Foreword This report differs from the format of previous publications. As we become more digitally focussed we have launched our new www.aviva.com website in Q4 2017. This enables us to give you news and insights into Aviva regularly throughout the year. We have therefore chosen to produce a simpler, more streamlined report for 2017 in line with our values of ‘Never Rest’ and ‘Kill Complexity’. The updated report will also ensure we are ready for guidelines relating to the Financial Reporting Council’s Digital Reporting and ESMA
In 2017, Aviva delivered growth: in profits, in dividends, in capital and in cash. Our headline results show broad-based growth. Operating earnings per share (EPS)1,2 gained 7% to 54.8 pence (2016: 51.1 pence), operating capital generation1 remained strong at £2.6 billion
• Delivered solutions to help customers ‘feel safe again in their homes’, for example offering a leak detector, camera or smart battery for customers who have made flood, theft or fire claims
• Launched the Aviva Wellbeing app to track and improve their overall health and wellbeing
‘Other Information’ section within the Annual report and accounts for further information.
We continue to maintain our strong financial position. The estimated shareholder
• Aviva Investors – a growth engine underpinned by increasing third party assets and delivering rising income and falling costs
• Indonesia – bancassurance venture in an under-penetrated, high growth emerging market
• India – we are reassessing our options given changes in market fundamentals
• Vietnam – leading business in one of the fastest growing Asian economies
Wellbeing@Aviva in 2017, an integrated approach to Wellbeing covering mental health, physical health, financial education and social and community. This includes the Aviva Wellbeing app, which allows our people to set personalised action plans to create healthy new habits, link wearables and apps to track all activity in one place, take part in challenges and earn points to exchange for a range of rewards. We have initiatives in place such as leader training for mental health, physical health checks, and free membership to
cover ratio2,4 and used excess cash and capital to repay debt and repurchase shares.
We are a major player in the Singapore life and health insurance market and our strategy is to encourage the evolution of distribution in the market towards financial advisors. We believe this will benefit customers, providing greater convenience, increased choice and superior value for money. Aviva Financial Advisors now has more than 670 financial advisors, to whom we provide technology, compliance and administrative support. Our ambition is the further expand this channel, where Aviva is a leading provider of long term savings and protection products. In 2017, Singapore delivered adjusted operating profit1 of £110 million (2016: £100 million), an increase of 5% in local currency terms. Life insurance adjusted operating profit1 of £118 million
At our Capital Markets Day event in Poland in November 2017, we upgraded our target for total cash remittances2 to Group centre over the three year period from 2016 to 2018 inclusive to £8 billion (previously £7 billion). With cumulative remittances inclusive of announced divestiture proceeds at £5.4 billion, we remain on track to deliver this target.
Having strengthened our balance sheet and streamlined our business, Aviva is now at a turning point in terms of our capacity for growth. Our eight major markets are Aviva’s strongest businesses, with leading distribution, brand strength, scale efficiency and underwriting expertise driving attractive growth potential. We continue to invest in our businesses to build on Aviva’s competitive advantage. We are strengthening our capabilities in data science and digital innovation to deliver leading propositions for customers. This is already providing tangible results in terms of engagement with customers and distribution partners. We have increased our investment in talent to support growth across the group, with notable examples being Aviva Investors, bulk-purchase annuity origination and Global Corporate and Specialty insurance. We also continue to develop our strategic partnerships in emerging markets. This investment requires us to prioritise and reallocate resources. We are initiating a zero-based budgeting programme and are seeking improvements in efficiency by reorganising functional processes through global shared services. We have also chosen to exit markets or product segments, with proceeds from these divestitures, together with special remittances from UK Insurance, providing capacity for investment.
8 The 2016 Combined Operating Ratio above excludes the impact of Ogden. 9 Further information in respect of life investment variances is included within the APM section in the Annual report and accounts.
Operating expenses2 of £820 million (2016: £765 million) were flat in constant currency, despite the significant increase in sales.
