awards have lapsed
• As outlined in the Chair’s letter, the annual bonus metrics have been updated to reflect key strategic priorities: Financial measures (70% of total): • 15% – Group adjusted operating profit2 • 25% – Cash remittances3 • 30% – OCG3
Malus and clawback Awards are subject to malus and clawback. Details of when these may be applied are set out in the notes below.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Company.
• Our risk assessment analysis identified the following as areas of focus for the audit of the financial statements: – Valuation of life insurance contract liabilities; – Valuation of non-life insurance contract liabilities; – Valuation of hard to value investments; and – Valuation of specific UK Life provisions.
We have also evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls) and determined that the principal risks are related to management bias in accounting estimates and judgmental areas of the financial statements as shown in our “Key Audit Matters”.
We assessed management's approach to valuation for these provisions by performing the following procedures: • We understood management's approach to identifying product governance provisions; • We assessed these product governance provisions against the IAS 37 recognition criteria; • We evaluated the methodology and key assumptions used by management, including the populations of policies affected and the redress factor applied; • We reviewed material assumptions, tested a sample of customer calculations used to determine the assumptions and agreed inputs in these calculations to supporting documentation; and
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.
The weighted average discount rate applied to the lease liabilities recognised at 1 January 2019 was 2.95%.
(H) Premiums earned Premiums on long-term insurance contracts and participating investment contracts are recognised as income when receivable, except for investment-linked premiums which are accounted for when the corresponding liabilities are recognised. For single premium business, this is the date from which the policy is effective. For regular premium contracts, receivables are recognised at the date when payments are due. Premiums are shown before deduction of commission and before any sales-based taxes or duties. Where
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.
(Y) Statement of cash flows Cash and cash equivalents Cash and cash equivalents consist of cash at bank and in hand, deposits held at call with banks, treasury bills and other short-term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. Such investments are those with less than three months’ maturity from the date of acquisition, or which are redeemable on demand with only an insignificant change in their fair values.
Consolidated statement of comprehensive income For the year ended 31 December 2019 £m
See note 1(a) for further information. 2 Cash flows from operating activities include interest received of £5,834 million (2018 restated: £5,758 million) and dividends received of £5,614 million (2018 restated: £4,880 million). 3 2019 includes the redemption of 6.875% £210 million tier 1 notes. 2018 includes the redemption of €500 million 6.875% subordinated notes and $575 million 7.875% undated subordinated notes in full at first call dates and the maturity of €350 million 0.100% senior notes. 4 2019 includes a £5 million (2018: £3 million) donation of forfeited dividend income to a charitable foundation. 2018 also includes £10 million related to goodwill payments to preference shareholders, which was announced on 30
(a) (i) Segmental income statement for the year ended 31 December 2019
Total revenue 29,612 28,430 Net investment income Interest and similar income
Participating investment contracts (note 45(c)(i)) 7,365 540 Non-participating investment contracts 1,767 272
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.
(iv) On 1 May 2018 the Group announced a share buy-back of ordinary shares for an aggregate purchase price of up to £600 million, which was carried out in full during the period from 1 May 2018 to 17 September 2018. The number of shares in issue reduced by 119 million as at 31 December 2018 in respect of shares acquired and cancelled under the buy-back programme.
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.
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.
Ascot Real Estate Investments LP Property management UK 50.00% 50.00% 2-10 Mortimer Street Limited Partnership Property management UK 50.00% 50.00% Aviva-COFCO Life Insurance Company Limited Life insurance China 50.00% 50.00% PT Astra Aviva Life Life and Health insurance Indonesia 50.00% 50.00% Aviva Life Insurance Company Limited Life insurance Hong Kong 40.00% 40.00% AvivaSA Emeklilik ve Hayat A.S Life insurance Turkey 40.00% 40.00%
Share of results after tax 76 21 Impairment (9) — Share of profit after tax 67 21 Acquisitions 1 — Additions 1 2 Reduction in Group interest (1) (78) Reclassification to investment — (54) Dividends received from associates (54) (8) Foreign exchange rate movements (14) — Movements in carrying amount — (117)
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.
Carrying value At 1 January 9,601 1,881 11,482 9,147 1,650 10,797 Acquisitions — — — 218 208 426 Additions 731 189 920 543 97 640 Capitalised expenditure on existing properties 143 68 211 136 15 151 Fair value gains/(losses) 183 (90) 93 307 — 307 Disposals (1,036) (200) (1,236) (713) (177) (890) Reclassification — — — (82) 82 — Foreign exchange rate movements (243) (24) (267) 45 6 51
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.
