Q Do you remain committed to your ‘One Aviva, Twice the Value’ strategy?
UK Europe Products — Long-term insurance and savings: Pensions, annuities, protection, bonds and savings, equity release
UK Our life and general insurance businesses are based in York and Norwich respectively, with operations spread across the UK. We also have overseas operations in India and Sri Lanka
Asia Pacific Locations Australia** China Hong Kong India Malaysia Singapore South Korea Sri Lanka Taiwan
Annual Report and Accounts 2009 indicators assess performance at a group level are set out below.
Return on equity shareholders’ funds The improvement in 2009 to 16.2% (2008: 11.0%) reflects the increase in the post-tax MCEV operating result and the impact of lower opening equity shareholder’s funds following falls in asset values in 2008.
Performance reviewAviva plc Aviva UK continued Annual Report and Accounts 2009
By moving to a pan-European operating model, we are simplifying our product range, shortening the time to launch new products for our customers and making significant efficiency gains by centralising our operations, enabling us to improve cost management, grow net profits and enhance dividends remitted to the Group.
Performance IFRS operating profit was in line with the prior year at £115 million while funds under management increased 6% to £250 billion as markets recovered. Our financial results are discussed in more detail on page 48 of this report.
— Other, which includes equity release and structured settlements. — Investment sales comprise of retail sales of mutual fund type products such as unit trusts, individual savings accounts (ISAs) and Open Ended Investment Companies (OEICs).
Products We offer a wide range of bonds and savings, and protection products. Investment products include both unit linked and traditional plans, where profit sharing is regularly used to increase the policy return. Our traditional plans include savings schemes and income products. Pension savings products have valuable tax advantages each year for such contributions within permitted limits and we offer a flexible range of individual and group plans with alternative investment choices. We also offer protection products, covering both mortgages and credit loans typically providing cover for the family in the event of death or disability.
Market We believe that the Dutch insurance market is mature and that cost reduction and economies of scale are becoming increasingly important. Customers are increasingly demanding that suppliers provide value-for-money high-performing products with transparent charges. The Dutch savings market is extremely competitive with banks now able to offer retirement products on the same terms as insurers.
USA Business overview and strategy Aviva USA is the largest provider to both the fixed indexed life insurance and fixed indexed annuities according to reports on 2008 sales which were released by LIMRA and AnnuitySpecs in early 2009. Our acquisition of the former AmerUs Group was completed in late 2006. Following this we have achieved significant growth and market penetration in the US market, with more than one million customers.
Market and competition The Asia Pacific insurance market includes both mature markets such as Australia, Hong Kong, Singapore, Taiwan and South Korea and emerging markets such as India and China. The mature markets accounted for around 82% of our long-term and savings sales in 2009. However we expect that large emerging markets, particularly our ‘must win’ markets of India and China, will become increasingly more important in the future. In long-term insurance and savings, we believe that the long-term outlook is positive and will be driven by a generally high savings rate, under-penetration of insurance and diversified savings, relatively higher GDP growth and the growing need for old age provision.
Aviva Australia (prior to the sale on 1 October 2009) provided investment and compulsory pensions (superannuation) products through our Navigator platform and protection insurance business.
Products Our product range is broad and covers most asset classes. In Europe we have a range of SICAVs (domiciled in France, Luxembourg, Romania and Poland). These funds cover all key asset classes and normally have different share classes depending on the size and type of investor. Our normal distribution model for these funds focuses on wholesale distributors, asset allocators and smaller institutional investors.
Asset classes Aviva Investors offers a wide range of investment solutions across all asset classes and in all significant financial centres worldwide. Where we do not directly manage assets, we believe we have the skills and experience to select the right third-party asset managers to complement our own products.
Expenses Claims and benefits paid, net of recoveries from reinsurers (27,549) (29,353) (27,121) (23,444) (19,706) Change in insurance liabilities, net of reinsurance (5,682) 3,885 (3,508) (2,594) (10,376) Change in investment contract provisions (11,185) 10,629 (2,018) (6,002) (7,814) Change in unallocated divisible surplus (1,547) 4,482 2,922 (558) (1,474) Fee and commission expense (4,396) (4,411) (4,244) (5,461) (4,330) Other expenses (5,366) (5,416) (3,473) (3,557) (3,166) Finance costs (1,336) (1,547) (1,217) (856) (609)
Profit/(loss) before tax attributable to shareholders’ profits 1,805 (1,300) 1,832 2,994 2,528
In our long-term insurance and savings business we make assumptions about key non-economic factors, such as the mortality rate that we expect to be experienced by our policyholders. In countries where the life expectancy is growing, this will need to be reflected in our pricing models as lower mortality rates will increase profitability of life insurance products but will reduce the returns on annuity products. We review our assumptions against our own experience and industry expectations. During 2007, 2008 and 2009, our results were not impacted by any major changes in mortality assumptions.
With-profits business We write products through our with-profits funds mainly in our UK operating segment, with smaller funds in Ireland, Australia and Singapore. These funds enable policyholders to participate in a large pool of diverse investments, therefore reducing their exposure to individual securities or asset classes. The investment pool is managed by us with returns to with-profits policyholders paid through bonuses which are added to the value of their policy. In order to provide an element of stability in the returns to policyholders, bonuses are designed to reduce policyholders’ exposure to the volatility of investment returns over time and to provide an equitable share of surplus earned, depending on the investment and operating performance of the fund. Shareholders also have a participating interest in the with-profit funds and any declared bonuses. Generally, policyholder and shareholder participation in with-profit funds in the UK is split 90:10.
Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information predominantly unit-linked life and pensions business, where the risk of investing policy assets is borne entirely by the policyholder. In addition investment type business also includes life and pensions business where the risk of investing policy assets is typically shared between policyholders and shareholders, subject to a minimum rate of investment return guaranteed to policyholders. Operating earnings arise from unit-linked business when fees charged to policyholders based on the value of the policy assets exceed costs of acquiring new business and administration costs. In respect of remaining investment type business, investment return generated from policy assets has an effect on operating earnings though this is often non-proportional. Finally in respect of all investment type business, shareholders bear the risk of investing shareholder capital in support of these operations.
