(ii) Scheme assets Scheme assets are stated at their fair values at 31 December 2020.
Total scheme assets are comprised by country as follows: UK £m
Total IAS 19 fair value of scheme assets 18,915 941 269 20,125 17,671 833 264 18,768 1 Cash and other assets comprise cash at bank, receivables, payables, repurchase agreements and longevity swaps. At 31 December 2020, cash and other assets primarily consist of repurchase agreements of £5,168 million
Strategic report Governance IFRS financial statements Other information 51 – Pension obligations continued (b) IAS 19 disclosures continued Total scheme assets are analysed by those that have a quoted market price in an active market and other as follows: Quoted in an active market £m Other £m Total £m
IAS 19 plan assets include investments in Group-managed funds in the consolidated statement of financial position of £2,530 million (2019: £2,575 million) and transferable insurance policies with other Group companies of £2,047 million (2019: £1,331 million) in the ASPS. Where the investments are in segregated funds with specific asset allocations, they are included in the appropriate line in the table above, otherwise they appear in ‘Cash and other’. There are no significant judgements involved in the valuation of the scheme assets. Insurance policies are valued on the same basis as the pension scheme liabilities, as required by IAS 19.
Inflation rate1 3.0%/2.4% 3.0%/2.2% 1.4% 1.5% 2.0% 2.0% General salary increases2 4.75% 4.8% 2.9% 3.0% 2.5% 2.5% Pension increases3 3.0%/2.4% 3.0%/2.2% 0.3% 0.35% 1.25% 1.25% Deferred pension increases3 3.0%/2.4% 3.0%/2.2% 1.4% 1.5% — —
Basis of discount rate AA-rated corporate bonds AA-rated corporate bonds AA-rated corporate bonds 1 For the UK schemes, assumptions provided for RPI/CPI. In the UK, relevant RPI/CPI swap curves are used, which are equivalent to the single rates shown for ASPS. In 2020, CPI is derived as RPI less 80 bps pre 2030 and RPI less 0 bps post 2030 (2019: RPI less 100 bps pre 2030 and RPI less 60 bps post 2030). The change in adjustment applied post 2030 reflects the reforms to the RPI set out in the joint consultation response issued by the UK Government and UK Statistics Authority in November 2020.
SAPS tables as a proxy for Club Vita pooled experience, including an allowance for future improvements 60 88.0 89.4 89.8 92.0 (28.0) (29.4) (29.8) (32.0) – RAC SAPS, including allowances for future improvement 65 86.8 88.4 89.6 91.5 (21.8) (23.4) (24.6) (26.5) – FPPS SAPS, including allowances for future improvement 60 87.4 89.4 90.2 92.3 (27.4) (29.4) (30.2) (32.3)
Ireland – AISPF 73%/81% PNA00 with allowance for future improvements 61 89.8 92.8 91.5 94.4 (28.8) (31.8) (30.5) (33.4)
Impact on present value of defined benefit obligation at 31 December 2020 (2,976) 3,950 2,647 (2,067) 714 Impact on present value of defined benefit obligation at 31 December 2019 (2,786) 3,713 2,627 (2,037) 613 1 The effect of assuming all members in the schemes were one year younger.
Interest rate and inflation rate risks are managed using a combination of liability-matching assets and swaps. Exposure to equity risk has reduced over time and credit risk is managed within risk appetite. Currency risk is relatively small and is largely hedged. The other principal risk is longevity risk. This risk has reduced due to the ASPS entering into a longevity swap in 2014 covering approximately £5 billion of pensioner in payment scheme liabilities.
Total employer contributions for all defined benefit schemes in 2021 are currently expected to be £0.2 billion.
In 2020 the Group issued further subordinated debt and reduced the outstanding commercial paper balance. Further details are set out below: • On 3 June 2020, Aviva plc issued £500 million of subordinated debt at 4.000%, with final maturity in June 2055 and first call in June 2035. • On 2 October 2020, Aviva plc issued C$450 million of subordinated debt at 4.000% which matures in October 2030. • The outstanding commercial paper balance was reduced to £108 million (2019: £238 million) during 2020.
All the above borrowings are stated at amortised cost, except for the loan notes issued in connection with the UK lifetime mortgage business of £1,166 million (2019: £1,233 million). These loan notes are carried at fair value, their values are modelled on risk-adjusted cash flows for defaults discounted at a risk-free rate plus a market-determined liquidity premium and are therefore classified as ‘Level 3’ in the fair value hierarchy. The risk allowances are consistent with those used in the fair value asset methodology, as described in note 24. These have been designated at fair value through profit and loss in order to present the relevant mortgages, borrowings and derivative financial instruments at fair value, since they are managed as a portfolio on a fair value basis. This presentation provides more relevant information and eliminates any accounting mismatch.
The securitised mortgage loan notes are at various fixed, floating and index-linked rates. Further details about these notes are given in note 26.
Total contractual undiscounted cash flows 1,447 504 1,951 1,516 592 2,108
Subordinated notes issued by the Company rank below its senior obligations and ahead of its preference shares and ordinary share capital. The dated subordinated notes rank ahead of the undated subordinated notes. The fair value of notes at 31 December 2020 was £8,233 million (2019: £7,211 million), calculated with reference to quoted prices.
Strategic report Governance IFRS financial statements Other information 52 – Borrowings continued (e) Movements during the year Movements in borrowings during the year were: Core Structural £m Operational £m Total £m
2 Gross issuances of commercial paper were £214 million in 2020 (2019: £505 million), offset by repayments of £364 million (2019: £486 million). 3 Certain subsidiary companies have purchased subordinated notes and securitised loan notes issued by Group companies as part of their investment portfolios. In the consolidated statement of financial position, borrowings are shown net of these holdings but movements in such holdings over the year are reflected in the tables above.
All movements in fair value in 2019 and 2020 on securitised mortgage loan notes designated as fair value through profit or loss were attributable to changes in market conditions.
(g) Subsequent events On 3 March 2021 the Group approved the launch of £800 million of tender offers for certain series of its euro and sterling denominated notes to expedite the delivery of the Group’s debt reduction targets.
53 – Payables and other financial liabilities This note analyses our payables and other financial liabilities at the end of the year.
Payables arising out of direct insurance 1,317 1,503 Payables arising out of reinsurance operations 331 348 Deposits and advances received from reinsurers 95 78 Bank overdrafts (see below) 908 870 Derivative liabilities (note 60) 7,659 6,517 Amounts due to brokers for investment purchases 207 314 Obligations for repayment of cash collateral received 7,468 6,329 Lease liabilities (note 23(iii)) 533 572 Other financial liabilities 2,335 1,634
Bank overdrafts amount to £541 million (2019: £536 million) in life business operations and £367 million (2019: £334 million) in general insurance business and other operations.
All payables and other financial liabilities are carried at cost, which approximates to fair value, except for derivative liabilities which are carried at their fair values and lease liabilities which are carried at the present value of the outstanding lease payments.
Expected to be settled within one year 2,721 2,399 Expected to be settled in more than one year 386 755 3,107 3,154 55 – Contingent liabilities and other risk factors This note sets out the main areas of uncertainty over the calculation of our liabilities.
