Profit after tax1 Net asset value per share‡ Solvency II cover ratio‡3 £34.4bn Paid out in benefits and claims to our customers in 2016
mW Leading with digital is how we will maximise our competitive advantage as a composite insurer. It’s how our customers increasingly want to deal with us. Aviva was born in an age of quills and parchment – 320 years ago. Now digital is fundamental to our future. Everything we do must be through a digital lens.
` Target a Solvency II cover ratio working range of between 150%–180%
For society, we have: ` Continued to lead the debate and take action on sustainable finance and the risk of climate change
It’s a great example of caring more about our customers and one another.
Our people Our aim is for our people to achieve their potential within a diverse, collaborative and customer-focused organisation.
We also extended the range of products available to MyAviva customers in the UK, with around 30% more products added to the platform during 2016.
MyAviva now shows pre-calculated quotes for travel, home and health products, together with a 20% discount for existing customers so that they can share the benefits of doing business with us digitally.
We put Digital First so we can help customers put their health first. It makes dealing with us quick, simple and convenient. If you’re not well the last thing you want is to deal with forms – we want customers to focus on getting better.
The insurance industry is ripe for disruption by digital. We want Aviva to be a 320 year old disruptor, which puts Digital First so we can offer customers better, more personalised products and services
WHY IT’S IMPORTANT Not Everywhere is about focusing our resources where we can be most competitive. It’s about focusing on doing a relatively small number of things very well, rather than casting our net too widely. It’s about focusing on where we can win.
� Introduced a software developer apprenticeship programme into our UK Digital team with places offered in Norwich and Hoxton.
Inclusive diversity 87% of our people feel that people from diverse backgrounds can succeed at Aviva. We are accelerating our strategy through innovative practices and expert partners.
Culture We are accelerating our focus on customers, innovation and simplicity in our culture, fuelled by our purpose of Defy Uncertainty and our values.
At 31 December 2016, we had the following gender split: BOARD MEMBERSHIP
Cash remittances to Group increased 64% in 2016 to £1,096 million. The 2016 payment includes £250 million, the first instalment of the planned £1 billion Friends Life integration remittance.
All UK customers will be able to manage their policies online.
Statistics, 2015. 3 The adverse impact of the change in the Ogden discount rate of £475 million is an exceptional item and therefore not recognised within operating profit.
In this environment, it’s important that we listen to what our customers tell us, responding with products and services to meet their needs.
MT Well Brexit is clearly a challenge. But we don’t expect any significant operational impact for Aviva. Our European operations operate locally within each country, are well capitalised and locally regulated.
We also continue to manage our life and general insurance businesses in a low interest rate environment, fine-tuning our business mix and focusing on customer segments where we can win.
Canada projected to increase in the near to medium term. The broker channels also continue to face consolidation both amongst brokers and through vertical integration with insurers. Due to continued consolidation coupled with a mature market, focusing on our competitive advantage is crucial.
Despite political and economic uncertainties, the relatively low insurance penetration continues to represent a significant opportunity for further growth, driven by favourable demographics and growing disposable incomes.
MARKET CONTEXT AND CHALLENGES While most analysts expect the Asian economy to record only moderate growth in the year ahead, we believe the longterm favourable trends of emerging middle-class, increasing awareness in retirement planning, growing market share in healthcare will persist across the region, and Asia will continue to outperform in insurance growth.
EM I want Aviva Investors to be the one to watch! Overall, I’m excited. We’re winning mandates and taking positive earnings momentum into 2017.
Underpinning all of this is our agile start up culture blending our expertise in insurance and investments with significantly enhanced capability in the new digital essentials of data and digital product design. With its base in the Digital Garage in Hoxton, and new Digital environments in Bristol and Norwich, UK Digital is helping to transform the culture of Aviva to ensure we are fully able to meet the digital needs of 21st century consumers.
our community investment, by 5%, totalling £11.3 million (2015: £10.8 million) and helped 939,000 people. We also harnessed the passion and talent of our employees, who contributed 41,700 hours of volunteering time and gave or fundraised over £1.9 million. Our people are the lifeblood of our corporate responsibility strategy and our Voice of Aviva results show that 84% of our people believe that Aviva is a good corporate citizen1 and these employees are 59% more likely to be proud of Aviva.
Scope 1 – natural gas, fugitive emissions, oil, company owned cars.
Our financial results in 2016 demonstrated the benefits of Aviva’s diversity and the strength of our franchises. We continue to target consistent midsingle digit growth in operating EPS over the medium term.
BUSINESS UNIT PERFORMANCE UK and Ireland Life increased operating profit 7% to £1,555 million (2015: £1,455 million2). In the UK, operating profit was £1,523 million (2015: £1,431 million2) reflecting a full year contribution from Friends Life (acquired April 2015), integration synergies and growth in sales and managed assets. Our core growth engines in UK Life all delivered strong momentum. Operating profit from long term savings increased 39% to £142 million (2015: £102 million), protection grew 52% to £242 million (2015: £159 million) and retirement (annuities and equity release) gained 26% to £656 million
Canada delivered operating profit of £269 million (2015: £214 million), an increase of 16% in local currency terms. Net written premiums increased 14% in local currency to £2,453 million (2015: £1,992 million) and benefitted from a six month contribution from the acquired RBCI business. The underwriting result increased to £168 million (2015: £120 million) with higher premium volumes associated with the acquisition of RBCI more than offsetting a modest increase in the combined operating ratio to 94.6% (2015: 93.8%).
Other net equity movements 309 8p get clear on who owns the decision
Start with the customer and check the facts use our values to make the decision
GovErnancE In November 2016, the Government issued a green paper on corporate governance highlighting greater stakeholder involvement at Board level, and on executive pay. The Board supports the drive for greater stakeholder engagement generally, and we have participated in the consultation process, and look forward to reviewing the resulting legislation.
Tenure: 3 years 3 months. Appointed to the Board in December 2013 Qualifications: BSc (Hons), International Economics (Georgetown University) Skills and Experience: Patricia has diverse international expertise, gained from more than 30 years of executive and non-executive experience in financial services, other regulated industries and government in the United States, Europe and Australia.