Premiums written net of reinsurance 32,114 34,365 29,333 Net change in provision for
Year ended 31 December 2008 Sales in 2008 were £51,377 million, an increase of £1,103 million or 2% from £50,274 million in 2007. This increase was mainly attributable to growth in Europe and North America in life and pension sales. Life and pension sales in Europe increased by 8% from £15,684 million in 2007 to £16,952 million in 2008, boosted by strength in the euro exchange rate, and in North America life and pension sales increased considerably to £5,715 million, an increase of £2,069 million or 57% from £3,646 million in 2007. General insurance and health sales were £11,137 million, an increase of 5% across the whole group from £10,569 million in 2007.
Net written premiums in our UK long-term insurance and savings business were £4,389 million, a decrease of £2,718 million, or 38%, from £7,107 million in 2008. The decrease is primarily due to lower bulk purchase annuity and bond sales.
Adjusted operating profit in our UK long-term insurance and savings business decreased by 10% to £658 million (2008: £733 million) reflecting lower asset values on bonuses declared in our with-profits funds and on the level of the with-profit special distribution bonus. The non-profit result increased to £495 million (2008: £462 million) including the benefit of the reattribution but was partly offset by lower annual management charges.
Aviva plc Financial and operating performance continued Annual Report and Accounts 2009
As a result of the IPO, the strategic management of our investment in Delta Lloyd is now managed independently from our other operations. Accordingly, commentary on Europe’s performance is presented as two separate segments for 2009.
Aviva Europe’s adjusted operating profit of our general insurance and health businesses was £132 million in 2009, a decrease of £88 million, or 40%, over £220 million in 2008, primarily due to extreme weather in Ireland and France during the year.
General insurance and health sales were £1,163 million (2008: £2,278 million), a decrease of £1,115 million, or 49%, as a result of the sale of their health business on 1 January 2009. Adjusting for the impact of the sale, Delta Lloyd general insurance sales were 13% higher on 2008 (2008: £1,028 million) benefiting from the strengthening of the euro and the inclusion of a full year’s contribution from Swiss Life Belgium.
Net written premiums in 2008 increased by £1,935 million or 15% to £15,066 million (2007: £13,131 million).
Year ended 31 December 2009 Sales in Aviva North America were £6,345 million, a decrease of £971 million, or 13%, (2008: 7,316 million). The decrease is driven by a decrease in annuity sales resulting from management action to focus on capital efficiency and the decision not to participate in funding agreement business in 2009. Protection product sales increased by 40% on actions to create innovative products and expand product distribution. General insurance sales in Canada increased by £199 million, or 12%, to £1,800 million (2008: £1,601 million), with growth driven by increased sales in homeowner while personal auto premiums were maintained at a similar level to 2008.
Year ended 31 December 2009 Sales in Asia Pacific decreased by £787 million, or 22%, to £2,712 million (2008: £3,499 million). In Australia, sales decreased by 34%, impacted by the sale of the Australian business on 1 October 2009. Sales in Asia decreased 11% as a result of the uncertain economic environment, leading to investor caution across Singapore, Hong Kong, India and our other Asian markets, together with the impact of the strategic decision to scale back the sale of capital intensive products in several Asian markets.
Year ended 31 December 2008 Sales in Aviva Asia Pacific were £3,499 million in 2008, a decrease of £784 million, or 18%, from £4,283 million in 2007. The decrease was driven by significantly lower investment sales through Navigator (our wrap administration platform) of £1,746 million, which were £914 million lower than sales of £2,660 million in 2007. The lower investment sales were partially offset by higher long-term insurance and savings business sales of £1,720 million compared to £1,595 million in 2007.
Aviva Investor’s funds under management were £250 billion, an increase of £14 billion, or 6%, on 2008. The increase is a result of investment performance and product sales together with capital appreciation in some fixed income markets, offset by the impact of sterling’s appreciation against the euro and US dollar.
Policyholder Participating Shareholder Total assets held Balance assets fund assets assets analysed for sale sheet total
Financial investment balances included in the remainder of this disclosure include financial investments of operations classified as held for sale.
Fair value Fair value £m % of total £m % of total
At 31 December 2009, shareholder investment in equity securities amounted to £5,027 million, of which 77% related to our business in the Netherlands, 17% our Italian business and 6% other businesses. The Italian equity holdings are held both directly by our Italian subsidiaries and by group holding companies.
The remaining shareholder exposure to equity securities, other than banks, trusts and insurance companies, arises principally in our Netherlands business, amounting to 95% of the total exposure of £3,282 million.
Unit trusts and other investment vehicles 23,914 5,415 615 29,944 Derivative financial instruments 146 621 1,311 2,078 Deposits and credit institutions 307 29 633 969 Minority holdings in property management undertakings 10 605 52 667 Other 490 552 149 1,191
— Strategic risks include issues such as customer, brand, products and markets as well as any risks to our business model arising from changes in our market and risks arising from mergers and acquisitions.
The regional chief risk officers work with business management to ensure that our risk management framework is being used consistently across all our businesses. They also work with the group chief risk officer to coordinate and communicate decisions that are taken at a group level.
— Adverse longevity experience (the risk that people will live longer than we have assumed)
— We are vulnerable to press speculation, negative publicity, adverse market Brand and reputation and customer perception Our dependence on the strength of our brands, the brands — Products or services recommended by us do not perform as expected of our partners, and our reputation with customers and — We operate in an industry where integrity, customer trust and confidence distributors in the sale of our products and services are paramount
For further details refer to the “Financial statements IFRS – Note 56 – Risk management”.
— A 10% decrease in equity prices would decrease total shareholders’ funds by £0.7 billion net of tax on an IFRS basis and by £1.0 billion net of tax on an MCEV basis
— Adherence to credit policy and limits frameworks by all businesses — Regular monitoring and reviews by credit approvals committee of exposures and management against limits — Maintaining a diversified portfolio and review concentrations of exposure by types, sector, geography and credit ratings — Utilisation of risk reduction techniques such as hedging and collateral posting requirements
— Our total potential loss from our most concentrated exposure (northern Europe windstorm) is approximately £335 million for a one in ten year annual loss scenario, compared to approximately £620 million for a one in hundred year annual loss scenario
Following High Court and FSA approval in September, the deal to complete the reattribution of our inherited estate was concluded on 1 October with 87% of policyholders voting and 96% of these voting in favour of the offer. The total value of the inherited estate for the reattribution was £1.25 billion, with £0.5 billion paid from shareholder funds to policyholders. The impact of the policyholder incentive payment reduced Group IGD by £0.5 billion.