(a) Uncertainty over claims provisions Note 43 gives details of the estimation techniques used by the Group to determine the general insurance business outstanding claims provisions and of the methodology and assumptions used in determining the long-term business provisions. These approaches are designed to allow for the appropriate cost of policy-related liabilities, with a degree of prudence, to give a result within the normal range of outcomes. However, the actual cost of settling these liabilities may differ, for example because experience may be worse than that assumed, or future general insurance business claims inflation may differ from that expected, and hence there is uncertainty in respect of these liabilities.
In addition, COVID-19 has given rise to an increase in the uncertainty over the general insurance business outstanding claims provisions and long-term business provisions. The impact on the Group’s insurance liabilities as a result of the global pandemic has been recognised (see note 47 for long-term business and note 42(c(iv)) for general insurance and health business). However, due to the uncertainty around the long-term impacts of COVID-19, actual experience may differ from that expected.
Infrastructure loan advances 833 853 Investment property 167 115 Property and equipment 46 62 Other investment vehicles1 123 241 1,169 1,271 1 Represents commitments for further investment in certain private equity vehicles. Such commitments do not expose the Group to the risk of future losses in excess of its investment.
57 – Group capital management (a) Group capital The Group is required to measure and monitor its capital resources on a regulatory basis and to comply with the minimum capital requirements of regulators in each territory in which it operates. At a Group level, we have to comply with the requirements established by the Solvency II Framework Directive, as adopted by the PRA under the transitional approach to the UK’s withdrawal from the European Union.
The Group Solvency II capital requirements are calculated using a Partial Internal Model (PIM) which assesses the risks the Group is exposed to on an Internal Model basis approved by the PRA. The Solvency II capital regime requires insurers to calculate regulatory capital adequacy at both individual regulated subsidiaries and an aggregate Group level. Non-EEA entities have been included in Group solvency in line with Solvency II requirements. Other financial sector entities (including fund management) are included at their proportional share of the capital requirement according to the relevant sectoral values. In addition, non-EEA businesses including Canada are subject to the locally applicable capital requirements in the jurisdictions in which they operate.
Group capital continues to be represented by Solvency II own funds. The Solvency II position disclosed is based on a ‘shareholder view’. The shareholder view is considered by management to be more representative of the shareholders’ risk exposure and the Group’s ability to cover the solvency capital requirement (SCR) with eligible own funds and aligns with management’s approach to dynamically manage its capital position.
• A change in regulations announced in December 2019 allows French insurers to place a part of the Provision pour Participation aux Excédents (PPE) into Solvency II own funds. At 31 December 2019 PPE was included in the France local regulatory own funds but was excluded from the estimated Group regulatory and shareholder own funds, subject to confirmation of the appropriate treatment at Group level. The treatment has since been confirmed and PPE of £385 million is included within Group regulatory own funds at 31 December 2020 but remains excluded from the shareholder position.
Solvency II own funds are comprised of a combination of shareholders’ funds, preference share capital, direct capital instruments, subordinated debt, and deferred tax assets measured on a Solvency II basis. During the year, the Group redeemed its £500 million 5.9021% direct capital instrument in full (see note 37).
Further information on the Group’s Solvency II position (shareholder view), including a reconciliation between IFRS equity and own funds can be found in the Other information section. This information is estimated and is therefore subject to change. It is also unaudited.
(b) Risks and capital management objectives The primary objective of capital management is to maintain an efficient capital structure, in a manner consistent with our risk profile and the regulatory and market requirements of our business. Capital is a primary consideration across a wide range of business activities, including product development, pricing, business planning, merger and acquisition transactions and asset and liability management. A Capital Management Standard, applicable Group-wide, sets out minimum standards and guidelines over responsibility for capital management including considerations for capital management decisions and requirements for management information, capital monitoring, reporting, forecasting, planning and overall governance.
The Group manages capital in conjunction with solvency capital requirements and in line with a new dividend policy and capital framework announced in November 2020.
Profit before tax 2,613 3,821 Adjustments for: Share of profits of joint ventures and associates (27) (94) Dividends received from joint ventures and associates 57 79 (Profit)/loss on sale of: Investment property (5) (58) Property and equipment 4 2 Subsidiaries, joint ventures and associates (12) (6) Investments (3,850) (10,259)
Changes in working capital Increase in reinsurance assets (1,378) (782) Increase in deferred acquisition costs (109) (230) Decrease in insurance liabilities and investment contracts 16,922 32,146 Decrease/(Increase) in other assets 2,345 (263) 17,780 30,871 Net purchases of operating assets Net purchases of investment property (1,262) (1,131) Net proceeds on sale of investment property 1,004 1,294 Net purchases of financial investments (14,965) (5,407) (15,223) (5,244) Total cash (used in)/generated from operating activities from continuing operations (1,644) 6,392
(b) Cash flows in respect of the acquisition of, and additions to, subsidiaries, joint ventures and associates comprised: Continuing operations 2020 £m
Cash consideration for subsidiaries, joint ventures and associates acquired and additions (11) (20) Less: Cash and cash equivalents acquired with subsidiaries — 1
Discontinued operations Cash proceeds from disposal of subsidiaries, joint ventures and associates 1,208 — Less: Net cash and cash equivalents divested with subsidiaries (1,065) —
Cash and cash equivalents (excluding bank overdrafts) 17,090 20,304 Less: Assets classified as held for sale (190) (780) 16,900 19,524 59 – Risk management Risk management is key to Aviva’s success. We accept the risks inherent to our core business lines of life, health and general insurance and asset management. We diversify these risks through our scale, geographic spread, the variety of the products and services we offer and the channels through which we sell them. We receive premiums which we invest to maximise risk-adjusted returns, so that we can fulfil our promises to customers while providing a return to our shareholders. In doing so we have a preference for retaining those risks we believe we are capable of managing to generate a return.
The key elements of our risk management framework comprise our risk appetite; risk governance, including risk policies and business standards, risk oversight committees and roles and responsibilities; and the processes we use to identify, measure, manage, monitor and report risks, including the use of our risk models and stress and scenario testing.
Risk environment During the year, the Group has been impacted by the COVID-19 pandemic through its operations, insurance products and asset holdings as well as ongoing difficult conditions in the global financial markets and the economy generally. General insurance products are impacted as a result of disruption to business and travel insured by the Group; life protection products as a result of increased mortality; savings and asset management revenues which are sensitive to asset values; and income protection, critical illness and health insurance products as a result of increased morbidity, offset by a potential reduction in annuity payments.
We have seen COVID-19 have a significant impact on the global economy and markets. Key impacts have been observed from volatile equity markets and falls in interest rates. We have taken a number of actions to reduce our exposure to equity and interest rate risk across all our markets. We have also taken a number of actions to reduce our exposure to credit spread and counterparty default risk across our major markets. The Group’s balance sheet exposure has been reviewed and actions are being taken to further reduce the sensitivity to economic shocks.
The Group continues to maintain strong solvency and liquidity positions through a range of scenarios and stress testing. These scenarios allow for the potential impacts of COVID-19 both directly on operations of the Group and also the wider macroeconomic environment. Key financial actions taken in response to the crisis include significant de-risking to reduce sensitivity to equity and corporate credit spreads. We have been closely engaging with regulators in both Europe and globally on their response to COVID-19. The FCA Business Interruption test case judgement was broadly in line with expectations and reserves are not expected to materially change.