This includes a decrease due to the disposal of Ireland Health in 2016, offset by the consolidation of the Polish joint ventures and investment in growth in our continuing businesses. The European COR2 has improved by 1.8pp primarily due to
Cash remittances2 – – Operating expenses2 207 177 Solvency II Value of New Business (SII VNB)2 162 106 Combined Operating Ratio (COR)2 123.2% 109.9%
• Credit risks (actual defaults and market expectation of defaults) create uncertainty in our ability to offer a minimum investment return on our investments • Liquidity risk is the risk of not being able to make payments as they become due because there are insufficient assets in cash form
The relatively illiquid nature of insurance liabilities is a potential source of additional investment return by allowing us to invest in higher yielding, but less liquid, assets such as commercial mortgages.
We are actively engaged in public policy debate on the risks and impacts of climate change to our business and customers. We use reinsurance to reduce the financial impact of catastrophic weather events. Our flood mapping analytics helps us identify properties most at risk and improve our risk selection. Our responsible investment strategy ensures climate change, as well as other environmental and social issues are integrated into our investment decisions. Read more in respect of the physical, transition and liability risks we face as an asset owner, insurer and asset manager in our ‘Climate-related financial disclosure’.
Business Ethics Code outlines our high ethical standards and ensures we operate responsibly and transparently. We require all our people, at every level, to read and sign-up to our Code every year (99% of our employees did so in 2017). In 2017, we also reviewed and improved our business ethics training that accompanies the Code, to reinforce its importance and practical application for our people.
In 2018, we plan to increase the impact of the Aviva Community Fund across the world and aim to support 2.5 million beneficiaries through our community activities by 2020.
Maintaining contact with our 10.6 million UK life and pension customers is extremely important to us and we work proactively to reunite them with their policies. Our focus in 2017 has been on reengaging with customers whose policies are administered by our third party partners, or who are members of a Corporate Pension scheme. We have also worked closely with the life and pensions industry and the Association of British Insurers on developing a framework for dealing with ‘gone away’ customers. By the end of 2017, we managed to re-establish contact with nearly 118,000 customers. Our work in the early part of 2018 will focus on re-establishing contact with those customers who hold annuity products.
September 2017, we jointly launched a global consultation to shape this work and set-up the World Benchmarking Alliance. We continue to engage with a range of governments and wider stakeholders worldwide.
External Appointments: Chairman of Irwin Mitchell and Interserve plc, and a non-executive director of Berkeley Group Holdings plc and Transocean Ltd.
Skills and Experience: Belén has governmental and regulatory experience and a detailed knowledge of the financial services industry and European regulation that together makes her an invaluable member of the Board. Belén has held senior positions at the Spanish Treasury and represented the Spanish government at the Organisation for Economic Co-operation and Development.
Australia’s largest General Insurer (IAG). Michael’s tenure at Aviva makes him well placed to determine the nature and extent of the potential risks that could stop Aviva achieving its strategic objectives and maintaining sound risk management and internal controls.
Chair on 1 January 2017, following the retirement of Scott Wheway
• Held an annual Board strategy meeting in June 2017 to review and agree the Group’s strategy
We continued to make considerable progress on our Digital First ambition to disrupt the insurance industry, and during the year developed market leading digital propositions, while continuing to embed our approach to digital throughout the Group. We have made continued progress on our targets for earnings, growth, cash and dividends, with our capital surplus having tripled over the last four years. We have also focussed on strengthening our relationships with our customers; the Board continuously monitors customer metrics to ensure that we deliver on our purpose to Defy
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 2017 these included geopolitical risks (including
The Board’s delegated responsibilities regarding oversight of risk management and the approach to internal controls are set out on the previous pages. There is a good working practice between each committee and they provide regular reports to the Board on their activities and escalate significant matters where appropriate. The responsibilities and activities of each Board committee are set out in the committee reports.
Keith Williams 01/08/2016 1 * Chair ** Retired from the conclusion of the 2017 Annual General Meeting (10 May 2017)
Keith Williams 03/08/2017 <1 * Chair ** Retired from the conclusion of the 2017 Annual General Meeting (10 May 2017)
During 2017 financial markets remained relatively buoyant despite heightened geopolitical and national political uncertainty following the inauguration of the new Trump administration in the US, tensions over North Korea and general elections in the UK, Germany and France. The Committee considered that management actions including hedging activities and the Group’s balance sheet strength were well positioned against the market volatility experienced during the year.
infrastructure was undertaken during the year, ahead of a plan for the upgrade of legacy systems. The Committee also received updates throughout the year and regularly reviewed the risk of service interruption on the business and will continue to receive status reports on global disaster recovery plans and failover tests
to -0.75%, the impact of which we reported in the Group’s 2016 financial results. The Committee will continue to monitor developments in the Ogden rate, further discussion in Parliament and any proposed rate change in the year ahead.