Basis of preparation This review complies with the recommendations of the European Union (EU) Modernisation Directive, the Companies Act 2006 (Contents of Directors’ report: Business review) and is in line with current best practice. It is addressed to, and written for, the members of Aviva plc with the aim of providing a fair review of our business development, performance and position at the current time. In producing this review, we aim to present a view that is balanced and comprehensive and that is consistent with the size and complexity of our business. The review is written in the context of the risks and uncertainties facing our business. We anticipate that the format and content of the review will evolve over time, along with developments in our business and the external environment.
Use of estimates All estimates are based on management’s knowledge of current facts and circumstances, assumptions based on that knowledge and their predictions of future events and actions. Actual results can always differ from those estimates, possibly significantly. The table below sets out those items that we consider particularly susceptible to changes in estimates and assumptions, and the relevant accounting policy.
Aviva plc Accounting basis of preparation continued Annual Report and Accounts 2009
We continue to support humanitarian aid through our Oxfam 365 partnership, which helps to equip Oxfam with the resources and materials to respond to emergencies as soon as they happen. Our employee groups also link up with Oxfam to raise awareness of key issues and in March our Women’s Network match-funded donations made by employees to Oxfam’s ‘Yes We Can’ campaign. This was in support of Oxfam’s work to change attitudes towards women in Nepal and South Asia and create a fairer society.
We continue to pursue our goal to incrementally reduce our carbon footprint on an annual basis. We have also set out a long-term carbon reduction target to help focus our businesses’ environmental strategies. By 2020 we aim to reduce our carbon emissions by 30% from our 2006 baseline.
— Car insurance customers in some of our general insurance markets can opt for lower premiums if they drive vehicles with low CO2 emissions.
Our drive to increase customer satisfaction and loyalty gained extra momentum this year with the launch of the first Aviva Customer Cup. This is our new global tournament designed to help our employees identify and remove barriers to customer loyalty, stimulate innovative ideas and enable teams around the world to be recognised for delivering the ‘One Aviva’ brand promise. Projects from more than 340 teams were evaluated by judges in three tournament stages with 10 teams making it through to the grand final in October. The winning group was the ‘Ears of RAC’ with a web-based project to capture comments and opinions from customers, spot trends and respond to them quickly. The focus is now on sharing the best practices of the top 10 projects in other parts of Aviva’s business and embedding these before launching the next tournament in 2010.
% of employees who rate us favourably on — — 67% Meet/exceed GFS New KPI � Increase the percentage customer index benchmark of favourable ratings
— People: Current and historical data for women in senior management excludes Delta Lloyd group. We also report KPIs relating to employee engagement. These can be found in our online CR report: www.aviva.com/corporate-responsibility/reports
Through 2010 there will be a number of projects across Aviva to further embed the NPS discipline into the way we do business. These include using the NPS discipline to capture the voice of our distributors as well as Transactional NPS, which surveys our customers after they ’touch‘ the business to understand and fix immediate operational issues.
Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information and a member of the biotech advisory board of Monsanto (biotechnology). Former chairman of Amylum Group (agricultural/industrial). Former nonexecutive director and vice- chairman of governmental affairs for Tate & Lyle plc (agricultural/industrial) and a nonexecutive director of S A Spadel N.V. (food and beverages). Chairman of the corporate responsibility committee and member of the remuneration committee.
Corporate responsibility The Group has a well established corporate responsibility programme and continues to use its position to influence other companies to engage in sustainable business practices and to be open and transparent in the information they publicly report. In November 2009 the Company announced its intention to put its Corporate Responsibility Report to an advisory vote of shareholders at the 2010 Annual General Meeting as a means of obtaining feedback on the report and the Company’s performance in this area. The report is set out on page 68 and further details of the resolution are set out in the Notice of Meeting.
The Board has a comprehensive induction programme consisting of several separate sessions which take place over a number of months at times convenient for the director. The sessions include presentations from key members of senior management, visits to the Group’s main operating businesses, and meetings with the external auditor and one of the Company’s corporate brokers. Further or follow-up meetings are arranged where a director requires a deeper understanding on a particular issue.
Directors’ attendance The Company requires directors to attend all meetings of the Board and the committees on which they serve and to devote sufficient time to the Company in order to perform their duties. The attendance of the directors at the Board and committee meetings held in 2009 was as follows: Board and Board committee attendance 2009 Corporate Risk and
Number of meetings held* 15 9 4 6 6 8 Mary Francis# 13 9 — — 6 8 Richard Goeltz 15 9 — 6 — — Euleen Goh 15 9 3 — — — Mark Hodges 14 — — — — — Andrea Moneta (appointed 29 September 2009)
Throughout the year the chairman of each committee provided the Board with a summary of the key issues considered at the meetings of the committees and the minutes of the meetings were circulated to the Board. The committees operate within defined terms of reference which are available on the Company’s website, www.aviva.com, or from the Group Company Secretary upon request. Board committees are authorised to engage the services of external advisers as they deem necessary in the furtherance of their duties at the Company’s expense.
The Risk and Regulatory Committee, working closely with the Audit Committee, assists the Board in providing direction and oversight around the Group’s risk and regulatory policies and procedures, including those relating to compliance, risk management, financial malpractice and internal controls.
The Company has taken full advantage of the provisions within the Companies Act 2006 allowing communications to be made electronically to shareholders where they have not requested hard copy documentation. As a result, the Company’s website has become the primary method of communication for the majority of its shareholders. Details of the information available for shareholders on the website can be found in shareholder information on pages 323 to 324 and the Shareholder Services section of the website at www.aviva.com/investor-relations.
Aviva plc Corporate governance report continued Annual Report and Accounts 2009
The directors are responsible for maintaining proper accounting records, which are intended to disclose with reasonable accuracy, at any time, the financial position of the Company and the Group. They are also ultimately responsible for the systems of internal control maintained by the Group for safeguarding the assets of the Company and the Group and for the prevention and detection of fraud and other irregularities. Further details of the systems of internal controls maintained by the Group are more fully described on pages 89 and 90.
Going concern The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Overview on pages 2 to 8 and the Performance Review on pages 9 to 66. The Performance Review includes sections on Group Performance (pages 10 to 56), Capital Management (pages 61 to 63) and Risk Management (pages 56 to 59. In addition, the financial pages include notes on the Group’s borrowings (note 48); its contingent liabilities and other risk factors (note 51); its capital structure and position (notes 54 and 55); management of its risks including market, credit and liquidity risk (note 56); and derivative financial instruments (note 57).