The UK-EU Future Relationship Agreement came into effect on 1 January 2021, ending the Brexit transition period, for which the Group was fully prepared. It provides scope for managed policy divergence or maintaining alignment, if the UK chooses. The agreement will have evolving consequences in 2021 and beyond on future financial services and data regulation, UK-EU data transfers, EU market access and the UK economy which will require careful monitoring.
Aviva remains committed to supporting a low carbon economy that will improve the resilience of our economy, society and the financial system in line with the 2015 Paris Agreement target on climate change. We are acting now to mitigate and manage the impact of climate change on our business. We calculate a Climate VaR against IPCC scenarios to assess the climate-related risks and opportunities under different emission projections and associated temperature pathways. A range of different financial indicators are used to assess the impact on our investments and insurance liabilities.
The Group is in the process of implementing the new international accounting standards for insurance contracts, IFRS 17 Insurance Contracts. The impact of the adoption of IFRS 17 significantly impacts the measurement and presentation of the contracts in scope of the standard. It is now expected that the standard will apply to annual reporting periods beginning on or after 1 January 2023.
Roles and responsibilities for risk management in Aviva are based around the ‘three lines of defence model’ where ownership for risk is taken at all levels in the Group. Line management in the business is accountable for risk management, including the implementation of the risk management framework and embedding of the risk culture. The risk function is accountable for quantitative and qualitative oversight and challenge of the risk identification, measurement, monitoring, management and reporting processes and for developing the risk management framework. Internal Audit provides an independent assessment of the risk framework and internal control processes.
Board oversight of risk and risk management across the Group is maintained on a regular basis through its Risk Committee and Customer, Conduct and Reputation Committee. To further align with our strategic priority to transform customer experiences, the Customer, Conduct and Reputation Committee was designated as a sub-committee of the Risk Committee. The Board has overall responsibility for determining risk appetite, which is an expression of the risk the business is willing to take. Risk appetites are set relative to capital and liquidity at Group and in the business units.
As a result of the financial market impact of COVID-19 we have taken a number of actions to reduce our exposure to credit spread and counterparty default risk across our major markets. Actions include purchasing tactical derivative hedges, asset disposals and reallocation and reducing new business sales in certain markets and products. We continue to monitor credit quality in our Commercial Mortgage and Equity Release Mortgage portfolios, specific de-risking actions include phased sales and credit hedging.
Fixed maturity securities 10.7% 34.1% 19.7% 23.0% 8.0% 4.5% 199,481 (649) 198,832 Reinsurance assets 3.3% 75.8% 9.2% 7.8% — 3.9% 12,431 (75) 12,356 Other investments 0.2% — 0.3% 0.1% — 99.4% 51,935 (6,919) 45,016 Loans 18.3% 3.8% 0.1% — — 77.8% 38,580 (1) 38,579
At 31 December 2020, a significant portion of assets remain investment grade in line with 2019. We have remained focused on high quality assets.
The majority of non-rated debt securities within shareholder assets are held by our businesses in the UK. Of these securities most are allocated an internal rating using a methodology largely consistent with that adopted by an external rating agency, and are considered to be of investment grade credit quality; these include £4,580 million (2019: £4,095 million) of debt securities held in our UK Life business, predominantly made up of private placements and other corporate bonds, which have been internally rated as investment grade.
Loans 3,920 4,468 3,453 — — 153 Receivables — 497 539 459 2 4,555 Accrued income & interest — — — — — 283 Other financial assets — — — — — 12 Total 3,920 4,965 3,992 459 2 5,003
Loans 7,065 1,443 — — — 1,071 Receivables — 144 338 259 4 5,044 Accrued income & interest — — — — — 265 Other financial assets — — 5 — — —
Strategic report Governance IFRS financial statements Other information 59 – Risk management continued (b) Credit risk continued (i) Financial exposures by credit ratings continued The Group continues to hold a series of macro credit hedges to reduce the overall credit risk exposure. The Group’s maximum exposure to credit risk of financial assets, without taking collateral or these hedges into account, is represented by the carrying value of the financial instruments in the statement of financial position. These comprise debt securities, reinsurance assets, derivative assets, loans and receivables. The carrying values of these assets are disclosed in the relevant notes: financial investments (note 28), reinsurance assets (note 46), loans (note 25) and receivables (note 29). The collateral in place for these credit exposures is disclosed in note 61.
(ii) Other investments Other investments (including assets of operations classified as held for sale) include: unit trusts and other investment vehicles; derivative financial instruments, representing positions to mitigate the impact of adverse market movements; and other assets, including deposits with credit institutions and minority holdings in property management undertakings.
(v) Reinsurance credit exposures The Group is exposed to concentrations of risk with individual reinsurers due to the nature of the reinsurance market and the restricted range of reinsurers that have acceptable credit ratings. The Group operates a policy to manage its reinsurance counterparty exposures, by limiting the reinsurers that may be used and applying strict limits to each reinsurer. Reinsurance exposures are aggregated with other exposures to ensure that the overall risk is within appetite. The Group Capital and Group Risk teams have an active monitoring role with escalation to the Chief Financial Officer (CFO), Chief Risk Officer (CRO), Group ALCO and the Board Risk Committee as appropriate.
The Group’s largest reinsurance counterparty is Swiss Reinsurance Company Ltd (including subsidiaries). At 31 December 2020, the reinsurance asset recoverable, including debtor balances, from Swiss Reinsurance Company Ltd was £2,399 million (2019: £3,097 million).
(vii) Derivative credit exposures The Group is exposed to counterparty credit risk through derivative trades. This risk is generally mitigated through holding collateral for most trades. Residual exposures are captured within the Group’s credit management framework.
Excluded from the tables above are financial and reinsurance assets carried at fair value through profit or loss that are not subject to impairment testing, as follows: £214,575 million of debt securities (2019: £198,020 million), £42,320 million of other investments (2019: £44,836 million), £29,839 million of loans (2019: £28,319 million) and £3,860 million of reinsurance assets (2019: £4,006 million).
The management of market risk is undertaken at business unit and at Group level. Businesses manage market risks locally using the Group market risk framework and within local regulatory constraints. Group Capital is responsible for monitoring and managing market risk at the Group level and has established criteria for matching assets and liabilities to limit the impact of mismatches due to market movements.
In addition, where the Group’s long-term savings businesses have written insurance and investment products where the majority of investment risks are borne by its policyholders, these risks are managed in line with local regulations and marketing literature, in order to satisfy the policyholders’ risk and reward objectives. The Group writes unit-linked business in a number of its operations. The shareholders’ exposure to market risk on this business is limited to the extent that income arising from asset management charges is based on the value of assets in the fund.
As a result of the significant financial market impact of COVID-19, particularly to equity markets and interest rates, we have taken a number of actions to reduce our exposure to equity and interest rate risk across all our markets. Actions include purchasing tactical derivative hedges, asset disposals and reallocations and reducing new business sales in certain markets and products. We are also exposed to the potential impact of increased defaults and downgrades on our commercial mortgage loans although we maintain conservative loan-to-value across this portfolio. Our capital position includes an allowance for the expected potential impacts from downgrades and defaults.
We continue to limit our direct equity exposure in line with our risk preferences. At a business unit level, investment limits and local investment regulations require that business units hold diversified portfolios of assets thereby reducing exposure to individual equities. The Group does not have material holdings of unquoted equity securities.