Committees that operate in the Group’s regulated subsidiary entities. These subsidiary Audit Committees review the operation of internal controls, and actively challenge judgements made by management, strengthening the overall governance and control framework for the Group.
• Reviewed and challenged the treatment and recoverability of goodwill and other intangible assets
• Refreshed our External Auditor Business Standard to reflect new regulatory requirements
• Held private meetings with the External Auditor without management present to provide an appropriate forum for issues to be raised
• Reviewed reports from the External Auditor with regard to: the 2017 Audit Plan and progress against plan and reports on the audit of the 2017 half and full year results including key assumptions used and outcomes of the audit
Regulation (GDPR) which represents one of the largest changes in data management and protection for many years and comes into effect on 25 May 2018. Associated with GDPR the Committee has also reviewed the governance of the broader approach to data privacy and has proactively tested how Aviva could demonstrate that it uses customer information appropriately.
• Continued to drive the corporate responsibility agenda and monitored compliance with the Group’s corporate responsibility strategy
During 2017, the Company re-purchased 57,724,500 ordinary shares of 25 pence each for an average of £5.20 per share and an aggregate amount of £300 million. The purchased shares represent 1.19% of called-up share capital as at 31 December 2017. All shares purchased have been cancelled.
• issued preference share capital totalled 200,000,000 shares of £1 each (17% of total share capital)
With the exception of restrictions under the Company’s employee share incentive plans, while the shares are subject to the plan rules, there are no restrictions on the voting rights attaching to the
Tuesday, 8 May 2018. Further details can be found in the shareholder information section of the Notice of AGM.
To support the directors’ statement below that the Annual report and accounts, taken as a whole, is fair, balanced and understandable, the Board considered the process followed to draft the Annual report and accounts: • Each section of the Annual report and accounts is prepared by a member of management with appropriate knowledge, seniority and experience. Each preparer receives guidance on the requirement for content included in the Annual report and accounts to be fair, balanced and understandable
300% of salary for the Group CEO and 225% for the Chief
The financial metric combined with TSR will be a minimum of 80% of the total LTIP award. If, in subsequent years, shareholders indicate support for strategic measures, the Policy will allow for up to 20% LTIP to be awarded on the basis of strategic measures and this will be fully disclosed in the DRR.
2 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APM’s, including a reconciliation to the financial statements
For the annual bonus, performance measures are chosen to align to some of the Group’s key performance indicators and include financial, strategic, risk, employee and customer measures. Achievement against individual strategic objectives is also taken into account.
In determining the actual remuneration for a new ED, the Committee would consider the package in totality, taking into account elements such as the skills and experience of the individual, local market benchmarks, remuneration practice, and the existing remuneration of other senior executives. The Committee would ensure any arrangements agreed would be in the best interests of Aviva and its shareholders. It would seek not to pay more than necessary to secure the right candidate.
There is no automatic entitlement to an annual bonus for the year in which loss of office occurs. The Committee may determine that an
Termination By the director or the Company at their discretion without compensation upon giving one months’
• Formulated and developed a new proposed Policy to be put forward for shareholder approval at the 2018 AGM, taking into account the views of shareholders.
Notes 1 Adjusted IFRS EPS is calculated based on IFRS profit after tax and non controlling interest but excluding investment variances, economic adjustment changes, AVIF amortisation, profit/loss on disposal of subsidiaries and pension scheme income/charge divided by weighted average number of shares.
• The emoluments he received in respect of this directorship for the 2017 financial year were £78,750.
The table below sets out the increase in the basic salary, bonus and benefits of the Group CEO and that of the wider workforce. The UK
Group adjusted operating profit1,2 2,309 2,798 2,927 5% Dividends paid3 635 871 983 13% Share buybacks4 — — 300 — Total staff costs5 1,628 1,764 1,942 10%
• The EDs are required to retain 50% of the net shares released from ABP and LTIP awards until the shareholding requirement is met.