Russell Walls, a Fellow Chartered Certified Accountant, is a former group finance director of BAA plc, Wellcome plc and Coats Viyella plc. Richard Goeltz is a former chief financial officer of American Express Company and NatWest Group plc and a former member of the Accounting Standards Board. Euleen Goh, a Chartered Accountant and member of the Chartered Institute of Taxation, is a former financial controller of Pontiac Land and chief executive of Standard Chartered Bank, Singapore. The Board is satisfied that these directors have recent and relevant financial experience. The Group Chief Executive, Chief Financial Officer, Chief Audit Officer, Chief Accounting Officer, Chief Risk Officer and the external auditor normally attend, by invitation, all meetings of the Committee. Other members of senior management are also invited to attend as appropriate to present reports. In performing its duties, the Committee has access to the services of the Chief Audit Officer, the Group Company Secretary and external professional advisers. During 2009 the Committee appointed Keith Nicholson, a former partner at KPMG LLP, as an external adviser to the Committee.
Mary Francis (Chairman) 14 January 2006 To date Nikesh Arora 1 July 2007 5 August 2009 Wim Dik 14 January 2006 29 April 2009 Leslie Van de Walle 24 September 2009 To date Russell Walls 14 January 2006 To date
During the year the Committee focused on the following areas: — Strengthening the risk function: a number of changes have been made to the risk function since the Group’s move to a regional structure. Following a review of progress, further changes have been implemented including; the appointment of a new Chief Risk Officer who reports to the Group Chief Executive; emphasis on first line responsibilities for managing risk, with support and challenge from the risk function and initiation of a comprehensive review of the Group’s risk appetite.
Lord Sharman 14 January 2006 To date Scott Wheway 5 December 2007 To date
The Committee reviewed each region’s performance and progress during the year against the Group key performance indicators and, for the first time, began to review performance of Group functions which contribute to our CR programme activities, beginning with Group procurement. In addition, it reviewed Aviva Investor’s approach and progress in Sustainable and Responsible Investment. The Committee also received updates on the Group’s key CR programme activities, including climate change, community investment, diversity and external benchmarking. The Committee reviewed the Group’s carbon offset projects as part of management’s commitment to be carbon neutral on a global basis.
— Patrick Regan joined Aviva as the new Chief Financial Officer on 22 February 2010. Details of his joining arrangements and ongoing annual remuneration are disclosed in this report.
— “Target” performance means a target ABP outcome (75% of basic salary), a 50% vesting of the LTIP (87.5% of basic salary) and 1:1 match from the OATTV Plan (50% of basic salary).
ABP £577,650 (96.3% of basic Bonus is a function of the degree of achievement of 2009 targets as salary) follows: (£192,550 delivered in cash and Financial 38.9% (maximum 50%) £385,100 deferred into shares Employee 5.0 % (maximum 10%) for three years) Customer 6.9 % (maximum 10%)
Total * 50.0 100.0 74.2 * Totals in columns do not add up due to rounding.
Between median and upper quintile Pro rata between 15% and 50% on a straight line basis
Non-compete During term of directorship and for six months after leaving.
Mary Francis Richard Karl Goeltz Euleen Goh Carole Piwnica Lord Sharman Leslie Van de Walle Russell Walls Scott Wheway
Directors’ service contracts and letters of appointment are available for inspection at the Company’s registered office during normal hours of business, and at the place of the Company’s Annual General Meeting from 10.45am on Wednesday 28 April 2010 until the close of the meeting.
Notes 1. Bonuses show the value at the date of award inclusive of the two-thirds of bonus which Aviva requires its EDs to defer into Aviva shares for three years. 2. “Benefits”. All the EDs received life assurance benefits during the year that relate to the cost incurred by the Company of insuring the directors’ life and relevant spouses’ benefits which, had the director died during the year, could not have been wholly paid by the pension scheme and would therefore have been met by the Company had the insurance not been in place. The disclosure also includes the cost of private medical insurance and, where appropriate, accompanied travel, accommodation and car benefits. All the numbers disclosed include the tax charged on the benefits. No directors received an expense allowance during the year.
Committee on 24 September 2009. — Mary Francis joined the Nomination Committee on 2 December 2009.
EDs’ pension arrangements The positions of the EDs with respect to accumulated pension benefits under the defined benefits section of the ASPS is set out in Table 19 below.
Table 20: EDs’ options to subscribe for, or awards over, Company shares Options Options Options At 31 granted exercised lapsing December Exercise
Transactions with joint ventures relate to the property management undertakings. At 31 December 2009, there were 18 such joint ventures, the most material of which are listed in the ‘Financial Statement IFRS – Note 13 – Interest in, and loans to, joint ventures.’ Our interest in these joint ventures comprises a mix of equity and loans, together with the provision of administration services and financial management to many of them. Our UK life insurance companies earn interest on loans advanced to these entities and our fund management companies charge fees for administration services and for arranging external finance.
Our UK fund management companies manage most of the assets held by the Group’s main UK staff pension scheme, for which they charge fees based on the level of funds under management. The main UK scheme and the Dutch scheme hold investments in Group-managed funds and insurance policies with other Group companies, as explained in ‘Financial Statement IFRS – Note 41(e)(iv) – Pension obligations’.
Day-to-day supervision The FSA’s day-to-day supervision of Aviva is conducted by a dedicated team within its Major Retail Groups Division. The FSA takes a risk-based approach to its regulatory activity, concentrating its resources on those firms and activities which it assesses pose the greatest potential threats to its four statutory objectives of: Shareholder information Financial statements IFRS Financial statements MCEV Other information
The FSA has highlighted in its 2009 Business Plan that it expects to focus on: — Ensuring firms are soundly run and in particular that they adjust their business models to ensure they can remain well capitalised and securely funded.
The FSA therefore seeks to monitor the strategy and performance of the Group’s international businesses through regular ‘Close and Continuous’ meetings with the CEOs and Finance Directors of the overseas Regions.
Insurance mediation directive Under the Insurance Mediation Directive, EU member states are required to establish a framework to: — Ensure that insurance and reinsurance intermediaries have been registered on the basis of a minimum set of professional and financial requirements.
Solvency II On 5 May 2009, the European Parliament formally adopted the Solvency II Level 1 Directive. Solvency II represents a fundamental change in European regulation and will result in a more sophisticated risk based capital approach. It establishes a solvency system that is better matched to the true risks of insurers enabling supervisors to protect policyholder interests as effectively as possible in accordance with common principles across the EU.