Strategic report Governance IFRS financial statements Other information 59 – Risk management continued (c) Market risk continued (i) Equity price risk continued Equity risk is also managed using a variety of derivative instruments, including futures and options. Businesses actively model the performance of equities through the use of risk models, in particular to understand the impact of equity performance on guarantees, options and bonus rates. An equity hedging strategy remains in place to help control the Group’s overall direct and indirect exposure to equities. At 31 December 2020 the Group continues to hold a series of macro equity hedges to reduce the overall shareholder equity risk exposure.
Strategic report Governance IFRS financial statements Other information 59 – Risk management continued (c) Market risk continued (iii) Interest rate risk continued Details of material guarantees and options are given in note 45. In addition, the following table summarises the weighted average minimum guaranteed crediting rates and weighted average book value yields on assets as at 31 December 2020 for our Italian and French participating contracts, where the Group’s key exposure to sustained low interest rates arises.
France 0.69% 1.94% 72,620 Italy 0.20% 3.40% 23,941 Other1 N/A N/A 45,237 Total N/A N/A 141,798 1 ‘Other’ includes UK participating business
Strategic report Governance IFRS financial statements Other information 59 – Risk management continued (c) Market risk continued (v) Currency risk continued A 10% change in sterling to euro/CAD$ period-end foreign exchange rates would have had the following impact on net assets.
The balance sheet changes arise from retranslation of business unit statements of financial position from their functional currencies into sterling, with above movements being taken through the currency translation reserve. These balance sheet movements in exchange rates therefore have no impact on profit.
A 10% change in sterling to euro/CAD$ average foreign exchange rates applied to translate foreign currency profits would have had the following impact on profit before tax, including resulting gains and losses on foreign exchange hedges.
euro rate £m 10% increase in sterling/ CAD$ rate £m 10% decrease in sterling/ CAD$ rate £m
Impact on profit before tax 31 December 2020 (48) 59 (31) 37 Impact on profit before tax 31 December 2019 (67) 82 (18) 22
The Group applies strict requirements to the administration and valuation processes it uses and has a control framework that is consistent with market and industry practice for the activity that is undertaken.
A cautious approach on cash remittances is being taken across the Group with some markets retaining cash rather than remitting to Group in the wake of the unprecedented challenges COVID-19 presents for businesses, households and customers, and the adverse and highly uncertain impact on the global economy.
Maturity analyses The following tables show the maturities of our insurance and investment contract liabilities, and of the financial and reinsurance assets held to meet them. A maturity analysis of the contractual amounts payable for borrowings and non-hedge derivatives is given in notes 52 and 60, respectively. Contractual obligations under leases and capital commitments are given in note 23 and note 56.
Strategic report Governance IFRS financial statements Other information 59 – Risk management continued (e) Life insurance risk Life insurance risk in the Group arises through its exposure to mortality risk and exposure to worse than anticipated operating experience on factors such as persistency levels, exercising of policyholder options and management and administration expenses. The Group chooses to take measured amounts of life risk provided that the relevant business has the appropriate core skills to assess and price the risk and adequate returns are available. The Group’s underwriting strategy and appetite is communicated via specific policy statements, related business standards and guidelines. Life insurance risk is managed primarily at business unit level with oversight at the Group level.
We have reinsurance in place across all our markets to reduce our net exposure to potential losses. In the UK we have extensive quota share reinsurance in place on Individual Protection business and for UK Group Life protection business we have surplus reinsurance for large individual claims.
The impact of COVID-19 on the profile of our life insurance risks, primarily longevity, persistency, mortality and expense risk, has been limited during 2020. We track the potential longer term impacts from the pandemic (e.g. morbidity impacts). We are also exposed to longevity risk through the Aviva Staff Pension Scheme, to which our economic exposure has been reduced since 2014 by entering into a longevity swap covering approximately £5 billion of pensioner in payment scheme liabilities. Longevity risk remains the Group’s most significant life insurance risk. We purchased reinsurance for longevity risk for our annuity business, including the bulk annuity buy-in transaction with the Aviva Staff Pension scheme (see note 51). Group has continued to write considerable volumes of life protection business, and to utilise reinsurance to reduce exposure to potential losses. More generally, life insurance risks are believed to provide a significant diversification against other risks in the portfolio. Life insurance risks are modelled within the internal capital model and subject to sensitivity and stress and scenario testing.
In all of our markets, underwriting procedures on Individual Life Protection products limit our exposure to cohorts of the population at highest risk of COVID-19. While we have greater potential net exposure through Group Life Protection, we have taken pricing actions to limit our potential exposure from new business. We expect there to be some offset to increased protection claims as a result of COVID-19 from technical provision releases on our UK annuity portfolio
• Expense risk is primarily managed by the business units through the assessment of business unit profitability and frequent monitoring of expense levels.
The impact of these is reflected in the capital model and managed as part of the asset liability framework. Further disclosure on financial guarantees and options embedded in contracts and their inclusion in insurance and investment contract liabilities is provided in note 44.
Strategic report Governance IFRS financial statements Other information 59 – Risk management continued (f) General insurance and health risk The Group writes a balanced portfolio of general insurance risk (including personal motor; household; commercial motor; property and liability) across a geographically diversified spread of markets, as well as global exposure to corporate specialty risks. This risk is taken on, in line with our underwriting and pricing expertise, to provide an appropriate level of return for an acceptable level of risk. Underwriting discipline and a robust governance process is at the core of the Group’s underwriting strategy.
We continue to closely monitor the impact of COVID-19 on our General insurance and health business. Our exposures, together with mitigants, are: • Business Interruption: For the significant majority of the Group’s UK General Insurance commercial policies, where policy wordings are determined by the company, cover is based on a specified list of diseases. These policies exclude business interruption due to new and emerging diseases, like COVID-19. Business interruption losses stemming from the current COVID-19 outbreak are therefore not covered under the significant majority of policies but there is a risk that litigation will be required to provide legal clarity in terms of the events and the cover provided under broker determined business interruption policy wordings where we are the lead or follow insurer and many of the issues were subject to the outcome of the FCA test case. Judgement in the FCA test case was received on 15 September 2020 and followed by the Supreme Court appeal on 15 January 2021. Following the verdict the legal uncertainty in the UK around gross losses has been significantly reduced. In order to provide clarity to policyholders and mitigate exposure to future events of a similar nature, exclusions have been added to relevant policy wordings at renewal. In Canada, we are party to a number of litigation proceedings challenging coverage under certain policies; however, we do not believe there is coverage under these policies. In Ireland, the vast majority of commercial insurance products do not respond to business interruption losses arising from the COVID-19 pandemic. In respect of broker-led wordings, Ireland continues to assess developments arising from the changing nature of Government restrictions and the outcome of both the FCA case and test case litigation in the local market.
Detailed actuarial analysis is used to calculate the Group’s extreme risk profile and then design cost and capital efficient reinsurance programmes to mitigate these risks to within agreed appetites. For businesses writing general insurance we analyse the natural catastrophe exposure using our own internal probabilistic catastrophe model which is benchmarked against external catastrophe models widely used by the rest of the (re)insurance industry.