Financial liabilities Non-participating investment contracts (note 45(a)) 129,365 129,365 112,013 112,013 Net asset value attributable to unitholders 16,610 16,610 16,338 16,338 Borrowings (note 53(a))3 10,268 9,039 9,826 9,420 Derivative liabilities (note 61(b)) 6,517 6,517 6,478 6,478 1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The review identified amounts presented within cash and cash equivalents and other investments that are now presented as loans, fixed maturity securities and equity securities in the table above. The restatement has had no impact on the profit for the year or equity. See note 1a for further information.
Strategic report Governance IFRS financial statements Other information 24 – Fair value methodology continued Fair value hierarchy Total fair value £m 2018
Total net gains recognised in the income statement in the year ended 31 December 2019 in respect of Level 3 assets measured at fair value amounted to £1,574 million (2018: net losses of £761 million) with net losses in respect of liabilities of £272 million (2018: net losses of £143 million). Net gains of £1,427 million (2018: net losses of £529 million) attributable to assets and net losses of £271 million (2018: net losses of £178 million) attributable to liabilities relate to those still held at the end of the year.
Liabilities not carried at fair value Borrowings 53(a) 8,195 7,979 213 409 8,601
(a) Carrying amounts The carrying amounts of loans at 31 December 2019 and 2018 were as follows: At fair value through profit or loss other than trading £m
28,319 10,260 38,579 25,526 10,658 36,184 1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The review identified amounts presented within cash and cash equivalents that are now presented as loans to banks carried at amortised cost in the table above. The restatement has had no impact on the profit for the year or equity. See note 1(a) for further information.
(a) Interests in consolidated structured entities The Group has determined that where it has control over investment vehicles, these investments are consolidated structured entities. As at 31 December 2019 the Group has granted loans to consolidated PLPs for a total of £64 million (2018: £84 million). The purpose of these loans is to assist the consolidated PLPs to purchase or construct properties. The Group has also provided support, without having a contractual obligation to do so, to certain consolidated PLPs via letters of support amounting to £57 million (2018: £51 million). The Group has no commitments to provide funding to consolidated structured entities (2018: £nil).
7,097 334,843 1,478 343,418 5,357 312,786 1,682 319,825 1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The review identified amounts presented within cash and cash equivalents and other investments that are now presented as fixed maturity securities and equity securities in the table above. The restatement has had no impact on the profit for the year or equity. See note 1(a) for further information.
Surpluses in the staff pension schemes (note 52(a)) 2,746 3,256 Other assets 53 85 Total 2,799 3,341
Options are normally exercisable during the six month period following either the third or fifth anniversary of the start of the relevant savings contract. Seven year contracts were offered prior to 2012. Savings contracts are subject to the statutory savings limits of £500 per month in the UK and €500 per month in Ireland. A limit of £250 per month was applied to contracts in the UK prior to 2016.
on the main pension schemes (see note 52) with a small amount of gains in relation to other schemes. 2 The Group has commenced a shareholder forfeiture programme, where the shares of shareholders with whom Aviva has lost contact over the last 12 years will be forfeited and sold on. Any associated unclaimed dividends will be reclaimed by the Group. After covering administration costs, the majority of the money will be put into a charitable foundation. 3 On 17 October 2019, notification was given that the Group would redeem the 6.875% £210 million tier 1 notes. At that date, the instrument was reclassified as a financial liability of £210 million, representing its fair value at that date. On 21 November 2019 the instrument was redeemed in full at a cost of £210 million. The difference of £21 million between its carrying amount of £231 million and fair value of £210 million has been charged to retained earnings. See note 37 for further details.
Long-term business Change in insurance liabilities(note 43(b)(iii)) (6,284) 61 (6,223) Change in provision for outstanding claims 190 (11) 179
Strategic report Governance IFRS financial statements Other information 44 – Insurance liabilities methodology and assumptions (a) Long-term business The main method used for the actuarial valuation of long-term insurance liabilities is the gross premium method which involves the discounting of projected future cash flows. The cash flows are calculated using the contractual premiums payable together with explicit assumptions for investment returns, discount rates, inflation, mortality, morbidity, persistency and future expenses. These assumptions can vary by contract type and reflect current and expected future experience with an allowance for prudence.
PMA08 HAMWP /PFA08 HAMWP adjusted plus allowance for future mortality improvement Bulk purchase annuities CV3 CV2
The following explicit assumptions are made which could materially impact the level of booked net reserves:
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.
Carrying amount at 1 January 90,455 87,654 Liabilities in respect of new business 6,991 6,301 Expected change in existing business (4,857) (4,491) Variance between actual and expected experience 4,751 (1,441) Impact of operating assumption changes 173 59 Impact of economic assumption changes 204 (40) Other movements recognised as an expense1 103 152 Change in liability recognised as an expense2 7,365 540 Effect of portfolio transfers, acquisitions and disposals3 — 427 Foreign exchange rate movements (4,054) 774 Other movements4 (1,004) 1,060
Strategic report Governance IFRS financial statements Other information 47 – Reinsurance assets This note details the reinsurance assets on our insurance and investment contract liabilities.