Federal initiatives While the National Association of Insurance Commissioners (NAIC) has no statutory powers, its members are the insurance commissioners in each state and it acts as a forum to develop and propose model laws and regulations. Each state then decides whether to adopt the NAIC model laws or regulations and each state may make changes to the adoption process. However, the models are generally widely adopted. An example is the ‘Suitability in Annuity Transactions Model Act’ which has been widely adopted by states for a broad range of transactions.
One such example is our adoption of Financial Reporting Standard 27, Life Assurance, (FRS 27) which was issued by the UK’s Accounting Standards Board (ASB) in December 2004. Aviva, along with other major insurance companies and the ABI, signed a
Derivative instruments for hedging On the date a derivative contract is entered into, the Group designates certain derivatives as either: (i) a hedge of the fair value of a recognised asset or liability (fair value hedge) (ii) a hedge of a future cash flow attributable to a recognised asset or liability, a highly probable forecast transaction or a firm commitment (cash flow hedge); or (iii)a hedge of a net investment in a foreign operation (net investment hedge)
The principal temporary differences arise from depreciation of property and equipment, revaluation of certain financial assets and liabilities including derivative contracts, provisions for pensions and other post-retirement 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 determine the deferred tax.
Earnings per share has also been calculated on the operating profit before impairment of goodwill and other adjusting items, after tax, attributable to ordinary shareholders, as the directors believe this figure provides a better indication of operating performance. Details are given in note 14.
36,493 Premiums written net of reinsurance 32,114 34,365 635 Net change in provision for unearned premiums 559 277 37,128 Net earned premiums G 32,673 34,642 2,033 Fee and commission income H & I 1,789 1,885 28,377 Net investment income/(expense) J 24,972 (16,043) (572) Share of loss after tax of joint ventures and associates (504) (1,128) 174 Profit on the disposal of subsidiaries and associates 153 7
Fair value losses transferred to retained earnings on disposals — — — — — — 1 — — — (1) — — — —
(b) Restatement of prior year figures (i) During 2009, the Group undertook a review of our accounting policy for cash and cash equivalents. Previously, we defined these as normally having a maturity of three months or less from date of acquisition. To avoid ambiguity, our accounting policy has been refined to impose a cut-off date of exactly three months, allowing us to delete ‘normally’ from the policy wording. This refinement of policy has resulted in a reclassification of certain short-dated instruments between cash and cash equivalents and financial investments. The impact of this refinement has been to increase financial investments and reduce cash and cash equivalents in 2008 by £538 million (2007: £430 million) compared to the amounts previously stated. As a consequence of this, cash flows from operating activities in 2008 have decreased by £58 million, with the effect of exchange rate movements accounting for the remaining £50 million.
Performance reviewAviva plc Notes to the consolidated financial statements continued Corporate responsibilityAnnual Report and Accounts 2009 Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 4 – Segmental information The Group’s results can be segmented, either by activity or by geography. Our primary reporting format is on regional reporting lines, with supplementary information being given by business activity. This note provides segmental information on the consolidated income statement and statement of financial position.
Adjusted for non-operating items: Reclassification of corporate costs and unallocated interest 1 (10) 13 29 10 — 1 (44) — Investment return variances and economic assumption changes on long-term business 83 — (194) 348 (87) (75) — — 75 Short-term fluctuation in return on investments backing non-long-term business — (62) (92) 23 (79) — — 115 (95) Economic assumption changes on general insurance and health business — (55) 2 — (4) — — — (57) Impairment of goodwill 35 — 26 1 — — — — 62 Amortisation and impairment of intangibles 3 18 31 19 69 2 2 — 144 (Profit)/loss on the disposal of subsidiaries and associates — — — (31) — (122) — — (153) Exceptional items (163) 42 16 — 60 — — — (45) Integration and restructuring costs 89 114 64 — — — 21 (2) 286
Insurance liabilities Long-term business and outstanding claims provisions 62,070 6,103 39,666 32,798 26,939 2,120 — — 169,696 Unearned premiums 173 2,966 287 383 959 22 — — 4,790 Other insurance liabilities — 91 106 76 91 — — — 364
Long-term and Fund business health** management Other Total £m £m £m £m £m
Net change in provision for unearned premiums — 277 — — 277
Claims and benefits paid, net of recoveries from reinsurers 27,549 29,353
The Group has applied the same economic assumptions for equities and properties as are used under MCEV principles to calculate the longer-term investment return for its long-term business in 2008 and 2009.
(b) The longer-term investment return and short-term fluctuation are as follows: Non-long-term business
Fees payable to Ernst & Young LLP and its associates for other services to Group companies: Audit of Group subsidiaries pursuant to legislation 11.9 — — — 11.9 Additional fees related to the prior year audit of Group subsidiaries pursuant to legislation 1.5 — — — 1.5 Other services pursuant to legislation 3.0 — — — 3.0 Audit of Group pension scheme — 0.1 — — 0.1 Supplementary reporting — 2.1 — — 2.1 Tax services — — 0.1 — 0.1
(v) Deferred tax charged/(credited) to the income statement represents movements on the following items: Long-term business technical provisions and other insurance items (876) 591
(iii) The calculation of basic earnings per share uses a weighted average of 2,705 million (2008: 2,643 million) ordinary shares in issue, after deducting shares owned by the employee share trusts. The actual number of shares in issue at 31 December 2009 was 2,767 million (2008: 2,658 million).
Performance reviewAviva plc Notes to the consolidated financial statements continued Corporate responsibilityAnnual Report and Accounts 2009 Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 16 – Goodwill continued (b) Goodwill allocation and impairment testing A summary of the goodwill and intangibles with indefinite useful lives allocated to cash-generating units is presented below.
Key assumptions used for the calculation were: — Budgeted operating profit for an initial three year period which represents the operating profit in the business plans, approved by management and reflecting the best estimate of future profits based on both historical experience and expected growth rates for the Irish economy. The assumptions that underline the budgeted operating profit include market share, premium rate changes, claims inflation and commission rates; — Future cash flows are extrapolated beyond the three year business plan period assuming nil growth for general insurance business and a 7% growth rate for the health business; and
— New business contribution represents the present value of projected future distributable profits generated from business written in a period. This is initially based on the most recent three year business plans approved by management.
(d) Impairment testing RBS Life Investments Limited and RBSG Collective Investments Limited The Group’s investments in RBS Life Investments Limited and RBSG Collective Investments Limited have been tested for impairment by comparing their carrying values (which include goodwill which arose on their acquisition) with their recoverable amounts.