Due to the adverse impact of COVID-19 on the UK commercial property sectors, and in particular the difficulty in being able to assign values to our commercial property portfolios, we temporarily suspended our unit-linked property funds to redemptions for six months in March 2020. We perform stress tests to ensure that our portfolios are managed within client mandates.
The importance of digital interaction with our customers and advanced data analytics, the conduct, data protection and financial crime agenda of the European institutions, the FCA and other regulators, as well as the increasing cyber security threat, as evidenced by continuing instances of high profile cyber security breaches for other corporates in the UK and elsewhere, mean the Group has inherent risk exposure to data theft, conduct regulatory breaches (including financial crime) and customer service interruption due to IT systems failure. During 2020 we have continued to take action to reduce our residual exposure to these risks and improve our operational resilience through our conduct risk management framework, financial crime risk mitigation programme and significant investment in upgrading our IT infrastructure and security.
(iii) General insurance and health business General insurance and health claim liabilities are estimated by using standard actuarial claims projection techniques. These methods extrapolate the claims development for each accident year based on the observed development of earlier years. In most cases, no explicit assumptions are made as projections are based on assumptions implicit in the historic claims.
(iv) Sensitivity test results Illustrative results of sensitivity testing for long-term business, general insurance and health business and the fund management and noninsurance business are set out below. For each sensitivity test the impact of a reasonably possible change in a single factor is shown, with other assumptions left unchanged. Each test allows for any consequential impact on the asset and liability valuations.
Credit spreads The impact of a 0.5% increase in credit spreads over risk-free interest rates on corporate bonds and other non-sovereign credit assets.
Long-term business sensitivities as at 31 December 2020 31 December 2020 Impact on profit before tax £m Interest rates
31 December 2020 Impact on shareholders’ equity before tax £m Interest rates
Insurance participating — 5 (10) (65) 60 (50) 10 (5) Insurance non-participating (985) 1,265 (800) (120) 105 (240) (145) (955) Investment participating (85) 55 (5) (5) 5 (25) — — Investment non-participating — 5 — 5 (5) (5) — — Assets backing life shareholders’ funds (150) 170 (35) (35) 30 — — —
Changes in sensitivities between 2020 and 2019 reflect underlying movements in the value of assets and liabilities, the relative duration of assets and liabilities and asset liability management actions. The sensitivities to economic and demographic movements relate mainly to business in the UK.
General insurance and health business sensitivities as at 31 December 2020 31 December 2020 Impact on profit before tax £m Interest rates
Gross of reinsurance (380) 445 (110) 100 (100) (25) (325) Net of reinsurance (435) 490 (110) 100 (100) (25) (305)
Equity/ property 31 December 2020 Impact on shareholders’ equity before tax £m Interest rates
Equity/ property 31 December 2019 Impact on shareholders’ equity before tax £m Interest rates
Limitations of sensitivity analysis The above tables demonstrate the effect of a change in a key assumption while other assumptions remain unchanged. In reality, there is a correlation between the assumptions and other factors. It should also be noted that these sensitivities are non-linear, and larger or smaller impacts should not be interpolated or extrapolated from these results.
The fair values do not provide an indication of credit risk, as many over-the-counter transactions are contracted and documented under ISDA (International Swaps and Derivatives Association, Inc.) master agreements or their equivalent. Such agreements are designed to provide a legally enforceable set-off in the event of default, which reduces credit exposure. In addition, the Group has collateral agreements in place between the individual Group entities and relevant counterparties. See note 61 for further information on collateral and net credit risk of derivative instruments.
(a) Instruments qualifying for hedge accounting The Group has formally assessed and documented the hedge effectiveness for financial instruments designated as hedge instruments in accordance with IAS 39, Financial Instruments: Recognition and Measurement.
Credit contracts 9,492 56 (340) 10,088 18 (324) Other 11,848 544 (2,927) 14,136 518 (2,475) Total at 31 December 167,612 9,722 (7,659) 173,984 7,097 (6,517)
Fair value assets of £9,722 million (2019: £7,097 million) are recognised as ‘Derivative financial instruments’ in note 28(a), while fair value liabilities of £7,659 million (2019: £6,517 million) are recognised as ‘Derivative liabilities’ in note 53.
(c) Collateral Certain derivative contracts, primarily interest rate and currency swaps, involve the receipt or pledging of cash and non-cash collateral. The amounts of cash collateral receivable or repayable are included in notes 29 and 53 respectively. Collateral received and pledged by the Group is detailed in note 61.
Financial assets Derivative financial assets 8,279 — 8,279 (4,444) (1,515) (234) 2,086 Loans to banks and repurchase arrangements 12,330 — 12,330 — (300) (9,638) 2,392 Total financial assets 20,609 — 20,609 (4,444) (1,815) (9,872) 4,478
Financial liabilities Derivative financial liabilities (6,633) — (6,633) 4,415 96 1,092 (1,030) Other financial liabilities (2,929) — (2,929) — — 2,929 — Total financial liabilities (9,562) — (9,562) 4,415 96 4,021 (1,030)
Financial liabilities Derivative financial liabilities (5,682) — (5,682) 3,961 40 1,130 (551) Other financial liabilities (2,671) — (2,671) — — 2,671 —
Total financial liabilities (8,353) — (8,353) 3,961 40 3,801 (551) 1 Following a review of the securities collateral pledged on loans to banks and repurchase arrangements, comparative amounts have been amended from those previously reported. The effect of this change is to increase securities collateral pledged on these assets by £3,865 million to £6,845 million.
Derivative assets are recognised as ‘Derivative financial instruments’ in note 28(a), while fair value liabilities are recognised as ‘Derivative liabilities’ in note 53. £1,443 million (2019: £527 million) of derivative assets and £1,026 million (2019: £835 million) of derivative liabilities are not subject to master netting agreements and are therefore excluded from the table above.
The Group undertakes transactions with related parties in the normal course of business. Loans to related parties are made on normal arm’slength commercial terms.
Transactions with joint ventures in the UK relate to the property management undertakings, the most significant of which are listed in note 19(a)(iii). The Group has equity interests in these joint ventures, together with the provision of administration services and financial management to many of them. Our fund management companies also charge fees to these joint ventures for administration services and for arranging external finance.
Key management personnel of the Company may from time to time purchase insurance, savings, asset management or annuity products marketed by group companies on equivalent terms to those available to all employees of the Group. In 2020, other transactions with key management personnel were not deemed to be significant either by size or in the context of their individual financial positions.
Our UK fund management companies manage most of the assets held by the Group’s main UK staff pension scheme, for which they charge fees based on the level of funds under management. The main UK scheme holds investments in Group-managed funds and insurance policies with other group companies, as explained in note 51(b)(ii). As at 31 December 2020, the Friends Provident Pension Scheme (‘FPPS’), acquired in 2015 as part of the acquisition of the Friends Life business, held an insurance policy of £667 million (2019: £646 million) issued by a Group company, which eliminates on consolidation.
The related parties’ receivables are not secured, and no guarantees were received in respect thereof. The receivables will be settled in accordance with normal credit terms.