2 Bob Stein and Sir Malcolm Williamson stepped down from the Board at the 2017 AGM.
4 The performance periods for these awards begin at the commencement of the financial year in which the award is granted and run for a three-year period.
Disclosure which can be found at www.aviva.com/pillar3 and a link to the disclosure for the UK Insurance firms can be found at www.aviva.com/remuneration-committee.
In our opinion, Aviva plc’s Group financial statements and Company financial statements (the ‘financial statements’): • give a true and fair view of the state of the Group’s and of the Company’s affairs as at 31 December 2017 and of the Group’s and the
• We tested the design and operating effectiveness of controls over the accuracy and completeness of data used.
The valuation of the investment portfolio involves judgement and continues to be an area of inherent risk. The risk is not uniform for all investment types and is greatest for the following, where the investments are hard to value because quoted prices are not readily available: • Commercial mortgage loans (UK Life).
We have concluded that it is appropriate to deduct integration and restructuring costs as Aviva incur a base level of restructuring costs, even outside times of significant restructuring.
The other information comprises all of the information in the Annual report other than the financial statements and our auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.
• certain disclosures of directors’ remuneration specified by law are not made; or • the Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns.
(A) Basis of preparation The consolidated financial statements and those of the Company have been prepared and approved by the Directors in accordance with International Financial Reporting Standards (IFRS) as endorsed by the European Union (EU), and those parts of the Companies Act 2006 applicable to those reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of land and buildings, investment property, available-for-sale financial assets, and financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss. In accordance with IFRS 4 Insurance Contracts, the Group has applied existing accounting practices for insurance and participating investment contracts, modified as appropriate to comply with the IFRS framework and applicable standards. Further details are given in accounting policy G.
Items included in the financial statements of each of the Group’s entities are measured in the currency of the primary economic environment in which that entity operates (the functional currency). The consolidated financial statements are stated in pounds sterling, which is the Company’s functional and presentational currency. Unless otherwise noted, the amounts shown in these financial statements are in millions of pounds sterling (£m). The separate financial statements of the Company are on pages 229 to 238.
(x) Amendments to IAS 19 – Plan Amendment, Curtailment or Settlement
The following accounting policies are those that have the most significant impact on the amounts recognised in the financial statements, with those judgements involving estimation summarised there after.
Long-term business claims reflect the cost of all claims arising during the year, including claims handling costs, as well as policyholder bonuses accrued in anticipation of bonus declarations.
(N) Reinsurance The Group assumes and cedes reinsurance in the normal course of business, with retention limits varying by line of business. Premiums on reinsurance assumed are recognised as revenue in the same manner as they would be if the reinsurance were considered direct business, taking into account the product classification of the reinsured business. The cost of reinsurance related to long-duration contracts is accounted for over the life of the underlying reinsured policies, using assumptions consistent with those used to account for these policies. Where general insurance liabilities are discounted, any corresponding reinsurance assets are also discounted using consistent assumptions.
The present value of future profits on a portfolio of long-term insurance and investment contracts, acquired either directly or through the purchase of a subsidiary, is recognised as an asset.
for a continuous six-month period or more than 40% at the end of the reporting period, or been in an unrealised loss position for a continuous period of more than 12 months at the end of the reporting period. We also review our largest equity holdings for evidence of impairment, as well as individual equity holdings in industry sectors known to be in difficulty. Where there is objective evidence that impairment exists, the security is written down regardless of the size of the unrealised loss.
(AC) Income taxes The current tax expense is based on the taxable profits for the year, after any adjustments in respect of prior years. Tax, including tax relief for losses if applicable, is allocated over profits before taxation and amounts charged or credited to components of other comprehensive income and equity, as appropriate. Provision is made for deferred tax liabilities, or credit taken for deferred tax assets, using the liability method, on all material temporary differences between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. The principal temporary differences arise from depreciation of property and equipment, revaluation of certain financial assets and liabilities including derivative contracts, technical provisions and other insurance items, provisions for pensions and other postretirement benefits and tax losses carried forward; and, in relation to acquisitions, on the difference between the fair values of the net assets acquired and their tax base. The rates enacted or substantively enacted at the statement of financial position date are used to value the deferred tax assets and liabilities.