The recoverable amounts for both investments have been determined based on value in use calculations, using an appraisal value methodology. The appraisal value comprises MCEV and a value of future new business. Future new business is valued using a similar approach as used for the in-force business. The value of 2010 planned new business is based on planned volumes, planned margins for manufactured business and current margins for collectives and adopted business all approved by management. This value is then multiplied by an annuity factor to give the value of 25 years of future new business and then discounted back to the valuation date. The annuity factor for Life business allows for new business growth of 2.8% in 2011 and 5.4% thereafter and a pattern of market-consistent time dependent risk discount rates equivalent to a single risk discount rate of 4.4%. For Collective Investments the new business growth assumptions are 7.7% in 2011 and 6.1% thereafter. This value is adjusted to allow for future expense over-runs and under-runs, based on the projected expenses and sales volumes.
Key assumptions used for the calculation were: — A cash flow project based on a five year plan period; and — Risk adjusted discount rate of 10.3% based on the weighted average cost of capital of similar Italian listed companies.
The fair value of investment properties leased to third parties under operating leases at 31 December 2009 was £11,750 million (2008: £13,764 million, 2007: £14,616 million). Future contractual aggregate minimum lease rentals receivable under the non-cancellable portion of these leases are given in note 52(b)(i).
(a) Carrying amounts The carrying amounts of loans at 31 December 2009, 2008 and 2007 were as follows: At fair At fair At fair value value value through through through profit profit profit or loss At or loss At or loss At other than amortised other than amortised other than amortised trading cost Total trading cost Total trading cost Total £m £m £m £m £m £m £m £m £m
Loans to banks include cash collateral received under stock lending arrangements (see note 24(e)). The obligation to repay this collateral is included in payables and other financial liabilities (note 49).
Of the above total, £174,292 million (2008: £176,752 million, 2007: £154,732 million) is expected to be recovered more than one year after the statement of financial position date.
Examples of these are securities measured using discounted cash flow models based on market observable swap yields, and listed debt or equity securities in a market that is inactive. Valuations, whether sourced from internal models or third parties incorporate credit risk by adjusting the spread above the yield curve for government treasury securities for the appropriate amount of credit risk for each issuer, based on observed market transactions. To the extent observed market spreads are either not used in valuing a security, or do not fully reflect liquidity risk, our valuation methodology, whether sourced from internal models or third parties, reflects a liquidity premium.
At 1 January 2008 (8) (227) — (235) Increase for the year charged to the income statement (169) (661) — (830) Other movements (11) (9) — (20) Foreign exchange rate movement (37) (139) — (176)
Where amortisation of the DAC balance depends on projected profits, changes to economic conditions may lead to a movement in the DAC balance and a corresponding impact on profit. It is estimated that the movement in DAC balance would reduce profit by £5 million if market yields on fixed income investments were to reduce by 1% and reduce profit by £20 million if equity and property market values were to fall by 10% from year end 2009 levels.
The carrying values of assets backing unit-linked liabilities are as follows: Loans 1,468 1,799 347 Debt securities 17,595 19,588 15,065 Equity securities 28,638 23,840 27,743 Other investments 29,756 28,799 33,171 Reinsurance assets 1,014 1,704 1,905 Cash and cash equivalents 4,214 4,125 3,939 28 – Ordinary share capital This note gives details of Aviva plc’s ordinary share capital and shows the movements during the year.
The allotted, called up and fully paid share capital of the Company at 31 December 2009 was: 2,766,611,374 (2008: 2,657,701,624) ordinary shares of 25 pence each 692 664
At 1 January 2008 2,621,792,828 655 1,223 Shares issued under the Group’s Employee and Executive Share Option Schemes 8,429,587 2 18 Shares issued in lieu of dividends 27,479,209 7 (7) At 31 December 2008 2,657,701,624 664 1,234 Shares issued under the Group’s Employee and Executive Share Option Schemes 951,455 1 — Shares issued in lieu of dividends 107,958,295 27 (27)
Share price 480p 518p Exercise price 316p 410p Expected volatility 55% 32.6% Expected life 5.00 years 5.00 years Expected dividend yield 5.06% 5.5% Risk-free interest rate 2.47% 4.4%
Movements in the carrying value of shares held by employee trusts comprise: Number £m Number £m
Securities or Qualifying Upper Tier 2 Securities; — substitute not less than all of the DCIs for fully paid non-cumulative preference shares in the Company. These preference shares could only be redeemed on 28 November 2014 in the case of the euro DCIs and on 27 July 2020 in the case of the sterling DCIs, or in each case on any dividend payment date thereafter. The Company has the right to choose whether or not to pay any dividend on the new shares, and any such dividend payment will be non-cumulative.
Impairment losses on assets previously revalued directly through equity now taken to income statement*
(10,898) 1,234 (9,664) (12,749) 1,882 (10,867) (11,569) 1,728 (9,841) Provisions for claims incurred but not reported (2,719) 449 (2,270) (2,518) 29 (2,489) (2,099) 29 (2,070)
The items included in the cost of future policy-related liabilities include: — Maturity Guarantees — Guaranteed Annuity Options — GMP underpin on Section 32 transfers — Expected payments under Mortgage Endowment Promise
In the Provident Mutual and With-Profits sub-funds in UKLAP, this is offset by the expected cost of charges to WPBR to be made in respect of guarantees.
The mortality tables used in the valuation are summarised below: Mortality table used
Assurances Life conventional non-profit 3.0% to 3.8% 2.7% to 3.4% 3.1% to 3.9% Pensions conventional non-profit 3.8% to 4.0% 3.4% to 3.6% 3.9% to 4.1%
The variance between actual and expected experience of £2.2 billion was primarily driven by favourable movements in investment markets in 2009, which had a direct or indirect impact on liability values. Equity markets recovered and the values of corporate bonds and commercial mortgages were increased by the narrowing of credit spreads. For many types of long-term business, including unit-linked and participating funds, movements in asset values are offset by corresponding changes in liabilities, limiting the net impact on profit. Minor variances arise from differences between actual and expected experience for persistency, mortality and other demographic factors.
However, the following explicit assumptions are made which could materially impact the level of booked net reserves: UK mesothelioma claims The level of uncertainty associated with latent claims is considerable due to the relatively small number of claims and the long-tail nature of the liabilities. UK mesothelioma claims account for a large proportion of the Group’s latent claims. The key assumptions underlying the estimation of these claims include claim numbers, the base average cost per claim, future inflation in the average cost of claims, legal fees and the life expectancy of potential sufferers.