United Kingdom Aviva Central Services UK Limited Aviva Employment Services Limited Aviva Health UK Limited Aviva Insurance Limited Aviva International Insurance Limited Aviva Investors Global Services Limited Aviva Investors Pensions UK Limited Aviva Life & Pensions UK Limited Aviva Life Services UK Limited Aviva Pension Trustees UK Limited Aviva UK Digital Limited Aviva Wrap UK Limited Gresham Insurance Company Limited The Ocean Marine Insurance Company Limited Aviva Management Services UK Limited Aviva Administration Limited
Canada Aviva Canada Inc. and its principal subsidiaries Aviva Insurance Company of Canada Aviva General Insurance Company Elite Insurance Company Pilot Insurance Company Scottish & York Insurance Co. Limited S&Y Insurance Company Traders General Insurance Company
France Aviva France SA (99.9%) and its principal subsidiaries Aviva Assurances SA (100%) Aviva Investors France SA (99.3%) Aviva Investors Real Estate France SA (100%) Aviva Solutions (100%) Aviva Vie SA (100%) Locamat SAS (100%) NEWCO (99.7%)
Poland Aviva Powszechne Towarzystwo Emerytalne Aviva Santander S.A.(90%) Aviva Towarzystwo Ubezpieczen Na Zycie S.A. (90%) Aviva Towarzystwo Ubezpieczen Ogolnych S.A.(90%) Santander Aviva Towarzystwo Ubezpieczeń SA (51%) Santander Aviva Towarzystwo Ubezpieczeń na Życie SA (51%)
Branches The Group also operates through branches, the most significant of which is based in Ireland
Associates and joint ventures The Group has ongoing interests in the following operations that are classified as joint ventures or associates. Further details of those operations that were most significant in 2020 are set out notes 19 and 20 to the financial statements.
The direct related undertakings of the Company as at 31 December 2020 are listed below: Name of undertaking Country of incorporation Registered address Share class1 % held
China 12/F,15F, Block A, 27F Block B, Landgent Centre, 20 East Third Ring Middle Road, Beijing, 100022
General Accident plc United Kingdom Pitheavlis, Perth, Perthshire, PH2 0NH Ordinary shares 100 Aviva Group Holdings Limited United Kingdom St Helen’s, 1 Undershaft, London, EC3P 3DQ Ordinary shares 100 1 See note 4(c) for further details in respect of operations classified as held for sale.
Strategic report Governance IFRS financial statements Other information 64 – Related Undertakings continued The indirect related undertakings of the Company as at 31 December 2020 are listed below: Company Name Share Class1 % held
Australia c/o TMF Corporate Services (Aust) Pty Ltd, L16, 201 Elizabeth Street, Sydney 2000, Australia Aviva Investors Pacific Pty Ltd Ordinary 100 Barbados c/o USA Risk Group (Barbados) Ltd., 6th Floor, CGI Tower, Warrens, St. Michael, BB22026, Barbados Victoria Reinsurance Company Ltd. Common Shares 100 Belgium
Cumberland House 7th Floor, 1 Victoria Street, Hamilton HM11, Bermuda Aviva Re Limited Ordinary 100 Canada 10 Aviva Way, Markham ON L6G0G1, Canada 9543864 Canada Inc. Common Shares 100 Aviva Canada Inc. Voting Interest 100 Aviva General Insurance Company Common Shares 100 Aviva Insurance Company of Canada
Pilot Insurance Company Common Shares 100 S&Y Insurance Company Common Shares 100 Scottish & York Insurance Co. Limited
Common Shares 100 100 King Street West, Floor 49, Toronto ON M5X 2A2, Canada Aviva Investors Canada Inc. Common 100 150 King Street West, Suite #2401, P.O. Box 16, Toronto ON M5H 1J9, Canada Prolink Insurance Inc. Holding Company 34 555 Chabanel Ouest, Bureau 900, Montreal, QC H2N 2H8, Canada Aviva Agency Services Inc. Common Shares 100 Cayman Islands
PO Box 309, George Town, KY1-1104, Cayman Islands GS Mezzanine Partners V Offshore LP
Czech Republic 5/482, Ve Svahu, Prague 4, 147 00, Czech Republic AIEREF Renewable Energy s.r.o. Quota share 99 France 66 RRuuee MMeennaarrss,, 7755000022 PPaarriiss 22,, FFrraannccee AFER CONVERTIBLES FCP 100 1100 RRuuee dd’’UUzzèèss,, 7755000022,, PPaarriiss,, FFrraannccee PYTHAGORE Ordinary 100
Aviva Investors Valeurs FCP 100 Aviva Investors Valeurs Europe FCP 83 Aviva Investors Valorisation FCP 94 Aviva Investors Yield Curves Absolute Return
Aviva Messine 5 FCP 100 Aviva Monétaire ISR FCP 99 Aviva Monétaire ISR CT FCP 35 Aviva Investors Monétaire ISR CT SICAV 35 Aviva Multigestion FCP 98 Aviva Obliréa SICAV 97 Aviva Performance FCP 100 Aviva Performance Diversifié FCP 100 Aviva Rebond FCP 88 Aviva Repo FCP 100 Aviva Sélection Opportunités FCP 99 Aviva Sélection Patrimoine FCP 99 Aviva Signatures Europe FCP 99 Aviva Small & Mid Caps Euro ISR FCP 100 Aviva Structure Index 1 FCP 100 Aviva Structure Index 2 FCP 100 Aviva Structure Index 3 FPS 100 Aviva Structure Index 4 FIPS 100 Aviva Structure Index 5 FCP 100 Aviva Valeurs Responsables FCP 100 Aviva Valorisation Opportunités FCP 100 Aviva Valorisation Patrimoine FCP 100 Faraday FCP 100 FPE Aviva Small & Midcap FCP 100 Global Allocation M FCP 86 Obligations 5-7 M FCP 82 Rendement Diversifié M FCP 96 UFF Cap Défensif FCP 100 UFF Euro-Valeur 0-100 ISR A FCP 98 UFF Global Allocation A FCP 100 UFF Obligations 5-7 A FCP 98 UFF Rendement Diversifié A FCP 100 AFER – SFER Ordinary 99 Aviva Convertibles Ordinary 74 Aviva Developpement Ordinary 99 Aviva Diversifie SICAV/Ordinary 94 Aviva Europe Ordinary 96 Aviva Investors France Ordinary 99 Aviva Oblig International SICAV/Ordinary 67 Aviva Patrimoine SICAV/Ordinary 97 Aviva Rendement Europe SICAV/Ordinary 96 Aviva Valeurs Francaises SICAV/Ordinary 91 Aviva Valeurs Immobilieres SICAV/Ordinary 26 14, Rue Bergere, 75009, Paris, France Afer Avenir Senior SICAV 100 Afer Multi Foncier FCP 100 159 Rue Montmartre, 75002, Paris, France SACAF Ordinary 100 20, Place Vendome, 75001 Paris, France AXA LBO Fund IV Private Equity Fund 38.81 21 Rue de l’Arrivée, 95880 Enghien Les Bains, France Assurances Kremer & FAU Ordinary 50 24 – 26 Rue de la Pepiniere, 75008 Paris, France 100 Courcelles SAS Ordinary 100 AFER Immo Ordinary 100 AFER IMMO 2 Ordinary 100 Aviva Commerce Europe Ordinary 65 Aviva Immo Selection Ordinary/SCI 100 Aviva Investors Experimmo Ordinary 100 Aviva Investors Experimmo Propco 1 Ordinary 100 Aviva Investors Experimmo Propco 2 Ordinary 100 Aviva Investors Real Estate France S.A.