Nationality: British Committee membership: Audit Committee (Chair), Nomination Committee, Risk Committee
His previous roles provide him with an understanding of the challenges and opportunities faced by an international business with a multi-channel distribution strategy. External appointments: Non-executive deputy chairman of John Lewis and member of the Audit Committee of the British Museum.
` Assessed the Group capital and liquidity requirements including the Solvency II position, arising from the Company’s strategy and Group Plan
People, culture, succession planning and Board effectiveness ` Significant focus was given to succession planning. Further details are provided in the Nomination Committee report
` In addition the Board met for a half day strategic culture review
Board independence The Nomination Committee, having considered the matter carefully, is of the opinion that the current NEDs remain independent, in line with the definition set out in the Code, and are free from any relationship or circumstances that could affect, or appear to affect, their independent judgement. Over half of the Board members, excluding the Chairman, are independent NEDs. Scott Wheway had served on the Board since his appointment in December 2007, and Mike Hawker has served since his appointment in January 2010. Accordingly, in early 2016 their performance, including their independence, was the subject of a particularly rigorous review pursuant to the recommendations of the Code, both having been on the Board for longer than six years. The Board remained satisfied that both Scott and Mike were independent and would continue to make a valuable contribution during the year. Scott retired from the Board on 31 December 2016, having served just over nine years. The review of the directors’ other interests included the ‘cross directorships’ of Patricia Cross and Mike Hawker who are both directors at Macquarie Group and Belén Romana García and Scott Wheway as directors of companies within the Santander group. The Nomination Committee was satisfied this did not affect the judgement or independence of Patricia,
Nomination Responsible for monitoring the balance of skills, knowledge, experience and diversity on the Board. It makes recommendations for Board and committee appointments and is responsible for monitoring the succession plans of the executive directors and senior management.
SENIOR INDEPENDENT DIRECTOR (SID) The SID’s role is to act as a sounding board for the Chairman, to serve as an intermediary for the other directors where necessary and to be available to shareholders should they have concerns they have been unable to resolve through normal channels, or when such channels would be inappropriate. During the year the NEDs, led by Sir Malcolm Williamson, met to discuss the executives’ performance and also met once without the Chairman present to consider the Chairman’s performance. Sir Malcolm meets each NED
Executive directors Mark Wilson 12/12 – – – – – Tom Stoddard 12/12 – – – – – Andy Briggs 12/12 – – – – –
A robust assessment was conducted by the Board of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency and liquidity. During 2016 these included Brexit and cyber security. Further information is contained in the Risk Committee report on page 91.
AM Board succession planning continues to be a focus for the Committee. We identified some time ago that there was a need to further strengthen the Board with more experience and capability in the digital area. Also, with Scott Wheway’s retirement from the Board in December 2016 we needed to identify a suitable candidate to Chair the Governance Committee. Through Committee discussions we identified the skills and experiences we were looking for and we were able to work efficiently with executive search consultants, JCA Group (who had no other connection with Aviva), to identify suitable candidates. This led to the appointments of Claudia Arney and Keith Williams. Keith’s strong financial background make him an excellent successor to Glyn Barker as Audit Committee Chair and following Scott’s retirement Claudia has now transitioned to be Chair of the Governance Committee. The Committee has also spent a substantial amount of time reviewing senior executive development and succession planning and this will continue during 2017.
Q How do you deal with Board and executive succession planning?
In respect of executive directors, the Board focused and invested extensively during the year on succession planning and contingency, including arrangements for key personnel loss. A programme has been designed to provide succession and development insight to the Group Executive members which will continue to run and be reviewed during 2017.
` Ensured that the Audit Committee has members with recent and relevant financial experience and who met US Securities and Exchange Commission (SEC) requirements during the year
The Committee has responsibility for three Major Control Improvement Topics (MCITs), Cyber Security, Outsourcing and Disaster Recovery, as part of the MCIT programme overseen by the Audit Committee.
MH In the last few years there have been a number of high profile cyber security breaches at other UK corporates, so this has been an area of focus for the Committee, particularly given the importance of digital to our strategy. We have received regular updates from the Chief Information Officer on cyber security risk, progress on the Cyber Security MCIT and the contingency plans which seek to address it. The Cyber Security MCIT aims to improve the quality of controls, and ensure these are embedded and continue to adapt with the changing external environment, to deliver all planned risk reduction activities.
MH The Committee acts independently of management and works closely with the Governance, Remuneration and Audit Committees. There is crossmembership between each committee ensuring risk issues are appropriately managed and considered in the decisions of each.
` Approved the key principles for the 2016 G-SII Group Recovery Plan for managing its capital and liquidity in stress scenarios and received updates on the Plan
GB The Committee annually undertakes a rigorous review of its effectiveness, which for the 2016 year was conducted alongside the evaluations of the Board and other committees by way of an internal questionnaire, completed by every Committee member.
Q What significant issues has the Committee considered in relation to the financial statements?
GB The Committee is responsible for supporting the Board in ensuring a robust system of internal control.
The Committee Chair is the whistleblowers’ champion for the Group and has responsibility to oversee the integrity, independence and effectiveness of the Group’s policies. The Committee as a whole is responsible for establishing and overseeing the effectiveness of controls put in place in accordance with regulatory requirements in respect of whistleblowing. This involves ensuring that internal arrangements are in place within the Group for individuals, not just employees, to raise concerns not just limited to accounting, accounting controls and auditing matters. The Committee receives assurance that all UK based employees are aware of the Financial Conduct Authority and Prudential Regulation Authority’s whistleblowing services, in which to raise concerns. The Board will annually receive a formal report in respect of whistleblowing activity and compliance in line with updated regulatory requirements.
Internal Audit ` Reviewed and approved the Internal Audit Charter and Business Standard
Act 2006, ‘the duty to promote the success of the Company’, how does the Committee continue to shape and support the Group’s wider corporate responsibility decision-making?