Non-AFER contracts with guaranteed surrender values had liabilities of £12 billion at 31 December 2009 (2008: £12 billion, 2007: £8 billion) and all guaranteed annual bonus rates are between nil and 4.5%.
The total liabilities for traditional business at 31 December 2009 are £13 billion (2008: £14 billion, 2007: £10 billion) analysed as follows: Liabilities 3% guarantee
(a) Carrying amounts The reinsurance assets at 31 December comprised: Long-term business Insurance contracts 4,299 4,466 4,298 Participating investment contracts — 52 22 Non-participating investment contracts 1,258 1,047 1,461 Outstanding claims provisions 40 145 94
Reinsurance assets are valued net of an allowance for their recoverability.
44 – Special bonus and reattribution of the inherited estate This note describes the special distribution and reattribution of the inherited estate in our UK Life business.
Deferred tax liabilities have not been established for temporary differences in respect of unremitted overseas retained earnings of £144 million (2008: £6,121 million) associated with investments in subsidiaries and interests in joint ventures and associates because the Group can control the timing of the reversal of these differences and it is probable that they will not reverse in the foreseeable future. The temporary differences at 31 December 2009 are significantly reduced from those at 31 December 2008 following the UK tax law change which largely exempts dividends received on or after 1 July 2009 from UK tax. The temporary differences at 31 December 2009 represent only the unremitted earnings of those overseas subsidiaries in respect of which a tax liability may still arise on remittance of those earnings to the UK, principally as a result of overseas withholding taxes on dividends.
Charge to income statement Utilised during the year Acquisition of subsidiaries Foreign exchange rate movements
Alternative measurement methods There are alternative methods of measuring liabilities, for example by calculating an accumulated benefit obligation (the present value of benefits for service already rendered but with no allowance for future salary increases) or on a solvency basis, using the cost of securing the benefits at a particular date with an insurance company or one of the growing market of alternative buy-out providers. This could take the form of a buy-out, in which the entire liability will be settled in one payment with all obligations transferred to an insurance company or buy-out provider, or a buy-in, in which annuities or other insurance products are purchased to cover a part or all of the liability. A valuation of the liabilities in either of these cases will almost always result in a higher estimate of the pension deficit than under an ongoing approach, as they assume that the sponsor immediately transfers the majority, if not all, of the risk to another provider who would be seeking to make a profit on the transaction. However, there are only a limited number of organisations that would be able to offer these options for schemes of the size of those in our Group. The full buy-out cost would only be known if quotes were obtained from such organisations but, to illustrate the cost of a buy-out valuation, an estimate for the main UK scheme is that the year end liabilities of £8.4 billion could be valued some £3.6 billion higher, at £12.0 billion.
There is also an exposure to currency risk where assets are not denominated in the same currency as the liabilities. The majority of this exposure has been removed by the use of hedging instruments.
Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 48 – Borrowings continued
Amounts owed to credit institutions Bank loans 1,064 various 375 306 314 9 60 1,064
The 2.5% perpetual subordinated loan notes were issued by Delta Lloyd to finance the acquisition of NUTS OHRA Beheer BV in 1999. As part of the public offering of Delta Lloyd, their nominal value was increased to €497 million (2008: €490 million). However, because they are considered to be perpetual, their carrying value is lower at €177 million (2008: €172 million), calculated in 1999 and based on the future cash flows in perpetuity discounted back at a market rate of interest. The rate of interest paid on the notes has been gradually increased to a maximum of 2.76% in 2009.
Performance reviewAviva plc Notes to the consolidated financial statements continued Corporate responsibilityAnnual Report and Accounts 2009 Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 51 – Contingent liabilities and other risk factors This note sets out the main areas of uncertainty over the calculation of our liabilities.
Within UKLAP two new with-profit sub-funds have been created. Policies of non-electing policyholders have been transferred to Old With-Profit Sub-Fund (OWPSF). The inherited estate has not been reattributed and remains in OWPSF.
Our investment strategies are designed to seek to ensure that sufficient liquidity exists in extreme business scenarios. For example, our investment strategy must consider a scenario of high lapses accompanied by poor investment markets or a general insurance catastrophe event.
Aviva plc Notes to the consolidated financial statements continued Annual Report and Accounts 2009 56 – Risk management continued
On demand or within Over 15 Total 1 year 1-5 years 5-15 years years
Long-term business Insurance contracts – non-linked 126,450 10,243 34,546 48,031 33,630 Investment contracts – non-linked 60,264 3,639 13,922 24,319 18,384 Linked business 77,940 77,940 — — —
Total 15 (20) 45 (45) 1. The comparative 2008 economic sensitivities for life and non-insurance businesses have been restated to reflect modelling enhancements in Delta Lloyd.
(i) The Group’s non-hedge derivative activity at 31 December 2009 was as follows: Contract/ notional amount £m
Unit trusts, OEICs, PEPs and ISAs 21,618 15,901 25,868 Segregated funds 48,770 52,322 54,422
Income Dividends received from subsidiaries 1,340 1,796 Interest receivable from Group companies 156 151 Net investment income/(expense) 50 (141)
Profit sharing and incentive plans 9 3 Equity compensation plans (see (iv) below) 12 11 Termination benefits 3 7
Earnings after tax on an MCEV basis, attributable to ordinary shareholders of Aviva plc 115.6c Basic (pence per share) 101.7p (282.6)p 114.5c Diluted (pence per share) 100.8p (282.6)p
2.Mortality experience continues to be better than the assumptions set across a number of our businesses. 3.Persistency experience has been volatile across most of our businesses, in part reflecting wider economic volatility. In France, positive persistency experience including the release of a short term provision, in line with positive underlying experience. In Poland, lapse experience continued to be better than the long-term assumptions for both Life and Pension products. 4.Other experience is favourable overall. Both France and Italy include one off adjustments reflecting final commission payments from prior years. The favourable impact in Italy reflects to one-off profit sharing on a reinsurance treaty. The favourable impact in Delta Lloyd relates to the revised investment and bonus strategy in Germany following the decision to close this operation to new business. The adverse impact in the USA relates to the cost of enhancing policyholder crediting rates.