Total 12,356 11,755 1 Balances in respect of all reinsurance treaties are included under reinsurance assets, regardless of whether they transfer significant insurance risk. The reinsurance assets classified as non-participating investment contracts are financial instruments measured at fair value through profit or loss.
Surpluses included in other assets (note 31) 2,746 — — 2,746 3,256 — — 3,256 Deficits included in provisions (note 51) (491) (202) (77) (770) (443) (175) (75) (693)
Strategic report Governance IFRS financial statements Other information 52 – Pension obligations continued (b) IAS 19 disclosures Disclosures under IAS 19 for the material defined benefit schemes in the UK, Ireland and Canada are given below. Where schemes provide both defined benefit and defined contribution pensions, the assets and liabilities shown exclude those relating to defined contribution pensions.
(i) Movements in the scheme surpluses and deficits Movements in the pension schemes’ surpluses and deficits comprise: Fair Value of scheme assets £m
Total pension cost charged to net operating expenses — (82) (82) Net interest credited/(charged) to investment income/(finance costs)3 442 (375) 67 Total recognised in income 442 (457) (15)
Acquisitions 87 (96) (9) Employer contributions 236 — 236 Plan participant contributions 9 (9) — Benefits paid (724) 724 — Administrative expenses paid from scheme assets2 (23) 19 (4) Foreign exchange rate movements 2 (2) —
(b) Core structural borrowings (i) The carrying amounts of these borrowings are: £m
Strategic report Governance IFRS financial statements Other information 53 – Borrowings continued (d) Description and features (i) Subordinated debt A description of each of the subordinated notes is set out in the table below: Notional amount Issue date Redemption date Callable at par at option of the
57 – Capital commitments This note gives details of our commitments to capital expenditure. See note 23 for further information on lease commitments.
Strategic report Governance IFRS financial statements Other information 60 – Risk management continued The majority of non-rated debt securities within shareholder assets are held by our businesses in the UK. Of these securities most are allocated an internal rating using a methodology largely consistent with that adopted by an external rating agency, and are considered to be of investment grade credit quality; these include £4,095 million (2018: £3,640 million) of debt securities held in our UK Life business, predominantly made up of private placements and other corporate bonds, which have been internally rated as investment grade.
Fixed maturity securities 1,675 — — 5 — — 1,680 Reinsurance assets 7,791 — — — — — 7,791 Other investments 1 — — — — — 1 Loans 10,658 — — — — — 10,658 Receivables and other financial assets 8,536 74 16 11 2 — 8,639 1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The review identified amounts presented within cash and cash equivalents that are now presented as loans in the table above. The restatement has had no impact on the profit for the period or equity. See note 1(a) for further information.
Businesses aim to maintain sufficient assets in local currency to meet local currency liabilities, however movements may impact the value of the Group’s consolidated shareholders’ equity which is expressed in sterling. This aspect of foreign exchange risk is monitored and managed centrally, against pre-determined limits. These exposures are managed by aligning the deployment of regulatory capital by currency with the Group’s regulatory capital requirements by currency. Currency borrowings and derivatives are used to manage exposures within the limits that have been set. Except where the Group has applied net investment hedge accounting (see note 61(a)), foreign exchange gains and losses on foreign currency borrowings are recognised in the income statement, whereas foreign exchange gains and losses arising on consolidation from the translation of assets and liabilities of foreign subsidiaries are recognised in other comprehensive income. At 31 December 2019 and 2018, the Group’s total equity deployment by currency including assets ‘held for sale’ was: Sterling £m Euro £m CAD$
The Group’s derivative risk management policies are outlined in note 60.
The total amount of collateral received which the Group is permitted to sell or repledge in the absence of default, excluding collateral related to balances recognised within ‘Loans to banks’ disclosed in note 25, was £20,984 million (2018 restated: £19,870 million), all of which other than £7,567 million (2018 restated: £5,650 million) is related to securities lending arrangements. Collateral of £1,547 million (2018: £1,914 million) has been received related to balances recognised within ‘Loans to banks’ in note 25. The value of collateral that was actually sold or repledged in the absence of default was £nil (2018: £nil).
During the period, the ASPS completed a bulk annuity buy-in transaction with Aviva Life & Pensions UK Limited (AVLAP), a Group company. At inception, the buy-in insured approximately 4,300 deferred and 1,500 current pensioner liabilities. A premium of £1,665 million was paid by the scheme to AVLAP, with AVLAP recognising gross insurance liabilities of £1,334 million. The difference between the premium and the gross liabilities implies a profit of £331 million, which does not include costs incurred by the Group associated with the transaction, and is driven primarily by differences between the measurement bases used to calculate the premium and the accounting value of the associated gross liabilities. The ASPS recognised a plan asset of £1,126 million, with the difference between the plan asset recognised and the premium paid being recognised as an actuarial loss through Other Comprehensive Income. As at 31 December 2019, AVLAP recognised technical provisions of £1,243 million in relation to the buy-in which have been included within the Group’s gross insurance liabilities, and the ASPS held a transferable plan asset of £1,144 million which does not eliminate on consolidation.