People ` Reviewed the progress of embedding Aviva’s values and the wider cultural agenda
2017 Annual General Meeting (AGM) Details are provided in the shareholder services section on page 354.
Share capital The issued ordinary share capital of the Company was increased by 13,074,033 ordinary shares during the year which were allotted to satisfy amounts under the Group’s employee share and incentive plans. At 31 December 2016 the: � issued ordinary share capital totalled 4,061,539,206 shares of 25 pence each
Annual general meeting The 2017 AGM of the Company will be held on Wednesday, 10 May 2017 at the Queen Elizabeth II Centre, Broad Sanctuary, Westminster, London SW1P 3EE at 11am. The Notice of AGM convening the meeting describes the business to be conducted thereat. Further details can be found in the shareholder information section of the Notice of AGM.
� the overall co-ordination of the production of the annual report and accounts is overseen by the Chief Accounting Officer to ensure consistency across the document
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group and parent company financial statements in accordance with IFRS as adopted by the EU. In preparing these financial statements, the directors have also elected to comply with IFRSs, issued by the International Accounting Standards Board (IASB). 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 the 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 then apply them consistently
application of policy in 2017 salary The EDs’ salaries have been reviewed by the Committee and an increase of 2.5% will be made for each from 1 April 2017. These increases are in line with expectations around market movements and inflation in the UK and are consistent with overall increases being applied across our UK-based employees.
The Committee reflects on the quality of the advice provided and whether it properly addresses the issues under consideration as part of its normal deliberations. The Committee is satisfied that the advice received during the year was objective and independent.
` The Committee Chair met with key investors and stakeholders as part of the ongoing programme of engagement on remuneration and reported back to the Committee on these meetings.
Shareholders approved increased ‘at target’ and maximum annual bonus opportunities for the Group CEO as part of the Remuneration Policy adopted at the 2015 AGM. In proposing the changes, we undertook that we would not ‘pay more for the same performance’ and 2016 annual bonus outcomes reported here have been achieved against appropriately challenging hurdles.
The Aviva Group had a strong year under Mark Wilson’s leadership. Key results include: ` Strong financial results for 2016 with COR in the range set for performance and all other metrics exceeding target. Aviva’s balance sheet and capital position has proven its strength and resilience despite significant market volatility.
Below median 0% Median 10% Between median and upper quantile Pro-rata between 10% and 50% on straight line basis Upper quantile and above 50%
Sir Adrian Montague 25,266 33,082 Sir Malcolm Williamson 41,421 41,421 Claudia Arney — 14,000 Glyn Barker 11,700 11,700 Patricia Cross 7,000 7,000 Belén Romana García — — Michael Hawker 20,000 20,000 Michael Mire 7,500 50,000 Bob Stein 21,000 21,000 Keith Williams — —
Governance Regulatory remuneration code Aviva Investors and two small ‘firms’ (as defined by the Financial Conduct Authority (FCA)) within the UK & Ireland Life business are subject to the Capital Requirements Directive IV (CRD IV) and the FCA Remuneration Code (SYSC 19A). Additionally, there are two Aviva Investors ‘firms’ in the UK and Ireland, Friends Life Funds Limited and Aviva Investors UK Funds Limited, subject to the Alternative Investment Fund Management Directive (AIFMD). Remuneration Code requirements include an annual disclosure. For AIFMD the disclosure is part of the Financial Statements and/or Annual accounts of the Alternative Investment Funds under each AIFMD. For CRD IV requirements the Aviva Investors disclosure can be found in Section 5 of the Pillar 3 Disclosure which can be found at https:// www.avivainvestors.com/content/dam/aviva-investors/global/documents/Pillar-3-disclosures-2015.pdf and a link to the disclosure for the UK & Ireland Life firms can be found at committees/remuneration-committee/.
` 15% Net Cash Remittance ` 25% progress on strategy – Digital First
To motivate EDs to achieve the Company’s longerterm objectives, to align EDs’ interests with those of shareholders and to aid the retention of key personnel.
Threshold performance would result in a vesting level of 20% of maximum.
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. 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. 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.
Notes to the charts • Fixed pay consists of basic salary, pension as described in table 19, and estimated value of benefits provided under the Remuneration Policy, excluding any one offs. Actual figures may vary in future years.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 154 1–Prior period adjustments 154 2–Exchange rates 155 3–Subsidiaries 157 4–Segmental information 164 5–Details of income 165 6–Details of expenses 166 7–Finance costs 166 8–Long-term business economic volatility 168 9–Longer-term investment return and economic assumption changes for non-long-term business 170 10–Employee information 170 11–Directors 171 12–Auditors’ remuneration 172 13–Tax 174 14–Earnings per share 175 15–Dividends and appropriations 176 16–Goodwill 178 17–Acquired value of in-force business (AVIF) and intangible assets 179 18–Interests in, and loans to, joint ventures 181 19–Interests in, and loans to, associates 182 20–Property and equipment 183 21–Investment property 183 22–Fair value methodology 189 23–Loans 190 24–Securitised mortgages and related assets 191 25–Interest in structured entities 193 26–Financial investments 197 27–Receivables 197 28–Deferred acquisition costs, other assets, prepayments and accrued income 198 29–Assets held to cover linked liabilities 198 30–Ordinary share capital 199 31–Group’s share plans 202 32–Treasury shares 202 33–Preference share capital 203 34–Direct capital instrument and tier 1 notes 203 35–Merger reserve 204 36–Other reserves 204 37–Retained earnings 205 38–Non-controlling interests 205 39–Contract liabilities and associated reinsurance 206 40–Insurance liabilities 216 41–Liability for investment contracts 217 42–Financial guarantees and options 219 43–Reinsurance assets 221 44–Effect of changes in assumptions and estimates during the year 222 45–Unallocated divisible surplus 222 46–Tax assets and liabilities 223 47–Provisions 224 48–Pension obligations 230 49–Borrowings 233 50–Payables and other financial liabilities 233 51–Other liabilities 233 52–Contingent liabilities and other risk factors 235 53–Commitments 235 54–Group capital management 237 55–Statement of cash flows 239 56–Risk management 250 57–Derivative financial instruments and hedging 252 58–Financial assets and liabilities subject to offsetting, enforceable master netting arrangements and similar agreements 254 59–Related party transactions 255 60–Organisational structure 257 61–Related undertakings 267 62–Subsequent events
Management use an active approach to setting the assumptions. For both corporate bonds and mortgages a long term deduction from the current market yield is made and a supplementary provision is held to cover the risk of higher short term default rates.