Operating assumption changes: – maintenance expense6 (11) (8) (1) (3) 3 — (10) (19) (109) (128) (3) (3) — (3) (145) – project and other related expenses 9 — — — — — — — 4 4 — — — — 13 – mortality/morbidity7 39 — 16 4 3 (1) — 22 (77) (55) — 1 (1) — (16) – lapses8 (53) 65 4 (3) (8) (7) (16) 35 — 35 — (10) 1 (9) (27) – other9 12 — 15 1 18 — 11 45 (13) 32 — (8) 4 (4) 40
Long-term business net assets on an MCEV basis 19,440 3.Goodwill and intangible assets includes amounts related to associated undertakings and joint ventures. 4.The value of the Aviva Staff Pension Schemes deficit has been notionally allocated between segments, based on current funding and the Life proportion has been included within the long-term business net assets on an MCEV basis. The pension fund deficit notionally allocated to long-term business is net of the agreed funding borne by the UK with-profit funds.
Free Required Total Restated surplus capital1 VIF MCEV 2008 £m £m £m £m
Life and Pensions earnings/(loss) before tax 4,512 (9,988) Tax on operating earnings (875) (823) Tax on other activities (144) 3,822
M10 – Post tax internal rate of return and payback period on life and pensions new business Internal Total rate Initial Required invested Payback of return capital capital capital period
(b) New business To show the profile of the VIF emergence, the value of new business has been split into five year tranches depending on the date when the profit is expected to emerge.
3.France and Aviva USA have a positive surplus on a statutory basis.
4. Aviva USA’s holding company debt amounting to £810 million at 31 December 2009 has been included within non-covered business.
Reference rate 1 year 1.3% 2.5% 4.7% 5 years 2.9% 3.3% 4.6% 10 years 3.7% 3.8% 4.7% 15 years 4.1% 4.0% 4.9% 20 years 4.2% 3.9% 5.0%
3.Required capital in Spain is 125% of the EU minimum for Aviva Vida y Pensiones and 110% for bancassurance companies.
The model also generates property total returns and real yield curves, although these are not significant asset classes for Aviva outside the UK. In the absence of liquid market data, the volatilities of these asset classes are based on historic data.
Volatility 2009 As reported 10% 10% 25% Embedded value on page 304 increase decrease increase (net of tax and minority interest) £m £m £m £m
Individual 590,483 97.34 252,515,052 9.13 Banks and nominee companies 12,461 2.05 2,451,903,945 88.62 Pension fund managers and insurance companies 94 0.02 125,276 0.01 Other corporate bodies 3,586 0.59 62,067,101 2.24
If you are unable to attend the meeting but would like to ask the Board of Directors a question regarding the business of the meeting, please do so via our website at www.aviva.com/agm. Alternatively, you can write to us directly either by email to agm.faq@aviva.com or by post to the Group Company Secretary, Freepost RLTE-RBXX-RBHB, Group Secretarial Department, Aviva plc, St Helen’s, 1 Undershaft, London EC3P 3DQ. Answers to the most frequently asked questions will be available at the meeting and published on our website shortly after.
Alternative format If you would like to request a copy of our reports in an alternative format, for example, braille or audio, please contact our Registrar, Equiniti, by calling 0871 384 2953*.
— Developed a leaner operating model through increased regional shared services and implementation of centres of excellence
Read more about risk In support of our purpose and vision, Aviva provides a composite portfolio of management online at www.aviva.com insurance, savings and investment products through a diverse distribution model which reduces reliance on any one channel, product, country or customer group.
IFRS: MCEV: Engagement: Leadership: * For full details of our financial results visit www.aviva.com/reports www.aviva.com/reports
Risk and regulatory committees Audit committee 1. Lord Sharman of Redlynch OBE
11. Leslie Van de Walle Independent non-executive director (Age 53) Appointed May 2009 Former chief executive officer of Rexam plc (packaging). Has also held executive and non-executive positions at Royal Dutch Shell plc (oil) and Aegis Group plc (media services).
Our commitment To treat customers as human beings rather than policy holders www.aviva.com
Market environment Europe is already the largest insurance market in the world with an affluent population of over 800 million people, generating 31% of global insurance premiums1 and accounting for over 30% of global personal financial assets2. Europe offers significant growth opportunities in both under-penetrated Western markets and developing markets in Eastern Europe.
We have made significant progress in our migration to a single Aviva brand. Having operated as Hibernian Aviva in 2009, we adopted the Aviva name in Ireland at the start of 2010 and we will complete our brand migration programme in June when we will operate as Aviva in Poland. Recognition of the Aviva brand continues to grow in both markets, with Ireland recording prompted awareness rates in excess of 90%.3
Delta Lloyd continues to offer innovative, high quality products backed by strong fund management performance. In June, in collaboration with Rabobank, Delta Lloyd launched a €200 million fund, which offers an alternative source of capital for this promising Dutch venture.
We made substantial efforts to conserve capital and control costs, reducing the sale of capital intensive products in Hong Kong, Malaysia and Taiwan and implementing a region-wide cost-reduction programme. The sale of our Australian business in October also realised a £0.4 billion contribution to capital.
% of employees who rate us — — 67% Meet /exceed GFS New KPI Increase the percentage of favourably on customer index benchmark favourable ratings from employees
The biographical details of the persons currently serving as directors appear on page 9.
The interests held by each person who was a director at the end of the financial year in the ordinary shares of 25 pence each in the Company are shown below. All the disclosed interests are beneficial. The table also summarises the interests in shares held through the Company’s various all-employee and executive share schemes.
Ownership Plan (AESOP) being shares purchased by them under the partnership element and shares granted under the free share element of the AESOP. 2. ABP awards relate to entitlements to shares arising through the Aviva Annual Bonus Plan 2005. Under this plan, some of the earned bonuses are paid in the form of shares and deferred for three years. The transfer of the shares to the director at the end of the period is not subject to the attainment of performance conditions but a proportion of the shares can be forfeited if the director leaves service before the end of the period.
Total sales for the year Life and pension businesses 32,003 36,245 Investment sales 3,872 3,995 General insurance 9,193 11,137 45,068 51,377 Premiums written net of reinsurance and other investment sales Long-term business 22,921 23,228 General insurance and health premiums 9,193 11,137 32,114 34,365 Pre-tax operating profit Long-term business MCEV operating return 3,389 2,810 Fund management operating profit 51 42 General insurance and health operating profit 960 1,198 Other operations (173) (163) Regional operating profit 4,227 3,887 Corporate centre, group debt costs and other interest (744) (520) Operating profit – MCEV basis1 3,483 3,367 Adjustment to report the profits of our long-term insurance, fund management and other operations on an IFRS basis (1,461) (1,070)
For information about Aviva’s ADR program, please go to www.citi.com/dr for additional reference.