Liabilities Insurance liabilities 4,720 Liability for investment contracts 7,247 Unallocated divisible surplus 832 Other liabilities 34
Strategic report Governance IFRS financial statements Other information 3 – Subsidiaries continued (iii) Spain
Liabilities Insurance liabilities (914) (4,448) Liability for investment contracts (8,663) (7,175) Unallocated divisible surplus (19) (859) Other liabilities (277) (12)
On 23 February 2018, Aviva announced that it has agreed to sell its entire shareholding in the life insurance and pensions joint ventures Cajamurcia Vida and Caja Granada Vida to Bankia, for a total consideration of €202 million. The transaction is subject to regulatory and anti-trust approvals and is expected to complete in the second quarter of 2018. Following completion of the transaction, Aviva will retain a shareholding in a small life insurance operation, Pelayo Vida, and a residual support centre in Spain. In accordance with IFRS 5, these businesses have been classified as held for sale from December 2017, when management were committed to a plan to sell the businesses. The businesses are measured at their carrying amount and remain consolidated subsidiaries of Aviva at the balance sheet date.
United Kingdom comprises two operating segments – Life and General Insurance. The principal activities of our UK Life operations (including Friends Life) are life insurance, long-term health and accident insurance, savings, pensions and annuity business. UK General
These countries are not individually significant at a Group level, so have been aggregated into a single reporting segment in line with IFRS 8. The principal activities of our Italian and Irish operations are long-term business and general insurance. Ireland also includes the results of our Ireland Health business, up to the date of disposal on 1 August 2016. The principal activity of our Spanish operation is the sale of longterm business, accident and health insurance and a selection of savings products. Our ‘Other’ operations include our life operations in
Premiums written net of reinsurance 5,341 4,078 3,028 5,614 583 5,813 895 — 25 25,377 Net change in provision for unearned premiums — (63) (84) 23 3 (21) (11) — — (153)
Gross written premiums 5,264 4,219 2,542 6,624 496 5,377 920 — — 25,442 Premiums ceded to reinsurers (1,469) (394) (89) (86) (9) (183) (134) — — (2,364) Internal reinsurance revenue — (2) — — — (10) (11) — 23 —
Profit/(loss) before tax 2,238 (271) 164 325 141 329 25 130 (1,248) 1,833 Tax attributable to policyholders’ returns (633) — — — — (5) (2) — — (640)
Interest on collateral received 9 10 Net finance charge on pension schemes (note 48(b)(i)) 24 29 Unwind of discount on GI reserves 2 2 Extinguishment of debt 47 —
During 2017 the Group has kept its long-term assumptions for future property prices and rental income under review to allow for the possible future adverse impact of the decision for the UK to leave the European Union. The aim has been to maintain the same allowance in these assumptions in 2017 as was included in 2016, as the impact of the Brexit process on the UK economy remains uncertain. In 2016, investment variances and economic assumption changes were £379 million positive. Positive variances in the UK reflected lower interest rates and narrowing credit spreads, which increased asset values more than liabilities. In the first half of 2016 the Group revised its expectation of future property prices and rental income in light of the UK referendum vote for the UK to leave the European
Strategic report Governance IFRS financial statements Other information 9 – Longer-term investment return and economic assumption changes for non-long-term business continued (d) The total assets supporting the general insurance and health business, which contribute towards the longer-term return, are: £m
Accumulated amortisation At 1 January 2016 (586) (298) (517) (57) (1,458) Amortisation for the year (255) (284) (155) — (694) Disposals and transfers 43 — 211 — 254 Foreign exchange rate movements (72) (1) (43) — (116)
Aviva Life Insurance Company India Limited Life insurance India 49.00% 49.00% SCPI Ufifrance Immobilier Property Management France 20.40% 20.40% SCPI Selectipierre 2 Property Management France 28.67% 28.85% SCPI Logipierre 1 Property Management France 44.46% 44.46% AI UK Commercial Real Estate Debt Fund1 Property Management UK 15.90% 16.20% Encore+1 Property Management UK 4.80% 7.00%
basis in line with Actuarial Practice Standard 10 (‘APS 10’) as defined by the Institute of Actuaries of India. The EV cash flow projections, based on business plans covering a three year period, were adjusted to reflect a more prudent view of the value of the in-force business by applying higher expense overruns over an extended 7 year period on a run-off rate of 14% and pre-tax discount rate of 12%. The recoverable amount determined based on this adjusted embedded value calculation and allocated to Aviva’s 49% shareholding was £93 million which upon comparison with Aviva India’s carrying amount at the time of the impairment assessment indicated that its goodwill and AVIF balances were fully impaired.