Aviva Patrimoine Immobilier Ordinary/SCI 100 Erasmus-NL Ordinary 74 Logiprime Europe Ordinary 92
Primotel Europe Ordinary 99 SCI 50 ANJOU Ordinary 100 SCI La Coupole des Halles Ordinary 98 SCI REIWA Ordinary 82 Societe Civile Immobiliere Pleyel R2 Ordinary 50 Société Civile Immobilière Thomas Edison
Locamat SAS Ordinary 100 NEWCO Ordinary 100 Selectinvie – Societe Civile Immobiliere
PO Box 255, Trafalgar Court, Les Banques, St Peter Port, GY1 3QL, Guernsey BMO Commercial Property Trust Limited
India 2nd floor, Prakash Deep Building, 7 Tolstoy Marg, New Delhi, 110001, India Aviva Life Insurance Company India Limited
SSgA GRU Euro Index Equity Fund Gross Roll Up Unit Trust
MGI UK Equity Fund OEIC 61 Friends First House, Cherrywood Science & Technology Park, Loughlinstown, Dublin, Co. Dublin, Ireland Ashtown Management Company Limited
Georges Court, 54-62 Townsend Street, Dublin 2, Ireland FPPE Fund Public Limited Company Ordinary 100 Merrion Managed Fund Unit Trust 33 IFSC House, International Financial Services Centre, Ireland Aviva Investors Liquidity Funds plc Aviva Investors Euro Liquidity Fund
Aviva Direct Ireland Limited Ordinary 100 Aviva Driving School Ireland Limited Ordinary 100 Aviva Group Services Ireland Limited Ordinary 92 Aviva Insurance Ireland Designated Activity Company
Italy 14 Via Scarsellini, 20161, Milan, Italy Aviva Italia Servizi Scarl Ordinary 36 Aviva Vita S.p.A Ordinary 80 Corso Venezia, 18, 20122 Milan, Italy Fondo Tages Helios II – CL 3 Alternative Investment 24 P.zza Lina Bo Bardi, 3, 20124 Milan, Italy Aviva Immobiliare Alternative Investment 100 Via Scarsellini 14, 20161, Milan, Italy Aviva Italia Holding S.p.A Ordinary 100 Aviva Italia S.p.A Ordinary 100 Aviva Life SPA Ordinary 100 Aviva SPA Ordinary 50 Via Valtellina, Milan, Italy Fondo Armilla – Fondo Immobiliare Chiuso A Distr
Aviva Investors EBC S.à r.l. Ordinary 100 Aviva Investors E-RELI (GP) SARL Ordinary 100 Aviva Investors European Renewable Energy S.A.
1c, Rue Gabriel Lippmann, L5365, Luxembourg Patriarch Classic B&W Global Freestyle 2 Rue du Fort Bourbon, L1249, Luxembourg Aviva Investors Asian Equity Income Fund
UK Listed Equity High Alpha Fund SICAV 94 Aviva Investors Climate Transition Global Equity Fund
Aviva Investors Investment Solutions Fixed Maturity Plan – Series I Fund
20 Rue de la Poste, L2346 Luxembourg Algebris NPL Partnership 3 Alternative Investment 96 24-26, Avenue de la Liberte, L1930 Luxembourg Greenman Open Fund Class H SICAV 21 28 Boulevard D’Avranches, L1160, Luxembourg Goodman European Business Park Fund (Lux) S.àr.l.
3 rue des Labours, L1912, Luxembourg Haspa TrendKonzept V FCP 47 46a Avenue John F Kennedy, L1855, Luxembourg Aviva Investors Polish Retail S.à r.l. Ordinary 100 Centaurus CER (Aviva Investors) Sarl Ordinary 100 5, Allée Scheffer, L2520, Luxembourg Amundi Investment Funds – EMU Equity
Central North Business Centre, Level 1, Sqaq il-Fawwara, Sliema APCIM Real Estate Finance Alternative Investment 100 ATUM Growth Fund I Alternative Investment 100 Herakles Alternative Investment 67 Herakles II Alternative Investment 100 Netherlands
AI Jana Pawla II 25, 00-854, Warsaw, Poland Wroclaw BC sp. z.o.o Ordinary 100 Inflancka 4b, 00-189, Warsaw, Poland AdRate Sp. z o.o. Ordinary 90 Aviva Investors Fio Malych Spolek kat Z
Aviva Investors Sfio Akcyjny Non UCITS (AIF) 100 Aviva Investors Sfio Dluzny Non UCITS (AIF) 100 Aviva Investors Sfio Dużych Spółek Non UCITS (AIF) 100 Aviva Investors Sfio Krotkoterminowych Obligacji
Prosta 69, 00-838, Warsaw, Poland porowneo.pl Sp. z o.o. Ordinary 90 ul. Burakowska 5/7, 01-066, Warsaw, Poland Berkley Investments S.A. Ordinary 90 Singapore 1 Raffles Quay, #27-13, South Tower, 048583, Singapore Aviva Investors Asia Pte. Limited Ordinary 100 12 Marina View, #18-02 Asia Square Tower 2, 018961, Singapore Nikko AM Global Green Bond Fund Unit Trust 45 Nikko AM Shenton Asia Pacific Fund Unit Trust 66 Nikko AM Shenton Income Fund Unit Trust 30 6 Temasek Boulevard, 29th Floor, Suntec Tower 4, 038986, Singapore Aviva Asia Management Pte. Ltd. Ordinary 100 Aviva Global Services (Management Services) Private Ltd.