In respect of the expense assumptions : • We understood and tested the governance process in place to determine the maintenance expense and expense inflation assumptions.
• For the remaining classes we evaluated the methodology and assumptions, or performed a diagnostic check to identify and follow up any anomalies.
• We used our valuation experts to perform independent valuations, where applicable.
Going concern Under the Listing Rules we are required to review the directors’ statement, set out on page 103, in relation to going concern. We have nothing to report having performed our review. Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to the directors’ statement about whether they considered it appropriate to adopt the going concern basis in preparing the financial statements. We have nothing material to add or to draw attention to. As noted in the directors’ statement, the directors have concluded that it is appropriate to adopt the going concern basis in preparing the financial statements. The going concern basis presumes that the group and company have adequate resources to remain in operation, and that the directors intend them to do so, for at least one year from the date the financial statements were signed. As part of our audit we have concluded that the directors’ use of the going concern basis is appropriate. However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the group’s and company’s ability to continue as a going concern.
Marcus Hine (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 8 March 2017 a The maintenance and integrity of the Aviva plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. b Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Corporate governance statement Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to ten further provisions of the Code. We have nothing to report having performed our review.
What an audit of financial statements involves An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: • whether the accounting policies are appropriate to the group’s and the company’s circumstances and have been consistently applied and adequately disclosed; • the reasonableness of significant accounting estimates made by the directors; and • the overall presentation of the financial statements.
(vi) IFRS 16 Leases In January 2016, the IASB published IFRS 16 Leases which will replace IAS 17 Leases. IFRS 16 introduces a definition of a lease with a single lessee accounting model eliminating the classification of either operating or finance leases. Lessees will be required to account for all leases in a similar manner to the current finance lease accounting recognising lease assets and liabilities on the statement of financial position. Lessor accounting remains similar to current practice. The impact of the adoption of IFRS 16 has yet to be fully assessed by the Group. This standard applies to annual reporting periods beginning on or after 1 January 2019 and has not yet been endorsed by the EU.
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.
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.
Expenses 6 Claims and benefits paid, net of recoveries from reinsurers (23,782) (21,985) Change in insurance liabilities, net of reinsurance 40a(ii) (6,893) 6,681 Change in investment contract provisions (14,039) (1,487) Change in unallocated divisible surplus 45 (381) 984 Fee and commission expense (3,885) (3,324) Other expenses (3,853) (2,784) Finance costs 7 (626) (618)
Balance at 1 January 1,012 200 1,185 8,974 (29) (114) 4,774 1,123 17,125 1,145 18,270 Profit for the year — — — — — — 703 — 703 156 859 Other comprehensive income — — — — — 956 242 — 1,198 145 1,343 Total comprehensive income for the year — — — — — 956 945 — 1,901 301 2,202 Owner-occupied properties fair value gains transferred to retained earnings on disposals — — — — — (46) 46 — — — —
Following reclassification, interest is included in coupon payments on the direct capital instrument and tier 1 notes. Dividends paid to non-controlling interests of subsidiaries during 2015 also included £17 million relating to the 2005 STICS which were redeemed in July 2015.
Canada The principal activity of the Canadian operation is general insurance. In particular it provides personal and commercial lines insurance products principally distributed through insurance brokers. Canada includes the operations of RBC General Insurance Company following its acquisition on 1 July 2016.
Gross written premiums1 15,748 9,694 — — 25,442 Premiums ceded to reinsurers (1,697) (667) — — (2,364)
Profit/(loss) before tax attributable to shareholders’ profits 1,622 369 80 (658) 1,413 Adjusted for: Non-operating items 820 396 26 33 1,275
2 Gross written premiums include inward reinsurance premiums assumed from other companies amounting to £146 million, of which £66 million relates to property and liability insurance and £80 million relates to long-term business. 3 General insurance and health business segment includes gross written premiums of £1,092 million relating to health business. The remaining business relates to property and liability insurance.
Change in insurance liabilities Change in insurance liabilities (note 40) 8,111 (6,442) Change in reinsurance asset for insurance provisions (note 40) (1,218) (239)
The principal assumptions underlying the calculation of the longer-term investment return are: Longer-term rates of return Equities
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 operating profit as an economic assumption change. The range of discount rates used is disclosed in note 40.
In addition to the fees shown above, during 2016 the Group paid PwC £0.3 million (2015: £0.2 million) in relation to the audit of Group occupational pension schemes.
Operating profit attributable to ordinary shareholders 2,072 4,051 51.1 1,859 3,741 49.7 Dilutive effect of share awards and options — 38 (0.4) — 39 (0.5)
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.
Carrying amount At 1 January 2015 59 33 888 48 1,028 At 31 December 2015 2,002 2,381 1,139 209 5,731
Share of results after tax — 46 46 — 18 18 Impairment — — — — — —
£1.4 billion of assets transferred out of Level 3 relate principally to debt securities held by our businesses in the UK and France which were transferred to Level 2 as observable inputs became available or where the valuation provided by the counter party and broker quotes are corroborated using valuation models with observable inputs.
Notes to the consolidated financial statements continued 22 – Fair value methodology continued Total net gains recognised in the income statement in the year ended 31 December 2016 in respect of Level 3 assets measured at fair value amounted to £1,223 million (2015: net gains of £868 million) with net losses in respect of liabilities of £467 million (2015: net gains of £12 million). Net gains of £833 million (2015: net gains of £901 million) attributable to assets and net losses of £333 million (2015: net gains of £27 million) attributable to liabilities relate to those still held at the end of the year.
Loans at amortised cost The fair value of these loans at 31 December 2016 was £3,497 million (2015: £3,228 million).