• 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.
Set out below is a comparison of the carrying amounts and fair values of financial assets and liabilities, excluding those classified as held for sale. These amounts may differ where the assets or liabilities are carried on a measurement basis other than fair value, e.g. amortised cost.
Strategic report Governance IFRS financial statements Other information 22 – Fair value methodology continued
The carrying amounts of loans at 31 December 2017 and 2016 were as follows: At fair value through profit or loss other than trading £m
Of the above total loans, £26,206 million (2016: £23,432 million) are due to be recovered in more than one year after the statement of financial position date.
Loan notes held by third parties are as follows: Total loan notes issued, as above 1,411 1,327 Less: Loan notes held by Group companies (231) (217)
Total financial investments 5,507 312,145 1,736 319,388 6,119 303,322 1,100 310,541 Less: assets classified as held for sale
The Group has entered into stock lending arrangements in the UK and overseas in accordance with established market conventions. The majority of the Group’s stock lending transactions occur in the UK, where investments are lent to EEA-regulated, locally domiciled counterparties and governed by agreements written under English law.
Australia 0.2 — 0.2 0.6 0.2 0.8 Denmark — — — 0.6 — 0.6 France 0.5 0.1 0.6 2.6 0.6 3.2 Germany — — — 0.5 0.3 0.8 Ireland — — — — — — Italy — — — 0.1 — 0.1 Netherlands 0.4 0.2 0.6 1.4 0.2 1.6 Spain 0.4 — 0.4 0.3 0.1 0.4 Sweden 0.2 — 0.2 0.4 0.1 0.5 Switzerland — — — 1.3 — 1.3 United Kingdom 1.3 0.4 1.7 1.4 0.8 2.2 United States 1.0 0.2 1.2 1.7 0.1 1.8 Other 0.4 0.1 0.5 1.2 0.1 1.3
Total (excluding assets held for sale) 4.4 1.0 5.4 12.1 2.5 14.6
No new Aviva plc ordinary shares will be issued to satisfy awards made under plans iv, v, vi b) or vi c).
Balance at 31 December 2016 1,146 28 59 (514) 78 (349) Arising in the year through other comprehensive income: Fair value gains — (1) (7) — — (8) Fair value gains transferred to profit on disposals — — (2) — — (2) Share of other comprehensive income of joint ventures and associates — — 6 — — 6 Foreign exchange rate movements1 125 — — (100) — (100) Aggregate tax effect – shareholders’ tax (4) 2 9 — — 11
The Group has no subsidiaries whose non-controlling interest is material on the basis of their share of profit or loss 39 – Contract liabilities and associated reinsurance The following notes explain how the Group calculates its liabilities to policyholders for insurance and investment products it has sold to them. Notes 40 and 41 cover these liabilities and note 42 details the financial guarantees and options given for some of these products. Note 43 details the reinsurance recoverables on these liabilities while note 44 shows the effects of changes in the assumptions.
(10,762) 909 (9,853) (10,674) 1,155 (9,519) Provisions for claims incurred but not reported (2,837) 884 (1,953) (2,960) 795 (2,165)
Present value 804 141 140 183 266 391 535 839 1,156 1,867 3,231 9,553 Cumulative effect of foreign exchange
Change in liability 10,183 11,199 Effect of portfolio transfers, acquisitions and disposals1 (4) (757) Foreign exchange rate movements 277 1,065 Other movements 8 (10)
The Group’s UK with-profits funds have written individual and group pension contracts which contain guaranteed annuity rate options (GAOs), where the policyholder has the option to take the benefits from a policy in the form of an annuity based on guaranteed conversion rates. The Group also has exposure to GAOs and similar options on deferred annuities. Realistic liabilities for GAOs in the UK with-profits funds were £2,186 million at 31 December 2017 (2016: £2,456 million). With the exception of the New With-profits Sub Fund (NWPSF), movements in the realistic liabilities in the with-profits funds are offset by a corresponding movement in the unallocated divisible surplus, with no net impact on IFRS profit. Realistic liabilities for GAOs in the NWPSF
Carrying amount at 1 January 250 289 Premiums ceded to reinsurers in the year1 489 668 Less: Reinsurers’ share of premiums earned during the year1 (484) (687)
Strategic report Governance IFRS financial statements Other information 46 – Tax assets and liabilities This note analyses the tax assets and liabilities that appear in the statement of financial position and explains the movements in these balances in the year.