Strategic report Governance IFRS financial statements Other information 64 – Organisational structure The following chart shows, in simplified form, the organisational structure of the Group as at 31 December 2019. Aviva plc is the holding company of the Group.
Strategic report Governance IFRS financial statements Other information 64 – Organisational structure continued Italy Aviva Italia Holding S.p.A and its principal subsidiaries: Aviva S.p.A (51%) Aviva Italia S.p.A Aviva Life S.p.A Aviva Vita S.p.A (80%)
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.
Pilot Insurance Company Common 100 S&Y Insurance Company Common 100 Scottish & York Insurance Co. Limited
Aviva La Fabrique Impact ISR FCP 100 7 Rue Auber, 75009, Paris
PO Box 255, Trafalgar Court, Les Banques, St. Peter Port, GY1 3QL
Aviva Investors Sfio Dluzny Non UCITS 100 Aviva Investors Sfio Dluzny Spotek
LF Bentley Global Growth OEIC 58 LF Bentley Sterling Balanced Fund 30 Finsbury Square, London, EC2P 2YU
IQUO Limited Ordinary A Shares 67 Exchange House, Primrose Street, EC2A 2HS
30-31 Golden Square Nominee 1 Ltd 30-31 Golden Square Nominee 2 Ltd 41-42 Lowndes Square Management Company Limited 43 Lowndes Square Management Company Limited 44-49 Lowndes Square Management Company Limited 50-60 Station Road Nominee 1 Limited 50-60 Station Road Nominee 2 Limited 6-10 Lowndes Square Management Company Limited
AEP Feeder Fund V Unit Trust 100 Asl Infrastructure Equity Npv Ordinary 100
Neos Venures Limited Ordinary 91 1020 Eskdale Road, Winnersh, Wokingham RG41 5TS
Samuel House , 6 St Albans Street, 4th Floor, SW1Y 4SQ
2 Please see accounting policies (D) Consolidation principles, for further details on Joint Ventures and the factors on which joint management is based.
Where applicable, the accounting policies of the Company are the same as those of the Group on pages 117 to 131. The notes identified alphabetically on pages 268 to 273 are an integral part of these separate financial statements. Where the same items appear in the Group financial statements, reference is made to the notes (identified numerically) on pages 139 to 263.
During 2019, the UK Government indicated that it would reverse the reduction in the rate of corporation tax to 17% due from 1 April 2020. As at 31 December 2019 this measure has not been substantively enacted and therefore no impact is reflected in the calculation of the Company’s deferred tax assets and liabilities at 31 December 2019.
Total 5,266 5,815 Expected to be recovered in less than one year 241 414 Expected to be recovered in more than one year 5,025 5,401
G – Tax assets and liabilities (i) Current tax Current tax assets recoverable in more than one year are £85 million (2018: £89 million).
Total contractual undiscounted cash flows 6,810 7,009 13,819 6,997 7,400 14,397
M – Contingent liabilities Details of the Company’s contingent liabilities are given in the Group consolidated financial statements, note 56.
• An unsecured loan of €900 million with a maturity date of 4 December 2025. The loan accrues interest at a fixed rate of 1.74% with settlement to be paid at maturity. As at the statement of financial position date, the total amount drawn down on the facility was £762 million (2018: £808 million).
The related parties’ payables are not secured and no guarantees were given in respect thereof. The payables will be settled in accordance with normal credit terms. Details of guarantees, indemnities and warranties given by the Company on behalf of related parties are given in note 56(f).
These capital measures provide useful information as they are based on economic value which is used by the Group to assess performance and growth.
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.
The Group adjusted operating profit APM should be viewed as complementary to IFRS measures. It is important to consider Group adjusted operating profit and profit before tax together to understand the performance of the business in the period.
5 Includes £(1) million (2018: £3 million) relating to commission and expenses for Aviva Re. 6 Includes £nil (2018: £(5) million) relating to net earned premiums for Aviva Re.
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 nonfinancial 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.
Excedents (PPE) into Solvency II own funds. The PPE has been included in the France local regulatory own funds in 2019 but it is not included in the Group regulatory own funds.
IFRS borrowings 9,067 9,420 Less borrowings not classified as Solvency II regulatory debt
Senior notes (1,052) (1,113) Commercial paper (238) (251) Operational borrowings (1,571) (1,721) Less: Amounts held by Group Companies — 5
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