Other investments Unit trusts and other investment vehicles — 50,189 1 50,190 — 42,641 — 42,641 Derivative financial instruments (note 57) 6,119 — — 6,119 3,328 — — 3,328 Deposits with credit institutions — 325 — 325 — 460 — 460 Minority holdings in property management undertakings — 1,186 — 1,186 — 960 — 960 Other investments – long-term — 434 — 434 — 305 — 305 Other investments – short-term — 1 — 1 — 1 — 1
26 – 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: Cost/ amortised cost £m
Assets of operations classified as held for sale — — 2,325 — — — 2,325 —
Notes to the consolidated financial statements continued 27 – Receivables This note analyses our total receivables.
(b) During 2016, a total of 13,074,033 ordinary shares of 25 pence each were allotted and issued by the Company as follows: Number of shares
(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 2nd, 3rd and 4th year following the year of grant.
(355,122) 26,504 (328,618) (317,578) 20,629 (296,949) Provision for unearned premiums (4,766) 250 (4,516) (4,048) 289 (3,759) Provision arising from liability adequacy tests3 (13) — (13) (12) — (12)
Balance at 1 January 1,145 1,166 Profit for the year attributable to non-controlling interests 156 161 Foreign exchange rate movements 145 (45) Total comprehensive income attributable to non-controlling interests 301 116 Capital contributions from non-controlling interests 9 5 Non-controlling interests share of dividends declared in the year (135) (142) Non-controlling interests in acquired subsidiaries1 — 504 Reclassification of non-controlling interests to liabilities2 — (272) Reclassification of non-controlling interests to DCI and Tier 1 notes (note 34) — (231) Changes in non-controlling interests in subsidiaries3 105 (1)
– Old With-Profits Sub-Fund (OWPSF), With-Profits Sub-Fund (WPSF) and Provident Mutual Sub-Fund (PMSF) of UKLAP, where the with-profit policyholders are entitled to at least 90% of the distributed profits, with the shareholders receiving the balance.
Future regular bonuses Annual bonus assumptions for 2017 have been set consistently with the year-end 2016 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.
Annuities Conventional immediate and deferred annuities 0.6% to 2.8% 0.9% to 3.6%
The £4.8 billion impact of variance between actual and expected experience in 2016 is mainly due to higher than expected equity returns in the UK increasing with-profit and unit-linked liabilities.
40 – Insurance liabilities continued (d) Loss development tables (i) Description of tables The tables that follow present the development of claim payments and the estimated ultimate cost of claims for the accident years 2007 to 2016. The upper half of the tables shows the cumulative amounts paid during successive years related to each accident year. For example, with respect to the accident year 2007, by the end of 2016 £8,278 million had actually been paid in settlement of claims. In addition, as reflected in the lower section of the table, the original estimated ultimate cost of claims of £8,530 million was re-estimated to be £8,380 million at 31 December 2016.
Estimate of net ultimate claims 8,154 8,898 6,897 6,624 6,005 5,717 5,733 5,591 5,635 6,489 Cumulative payments (8,055) (8,714) (6,708) (6,361) (5,626) (5,110) (4,918) (4,432) (4,061) (3,309)
1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. See note 1 for further details.
(d) Sensitivity 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, real estate prices and equity prices. Interest rate guaranteed returns, such as those available on GAOs, 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 impact of interest rates on long-term business relates primarily to annuities in the UK (including any change in credit default and reinvestment risk provisions), where a decrease in the valuation interest rate, in response to decreasing risk-free rates and narrowing credit spreads, has increased liabilities. The overall impact on profit also depends on movements in the value of assets backing the liabilities, which is not included in this disclosure. In the UK, expense reserves have reduced and persistency reserves have increased following a review of recent experience. There has been a release of annuitant mortality reserves in the UK following a review of recent experience (including the exposure to anti-selection risk) and the adoption of the CMI_2015 mortality improvement assumptions, partially offset by a change in base mortality assumptions in response to revisions in the calculation of mortality exposure.
Total IAS 19 obligations to staff pension schemes 899 732 Restructuring provisions 111 166 Other provisions 501 518
Total IAS 19 fair value of scheme assets 18,803 610 281 19,694 15,445 484 232 16,161 1 Cash and other assets comprise cash at bank, insurance policies, receivables, payables and repos. At 31 December 2016, repos of £4,666 million (2015: £nil) are included within cash and other assets. 2 As at 31 December 2016, the FPPS’s cash and other balances includes an insurance policy of £633 million (2015: £546 million) issued by a Group company that is not transferable under IAS 19 and is consequently eliminated from the
(v) Funding Formal actuarial valuations normally take place every three years and where there is a deficit, the Company and the trustee would agree a deficit recovery plan. The assumptions adopted for triennial actuarial valuations are determined by the trustee and agreed with the Company and are normally more prudent than the assumptions adopted for IAS19 purposes, which are best estimate.
Core structural borrowings, at amortised cost 8,577 6,912 Operational borrowings, at amortised cost 608 550 Operational borrowings, at fair value 1,110 1,308 1,718 1,858
Subordinated debt 6.125% £700 million subordinated notes 2036 694 693 6.125% £800 million undated subordinated notes 795 795 6.875% £600 million subordinated notes 2058 594 594 6.875% €500 million subordinated notes 2038 427 368 12.00% £162 million subordinated notes 2021 213 221 8.25% £500 million subordinated notes 2022 598 615 6.625% £450 million subordinated notes 2041 448 447 8.25% $400 million subordinated notes 2041 — 269 7.875% $575 million undated subordinated notes 494 430 6.125% €650 million subordinated notes 2043 552 477 3.875% €700 million subordinated notes 2044 593 512 5.125% £400 million subordinated notes 2050 394 394 3.375% €900 million subordinated notes 2045 758 654 4.50% C$450 million subordinated notes 2021 269 — 4.375% £400 million subordinated notes 2049 393 —
Notes to the consolidated financial statements continued 49 – Borrowings continued (c) Operational borrowings (i) The carrying amounts of these borrowings are: £m
Risk models are an important tool in our measurement of risks and are used to support the monitoring and reporting of the risk profile and in the consideration of the risk management actions available. We carry out a range of stress (where one risk factor, such as equity returns, is assumed to vary) and scenario (where combinations of risk factors are assumed to vary) tests to evaluate their impact on the business and the management actions available to respond to the conditions envisaged. For those risk types managed through the holding of capital, being our principal risk types except for liquidity risk, we measure and monitor our risk profile on the basis of the Solvency II solvency capital requirement (SCR).