Equities 35 94 129 71 — 71 Property — 365 365 — 338 338 Pooled investment vehicles 167 5,133 5,300 189 3,540 3,729 Derivatives 4 (34) (30) 70 17 87 Cash and other1 (1,801) (4,187) (5,988) 714 (3,723) (3,009)
Strategic report Governance IFRS financial statements Other information 48 – Pension obligations continued Sensitivity analysis
Within one year 978 427 1,405 642 426 1,068 1 to 5 years 928 1,627 2,555 733 1,683 2,416 5 to 10 years 444 1,759 2,203 927 1,769 2,696 10 to 15 years1 - 1,756 1,756 - 1,750 1,750 Over 15 years1 6,216 3,282 9,498 6,163 3,499 9,662
Subordinated notes issued by the Company rank below its senior obligations and ahead of its preference shares and ordinary share capital. The dated subordinated notes rank ahead of the undated subordinated notes. The fair value of notes at 31 December 2017 was £8,348 million (2016: £7,731 million), calculated with reference to quoted prices.
Movements in borrowings during the year were: Core Structural £m Operational £m Total £m
New borrowings drawn down, excluding commercial paper, net of expenses — 55 55 1,372 148 1,520 Repayment of borrowings, excluding commercial paper1 (488) (151) (639) (320) (56) (376) Movement in commercial paper2 — — — 42 — 42
Strategic report Governance IFRS financial statements Other information 50 – Payables and other financial liabilities This note analyses our payables and other financial liabilities at the end of the year.
Strategic report Governance IFRS financial statements Other information 54 – Group capital management continued The Group manages capital in conjunction with solvency capital requirements, and seeks to; on a consistent basis: • Match the profile of our assets and liabilities, taking into account the risks inherent in each business; • Maintain sufficient, but not excessive, financial strength in accordance with risk appetite, to support new business growth and satisfy the requirements of our regulators and other stakeholders giving both our customers and shareholders assurance of our financial strength.
2 Goodwill, AVIF and other intangibles are maintained within the capital base. Goodwill includes goodwill in subsidiaries of £1,876 million (2016: £2,045 million), goodwill in joint ventures of £17 million (2016: £20 million) and goodwill in associates of £nil (2016: £47 million). AVIF and other intangibles comprise £3,456 million (2016: £5,468 million) of intangibles in subsidiaries, £40 million (2016: £72 million) of intangibles in joint ventures and £nil million (2016: £18 million) of intangibles in associates, net of deferred tax liabilities of £(721) million (2016: £(783) million) and the non-controlling interest share of intangibles of £(222) million (2016: £(226) million).
As at 31 December 20161 AAA AA A BBB Below BBB Not rated
Other investments (including assets of operations classified as held for sale) include unit trusts and other investment vehicles; derivative financial instruments, representing positions to mitigate the impact of adverse market movements; and other assets includes deposits with credit institutions and minority holdings in property management undertakings. The credit quality of the underlying debt securities within investment vehicles is managed by the safeguards built into the investment mandates for these funds which determine the funds’ risk profiles. At the Group level, we also monitor the asset quality of unit trusts and other investment vehicles against Group set limits.