The Group’s largest reinsurance counterparty is BlackRock Life Ltd (including subsidiaries) as a result of the BlackRock funds offered to UK Life customers via unit-linked contracts. At 31 December 2016, the reinsurance asset recoverable, including debtor balances, from BlackRock Life Ltd was £17,087 million (2015: £12,660 million), reflecting increased valuations of BlackRock funds and net customer inflows. Whilst the risk of default is considered remote due to the nature of the arrangement and the counterparty, the Group is in the process of restructuring the agreements with BlackRock Life Ltd to significantly reduce this exposure.
The adverse impact on the valuation of the Group’s UK mortgage portfolio in the first half of 2016 of revised expectations of future property prices and rental income in light of the UK referendum vote for the UK to leave the European Union has been broadly offset in the second half of the year as expectations for future property price and rental growth have increased.
Notes to the consolidated financial statements continued 56 – Risk management continued The low interest rate environment in a number of markets around the world has resulted in our current reinvestment yields being lower than the overall current portfolio yield, primarily for our investments in fixed income securities and commercial mortgage loans. We anticipate that interest rates may remain below historical averages before the 2008 financial crisis 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.
(e) Life and health insurance risk Life insurance risk in the Group arises through its exposure to mortality risk and exposure to worse than anticipated operating experience on factors such as persistency levels, exercising of policy holder options and management and administration expenses. The Group’s health insurance business (including private health insurance, critical illness cover, income protection and personal accident insurance, as well as a range of corporate healthcare products) exposes the Group to morbidity risk (the proportion of our customers falling sick) and medical expense inflation. The Group chooses to take measured amounts of life and health insurance risk provided that the relevant business has the appropriate core skills to assess and price the risk and adequate returns are available. The Group’s underwriting strategy and appetite is communicated via specific policy statements, related business standards and guidelines. Life insurance risk is managed primarily at business unit level with oversight at the Group level. The underlying risk profile of our life and health insurance risks, primarily persistency, longevity, mortality and expense risk, has remained stable during 2016, although the current continued relatively low levels of interest rates have increased our sensitivity to longevity shocks compared to historical norms. The continuing reduction in individual annuity new business volumes, since the end to compulsory annuitisation in April 2015, will reduce our longevity risks exposure over the longer term to the extent not offset by increased bulk purchase annuity volumes. Despite this longevity risk remains the Group’s most significant life insurance risk due to the Group’s existing annuity portfolio.
(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 27 and 50 respectively. Collateral received and pledged by the Group is detailed in note 58.
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 2016 and 2015, other transactions with key management personnel were not deemed to be significant either by size or in the context of their individual financial positions.
UFF Gestion Fl 0-100 A FCP 99 UFF Gest Fl 0-30 A FCP 98 UFF Gest Fl 0-70 A FCP 99 UFF Gestion Flexible 0-100 I FCP 100 UFF Gestion Flexible 0-70 I FCP 100 UFF Global Multi-Strategies A FCP 100 UFF Grande Europe 0-100 I FCP 100 UFF Liberty A FCP 100 UFF Liberty I FCP 100 UFF Select Prem A FCP 98 UFF Select Alpha A C. FCP 99 UFF Selection Premium I FCP 100 5/7 rue de Monttessuy, 75007 Paris Elite 1818 Securite SICAV SICAV 20 112 Avenue Kleber, 75784, Paris Encore+French Opci Ordinary Shares 7 SCI 69 Haussmann Ordinary Shares 7 59 Boulevard Haussmann 75008 Paris Antarius Ordinary € 16 Shares 50 83-85 Avenue Marceau, 75008, Paris, France
Selectus FCP 100 39, Avenue Pierre 1er de Serbie, 75008, Paris
Betelgeuse (SICAV) Ordinary Shares 92 Europe Israel Croissance (SICAV) Ordinary Shares 85 Sirius (SICAV) Ordinary Shares 96 Société Française De Gestion Et D’Investissement
Victoire Immo 1- Société Civile Ordinary Shares 100 Voltaire S.A.S Ordinary Shares 100 Groupement D’Interet Economique Du Groupe Aviva France
Aviva Direct Ireland Limited Ordinary Shares 100 Aviva Driving School Ireland Limited Ordinary Shares 100 Aviva Group Ireland Plc Ordinary Shares 100 Aviva Group Services Ireland Limited Ordinary Shares 100 Aviva Undershaft Five Limited Ordinary Shares 70 Aviva Investors Ireland Holdings Limited Ordinary Shares 100 Aviva Investors Ireland Limited Ordinary Shares 100 Aviva Life Holdings Ireland Limited Ordinary Shares 100 Aviva Life Services Ireland Limited Ordinary Shares 100 Aviva Services Payment Limited Ordinary Shares 100 Aviva Trustee Company Ireland Limited Ordinary Shares 100 Aviva Undershaft Four Limited Ordinary Shares 100 Aviva Undershaft One Se Ordinary Shares 100 Aviva Undershaft Three Se Ordinary Shares 100 Knockanevin Limited Ordinary Shares 100 Peak Re Limited Ordinary Shares 100 Aviva Europe Services EEIG Ordinary Shares 100 GAM Star Fund p.l.c., George’s Court, 54-62 Townsend Street, Dublin 2
Ordinary Shares 100 34 North Quay, Douglas, IM1 4LB Global Assetbuilder Fund PLC – Sterling Sub Fund
JPMorgan US Dollar Money Market Fund SICAV 35 26 Avenue De La Liberte, L-1930 Vam Managed Funds (Lux) Driehaus UK £ Fund 2 Rue de Bitbourg, L-1273 Henderson Horizon – European Growth Fund 2, Rue du Fort Bourbon, PO Box 1375, L-1249
Guernsey International Management Co Dorey Court, Admiral Park, St Peter Port, GY1 2HT
Jersey 22 Grenville Street, St. Helier, Jersey, JE4 8PX Channel Islands
Investec American Fund OEIC 27 5 Old Broad Street, Architas Multi Asset Active Growth Fund OEIC 21 Architas Multi-Manager Diversified Protector 70
Prosta 69, 00-838, Warsaw Adrate Sp. Z O.O. Ordinary Shares 90 Life Plus Sp. Z O.O. Ordinary Shares 90 Ul. Prosta 69, 00-838 Warsaw, 00-838, Warsaw
Norwich Union (Shareholder GP) Limited Ordinary Shares 100 Norwich Union Public Private Partnership Fund
Company name Share Class % held 42 Dingwall Road, Croydon, Surrey, CR0 2NE
Financial and operating performance Our main activities are the provision of products and services in relation to long-term insurance and savings, general, accident and health insurance and fund management.
Exchange rate fluctuations We publish our consolidated financial statements in pounds sterling. Due to our substantial non-UK operations, a significant portion of our operating earnings and net assets are denominated in currencies other than sterling, most notably the euro, Canadian dollar and the Polish zloty. As a consequence, our results are exposed to translation risk arising from fluctuations in the values of these currencies against sterling.
Basis of earnings by line of business Our earnings originate from four main lines of business: our long-term insurance and savings business, which includes a range of life insurance and savings products; general insurance, which focuses on personal and commercial lines; health insurance and fund management, which manages funds on behalf of our long-term insurance and general insurance businesses, external institutions, pension funds and retail clients. These lines of business are present in our various operating segments to a greater or lesser extent.
Arrangements for the management of proprietary funds are conducted on an arm’s length basis between our fund management and insurance businesses. Such arrangements exist mainly in the UK, France, Ireland and Canada. Proprietary insurance funds in most other countries are externally managed.
Other items are those items that, in the directors’ view, are required to be separately disclosed by virtue of their nature or incidence to enable a full understanding of the Group’s financial performance.
Operating profit before tax after integration and restructuring costs 2,798 2,309 2,098
The table below presents our consolidated operating profit for the three years ended 31 December 2016, 2015 and 2014, as well as the reconciliation of operating profit to profit before tax attributable to shareholders’ profits.
Loss on the disposal and remeasurement of subsidiaries, joint ventures and associates was £11 million (2015: £2 million profit). See ‘IFRS Financial Statements – note 3 – Subsidiaries’ for further details.
France The table below presents sales, net written premiums, operating profit and profit before tax attributable to shareholders’ profits under IFRS from our operations in France for the three years ended 31 December 2016, 2015 and 2014.
Operating profit before tax Long-term insurance and savings business 429 395 412 General insurance and health 70 71 78 Other operations (18) (17) (20)
Profit before tax attributable to shareholders’ profits 1,637 740 1,005 1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. This led to an increase in operating profit and profit before tax of £23 million for 2015 and £25 million for 2014. See IFRS financial statements – note 1 for further details.
Year end 31 December 2016 UK & Ireland general insurance and health NWP increased to £4,250 million (2015: £3,339 million), which includes the remaining reinsurance premium ceded of £107 million (2015 £712 million) relating to an outwards reinsurance contract written in 2015 by the UK business. Excluding this, net written premiums increased by £306 million, or 8%, to £4,357 million (2015: £4,051 million). Within this, general insurance and health sales NWP in the UK increased 7% to £3,930 million (2015: £3,685 million) benefitting from new partnerships and an expanding Digital offering. Ireland general insurance and health NWP increased to £427 million (2015: £367 million), up 3% on a constant currency basis, due to rating actions and strong retention.
Financial and operating performance continued investment variances of £11 million (2014: £11 million adverse) and lower goodwill impairment charges.
Aviva Investors The table below presents the sales, operating profit, profit before tax attributable to shareholders’ profits under IFRS and assets under management of Aviva Investors for the three years ended 31 December 2016, 2015 and 2014.
Operating profit from general insurance was £13 million (2014: £9 million).
On 10 April 2015, the Group completed the acquisition of 100% of the outstanding ordinary shares of Friends Life Group Limited (‘Friends Life’) through an all share exchange which gave Friends Life shareholders 0.74 Group shares for every Friends Life share held. In total 1,086 million Group shares were issued.
The operating segments are: UK & Ireland Life and UK & Ireland General Insurance; France; Poland; Italy, Spain and Other; Canada; Asia; and Aviva Investors. Further details can be found in “IFRS Financial Statements – Note 4 – Segmental information”.
The UK long-term savings market is highly competitive and we consider our main competitors to be Legal & General, Standard Life, Prudential, Scottish Widows, JRP Group and Royal London.
8 Central Bank of Ireland Insurance statistics. 9 McKinsey & co.
The general insurance market in France is mature. In personal lines, the digital transformation occurring in the market is increasing competition through multi-access and direct distribution models, and through advanced analytics, whereas in commercial lines the market still mainly relies on local physical distribution networks.
21 Market Security Analysis & Research Inc, 2015 online database. 22 Swiss Re Sigma Study (World Insurance 2015)
The four largest provinces generate around 88% of total premiums with Ontario, the largest, representing 46% of total Canadian premiums21.
Market and competition At the end of 2015, the global asset management market was estimated at USD$71.4 trillion in size, half of which was accounted for by North America and almost a third by Europe26. The global market is highly fragmented, with the top ten managers accounting for around a third of total assets, and the remainder managed by hundreds of other managers. As a result, the commercial landscape in asset management is highly competitive. Aviva Investors is ranked 45th in “The World’s 500 Largest Asset Managers5.” Our main competitors are large global active asset managers including Blackrock, Schroders, Aberdeen, M&G, Standard Life Investments and Invesco, in addition to other specialist managers for specific asset class capabilities such as Real Estate.
Of the securities not rated by an external agency 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 £2.3 billion (2015: £2.5 billion) of debt securities held in our UK Life business, predominantly made up of private placements and other corporate bonds, which have been internally rated as investment grade.