Despite a pick up in market interest rates from the historical lows experienced in 2016, the continued low interest rate environment in a number of markets around the world has resulted in our current reinvestment yields being lower than the overall current portfolio yield, primarily for our investments in fixed income securities and commercial mortgage loans. As long as market yields remain below the current portfolio level, the portfolio yield, and as a result net investment income, will continue to decline. While we anticipate interest rates may remain below historical averages before the 2008 financial crisis for some time to come, it is also possible that further future increases in interest rates or market anticipation of such increases, if larger and more rapid than expected, could adversely impact market values of our portfolio of fixed income securities and increase the risk of credit defaults and downgrades. Other product lines of the Group, such as protection, are not significantly sensitive to interest rate or market movements. For unitlinked business, the shareholder margins emerging are typically a mixture of annual management fees and risk/expense charges. Risk and expense margins will be largely unaffected by low interest rates. Annual management fees may increase in the short term as the move towards low interest rates increases the value of unit funds. However, in the medium term, unit funds will grow at a lower rate which will reduce fund charges. For the UK annuities business interest rate exposure is mitigated by closely matching the duration of liabilities with assets of the same duration. The UK participating business includes contracts with features such as guaranteed surrender values, guaranteed annuity options, and minimum surrender and maturity values. These liabilities are managed through duration matching of assets and liabilities and the use of derivatives, including swaptions. As a result, the Group’s exposure to sustained low interest rates on this portfolio is not material. The
Strategic report Governance IFRS financial statements Other information 56 – Risk management continued The nature of the business means that prices in certain circumstances can be increased to maintain overall profitability. This is subject to the competitive environment in each market. To the extent that there are further falls in interest rates the investment yield would be expected to decrease further in future periods. Sensitivity to changes in interest rates is given in section ‘(j) risk and capital management’ below.
General insurance and health business sensitivities as at 31 December 2017 31 December 2017 Impact on profit before tax £m Interest rates
Forwards 10,281 87 (34) 11,976 96 (120) Interest rate and currency swaps 7,336 176 (568) 7,441 148 (982) Options — — — 300 — (23)
Associates 4 (4) — — 4 (3) — — Joint ventures 49 — — 2 46 — — 2 Employee pension schemes 12 — — 14 16 — — 5
Cybele Eur Israel Croissance (FRAISCR) SICAV 85 37 Avenue des Champs Elysées, 75008,
Encore Plus Lux Co Diamants II S.à r.l. Ordinary Shares 5
Fund Unit Trust 53 4 Shenton Way, #01-01 SGX Centre 2,
National Corporate Research Limited, 850 New Burton Road, Suite 201, Dover,
At 31 December 2017, the Company has two wholly owned subsidiaries, both incorporated in the UK. These are General Accident plc and Aviva Group Holdings Limited. Aviva Group Holdings Limited is an intermediate holding company, while General Accident plc has preference shares listed on the London Stock Exchange. The principal subsidiaries of the Aviva Group at 31 December 2017 are set out in note 60 to the Group consolidated financial statements.
The choice of rates is designed to match the characteristics of financial investments (which are also exposed to interest rate fluctuations) held in both the Company and the relevant subsidiary, to mitigate as far as possible each company’s net exposure.
The Company’s direct subsidiaries are exposed to foreign currency risk arising from fluctuations in exchange rates during the course of providing insurance and asset management services around the world. The exposure of the subsidiaries to currency risk is considered from a Group perspective in the Group consolidated financial statements, note 56(c)(v). The Company faces exposure to foreign currency risk through some of its borrowings which are denominated in Euros. However, most of these borrowings have been on-lent to a subsidiary which holds investments in Euros, generating the net investment hedge described in the Group consolidated financial statements, note 57(a).
Company, accruing interest at 75 basis points above 6 month LIBOR and with maturity date of 3 September 2018. The total amount drawn down on the facility at 31 December 2017 was £nil (2016: £nil).
Group is regulated on a Solvency II basis and the Group Solvency II position reflects the consolidation of all underlying legal entities, including non-EEA subsidiaries, under Solvency II. The Solvency II regime is underpinned by market-consistent principles whereby non-insurance assets and liabilities are typically measured using market value and liabilities arising from insurance contracts which are valued on a best estimate basis using marketimplied assumptions. In addition, a risk margin is required to be held in respect of insurance contract liabilities to represent the additional amount an insurer would be expected to pay to transfer its obligations to another insurer. The combination of best estimate liabilities and the risk margin is referred to as ‘technical provisions’.
The strategic report sets out a review of Aviva’s business, addressing key issues such as its business model, strategy and principal risks and uncertainties facing the business. The strategic report forms part of the annual report and accounts. However, shareholders can also elect to receive Aviva’s standalone strategic report as an alternative to the full annual report and accounts by contacting Computershare using the contact details opposite.
American Depositary Receipts (ADRs) – Contact: For any queries regarding Aviva ADRs, please contact Citibank