Fair value of total Fair value of total Fair value of total Fair value of total
We carry investments on our statement of financial position at either fair value or amortised cost. At 31 December 2016, approximately 99% of the Group’s total investments were carried at fair value on the statement of financial position.
Total contractual obligations above 436,404 Effect of discounting contractual cash flows for insurance contracts (32,440) Contractual undiscounted interest payments6 (9,925) Difference between carrying value of borrowings and undiscounted cash flows of principle (353) Contractual cash flows under operating leases and capital commitments (1,147) Difference between derivative liabilities contractual cash flows and carrying value (577) Liabilities of operations classified as held for sale 12,494 Unallocated divisible surplus7 9,349 Provisions8 1,510 Current and deferred tax liabilities 2,834 Other liabilities 2,719
2016 also saw further high profile cyber security breaches for corporates in the UK and elsewhere and this risk is expected to continue to increase in the future.
During 2016 the Group has continued maintain its external financial leverage consistent with the requirements for achieving the Group’s target credit rating of AA.
The Selected Information has been listed below and the Reporting Criteria against which it was assessed can be found at 1. % of employees who confirm that they have read, understood, and accepted the Business Ethics Code annually; and all employees in Aviva France who are obliged to comply with the Business Ethics Code as a term of their employment 2. % of CO2e emissions offset annually 3. % reduction of CO2e emissions relative to our 2010 baseline 4. CO2e emissions (tonnes) – absolute 5. CO2e emissions (tonnes) – relative 6. Water consumption (m3) – absolute 7. Waste generated (tonnes) – absolute 8. % of women in senior management (including subsidiary boards) 9. % of managed supply that has agreed to the supplier Code of Behaviour 10. % of managed supply that has been engaged on Corporate Responsibility during the term of their contract with Aviva 11. Amount of community investment, £
We are closely monitoring our exposure to sectors or subsectors particularly exposed to transition risk and analysing at a more granular level the individual company level risk. We are therefore particularly supportive of the Financial Stability Board’s TCFD as we believe this would provide the ideal framework for this type of disclosure.
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’. The terms of each partnership agreement are considered along with other factors which determine control.
Our principal objective in managing our liquidity and capital resources is to maximise the return on capital to shareholders, while enabling us to pay dividends, service our debt and our holding companies’ cash flows. In the context of a financial services company where our working capital is largely representative of our liquidity, we believe that our working capital is sufficient for our present operational requirements. For additional information, see ‘IFRS Financial statements – note 56 – Risk management – liquidity risk’.
Excess centre cash flow of £929 million has increased by £230 million when compared with the prior period. The increase is primarily driven by higher cash remittances, coupled with lower internal interest paid and other operating cash outflows. Internal interest paid decreased primarily due to the reduction in the internal loan between UK & Ireland general insurance and the Group centre. Other operating cash outflows were £24 million (2015: £136 million cash inflows) mainly due to adverse margin movements on derivatives and the cost of renewing hedges.
• is able to exercise significant influence over the management of the firm by virtue of the acquirer’s shares or voting power in that company or a parent undertaking of the firm.
In order to determine whether a person or a group of persons is a ‘controller’ for the purposes of FSMA, the holdings (shares or voting rights) of the person and any other person ‘acting in concert’, if any, are aggregated.
The timing of the conclusion of this review and its outcome and impact on future Ogden discount rates is unclear.
We currently use the reinsurance markets primarily to limit our risk, to support growth and to manage our capital more efficiently. We are 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. We operate a policy to manage our 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 counterparty risk is within appetite. Our asset and liability management and risk functions have an active monitoring role with escalation to the Chief Financial Officer, the Group’s asset liability committee and the Board’s risk committee as appropriate. Our largest reinsurance counterparty is BlackRock Life Ltd (including subsidiaries) arising as a result of BlackRock funds offered to UK Life customers via unit-linked contracts. At 31 December 2016, the reinsurance asset recoverable, including debtor balances, from BlackRock Life Ltd was £17,087 million. While the risk of default is considered remote due to the nature of the arrangement and the counterparty, the Group is in the process of restructuring the agreements with BlackRock Life Ltd to significantly reduce this exposure. Excluding potential exposures arising from reinsurance of unit-linked funds, our largest reinsurance counterparty is Swiss Reinsurance Company Ltd. At 31 December 2016, the reinsurance asset recoverable, including debtor balances, from Swiss Reinsurance Company Ltd (including subsidiaries) was £3,035 million.
Closure of the defined benefit schemes removes some of the volatility associated with additional future accrual for active members.
In the UK, our business is subject to regulation by both the PRA and the FCA, which 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, to make product intervention rules and to require the maintenance of adequate financial resources. The PRA and the FCA have the power to undertake a range of investigative, disciplinary or enforcement actions, including public censure, restitution, fines or sanctions and to require firms to pay compensation.
If, as a result of a particular tax risk materialising, the tax costs associated with certain transactions are greater than anticipated, it could affect the profitability of those transactions.
In the UK, HM Customs and Excise (HMRC) published its draft 2017 Finance Bill, containing legislation on the reform of the new UK loss relief regime with effect from 1 April 2017 and the restriction of the deductibility of interest also with effect from 1 April 2017. The legislation is still being consulted on, but the new loss relief regime could potentially have an adverse impact on our IFRS profits from 2017 onwards. The rules are also expected to reduce available Solvency II regulatory capital for our UK businesses.
Critical illness cover Pays out a lump sum if the insured person is diagnosed with a serious illness that is specified within the insurance policy.
FORM 20-F On 1 December 2016, the Company announced that it had resolved to voluntarily delist its American Depositary Shares (ADS) from the NYSE and to terminate the registration of its ADS and the underlying ordinary shares under the Exchange Act and to continue its ADS programme as a ‘Level 1’ sponsored programme, which will enable investors to trade ADS in the US over-the-counter market. The last day of trading on the NYSE was 22 December 2016 and the Company’s obligations to file certain reports with the SEC were suspended on the same date. The Company expects the deregistration of its ADS and the underlying ordinary shares to become effective on 22 March 2017. Copies of the Company’s Form 20-F for the financial year ended 31 December 2015 and for prior financial years can be found at www.aviva.com/reports.