83 Clemenceau Avenue, #11-01 UE Square, 239920, Singapore Aviva Singlife Holdings Pte. Ltd. Ordinary 26 Spain 1D, 13 Edificio América Av. de Bruselas, 28108, Alcobendas, Madrid, Spain Eólica Almatret S.L. Ordinary 50 Avda Andalucia, 10 -12, Malaga, Spain Ahorro Andaluz, S.A Ordinary 46 Nanclares de Oca, numero 1-B, 28022, Madrid, Spain San Ramon Hoteles Ordinary 100 TODO Real Est Investments Ordinary 100 Switzerland
Saray Mah., Adnan Büyüjdeniz Cad. No:12 34768, Umraniye, Istanbul, Turkey AvivaSA Emeklilik ve Hayat Ordinary 40 United Kingdom 1 Filament Walk, Suite 203, London, SW18 4GQ, United Kingdom Freetricity South East Limited Ordinary 100 1 London Wall Place, London EC2Y 5AU, United Kingdom Schroder QEP US Core Fund Unit Trust 45 12 Throgmorton Avenue, London EC2N 2DL, United Kingdom BlackRock Market Advantage Fund Unit Trust 48 180 Great Portland Street, London, W1W 5QZ, United Kingdom Quantum Property Partnership (General Partner) Limited
Quantum Property Partnership (Nominee) Limited 2nd Floor, 36 Broadway, London, SW1H 0BH, United Kingdom Fred. Olsen CBH Limited Ordinary 49 42 Dingwall Road, Croydon, Surrey, CR0 2NE, United Kingdom Ballard Investment Company Limited 47 Bermondsey Street, London, SE1 3XT, United Kingdom Neos Ventures Limited Ordinary/Preference 81 4th Floor, New London House, 6 London Street, London, EC3R 7LP, United Kingdom Polaris U.K. Limited Ordinary 39 5 Lister Hill, Horsforth, Leeds, LS18 5AZ, United Kingdom Aspire Financial Management Limited
Aviva Health UK Limited Ordinary 100 Aviva Insurance UK Limited Ordinary 100 Aviva UKGI Investments Limited Ordinary 100 Gresham Insurance Company Limited
Aviva Wrap UK Limited Ordinary 100 CGNU Life Assurance Limited Ordinary 100 Friends AELRIS Limited Ordinary 100 Friends Provident Pension Scheme Trustees Limited
BMO North American Equity Fund OEIC 24 F&C Emerging Markets Fund Share Class 2
Liontrust Fund Partners LLP, 2 Savoy Court, London WC2R 0EZ, United Kingdom Liontrust Sustainable Future Corporate Bond Fund
Health & Case Management Limited Ordinary/Preference 25 Old Bourchiers Hall New Road, Aldham, Colchester, Essex, C06 3QU, United Kingdom County Broadband Holdings Limited
Pitheavlis, PERTH, Perthshire, PH2 0NH, United Kingdom Aviva (Peak No.1) UK Limited Ordinary 100 Aviva Insurance Limited Ordinary 100 Aviva Investors (FP) Limited Ordinary 100 Aviva Investors (GP) Scotland Limited
Bankhall Support Services Limited Ordinary 100 Friends AEL Trustees Limited Ordinary 100 Friends AELLAS Limited Ordinary 100 Friends Life and Pensions Limited Ordinary 100 Friends Life Assurance Society Limited
Friends Life Company Limited Ordinary 100 Friends Life FPG Limited Ordinary 100 Friends Life FPL Limited Ordinary 100 Friends Life FPLMA Limited Ordinary 100 Friends Life Holdings plc Ordinary 100
Company Name Share Class1 % held 44-49 Lowndes Square Management Company Limited 50-60 Station Road Nominee 1 Limited 50-60 Station Road Nominee 2 Limited 6-10 Lowndes Square Management Company Limited
Aviva Credit Services UK Limited Ordinary 100 Aviva Employment Services Limited Ordinary 100 Aviva Europe SE Ordinary 92 Aviva Group Holdings Limited Ordinary 100 Aviva Insurance Services UK Limited Ordinary 100 Aviva International Holdings Limited Parent Company 100 Aviva International Insurance Limited
Aviva Investors EBC GP Limited Ordinary 100 Aviva Investors Energy Centres No.1 GP Limited
AI UK gilts up to 5 years index fund Collective Investment Scheme
Aviva Investors Investment Funds ICVC Aviva Investors Global Equity Income Fund
Aviva Investors Passive Funds ACS AI 40 60 Global Equity Index Fund
Aviva Investors Passive Funds ACS AI 50 50 Global Equity Index Fund
Aviva Investors Passive Funds ACS AI Developed World Ex UK Equity Index Fund
Aviva Investors Passive Funds ACS AI Index-Linked Gilts Over 5 years Index Fund
Aviva Investors Passive Funds ACS AI Multi-Asset (40-85% Shares) Index Fund
Aviva Investors Passive Funds ACS AI Non-gilt Bond All Stocks Index Fund
Aviva Investors Pensions Limited Ordinary 100 Aviva Investors Pip Solar PV (General Partner) Limited
Aviva Investors Portfolio Funds ICVC Aviva Investors Multi-Manager 2060 % Shares Fund
Aviva Investors Property Funds ICVC Aviva Investors Asia Pacific Property Fund
Aviva Investors Real Estate Limited Ordinary 100 Aviva Investors Secure Income REIT Limited
Aviva Overseas Holdings Limited Ordinary 100 Aviva plc Ordinary 100 Aviva Public Private Finance Limited Ordinary 100 Aviva Special PFI GP Limited Ordinary 100 Aviva Staff Pension Trustee Limited Ordinary 100 Aviva UK Digital Limited Ordinary 100
Aviva UKLAP De-risking Limited Ordinary 100 Axcess 10 Management Company Limited
Barratt House Nominee 1 Limited Ordinary 50 Barratt House Nominee 2 Limited Ordinary 50 Barwell Business Park Nominee Limited
Biomass UK No.4 Limited Ordinary 100 Boston Biomass Limited Ordinary 100 Boston Wood Recovery Limited Ordinary 100 Building a Future (Newham Schools) Limited
Chesterford Park (Nominee) Limited Ordinary 100 Commercial Union Corporate Member Limited
Heath Farm Energy Limited Ordinary 64 Hooton Bio Power Limited Ordinary 56 Houlton Commercial Management Company Limited
Irongate House Nominee 1 Limited Ordinary 50 Irongate House Nominee 2 Limited Ordinary 50 Jacks Lane Energy Limited Ordinary 100 Lime Property Fund (General Partner) Limited
NU Library For Brighton Limited Ordinary 100 NU Local Care Centres (Bradford) Limited
NUPPP (GP) Limited Ordinary 100 NUPPP Nominees Limited Ordinary 100 Opus Park Management Limited Company Limited by
The Square Brighton Limited Ordinary 100 Turncole Wind Farm Limited Ordinary 100 Tyne Assets (No 2) Limited Ordinary 100 Tyne Assets Limited Ordinary 100 Undershaft Limited Ordinary 100 Welsh Insurance Corporation Limited/The
Westcountry Solar Solutions Limited Ordinary 100 Woolley Hill Electrical Energy Limited
Ascot Real Estate Investments LP Fund 50% Igloo Regeneration Partnership Fund 40% Rugby Radio Station Limited Partnership
The Gobafoss Partnership Fund 100% Swan Court Waterman’s Business Park, Kingsbury Crescent, Staines, Surrey, TW18 3BA, United Kingdom Healthcode Limited Ordinary 20 Tec Marina Terra Nova Way, Penarth, Cardiff, Wales, CF64 1SA, United Kingdom Wealthify Group Limited Ordinary 100 Wealthify Limited Ordinary 100 United States 1209 Orange Street, Wilmington DE 19801, United States Aviva Investors Americas LLC Sole Member 100 1211 Avenue of the Americas New York, NY 10036, United States
Expenses Operating expenses B (251) (195) Finance costs C (500) (537)
Where applicable, the accounting policies of the Company are the same as those of the Group. The Company notes identified alphabetically are an integral part of these separate financial statements. Where the same items appear in the Group financial statements, reference is made to the Group notes identified numerically.
Balance at 1 January 980 200 1,239 44 6,438 120 3,910 500 13,431 Loss for the year — — — — — — (443) — (443) Other comprehensive expense — — — — — — (1) — (1) Total comprehensive expense for the year — — — — — — (444) — (444) Dividends and appropriations 16 — — — — — — (280) — (280) Reserves credit for equity compensation plans 34 — — — — — 37 — — 37 Shares issued under equity compensation plans 33 2 — 3 — — (51) 46 — — Reclassification of DCI to financial liabilities1 37,L — — — — — — 1 (500) (499) Reclassification of tier 1 notes to financial liabilities 37,L — — — — — — — — — Forfeited dividend income H — — — — — — 2 — 2 Aggregate tax effect D — — — — — — — — — Balance at 31 December 982 200 1,242 44 6,438 106 3,235 — 12,247 1 On 23 June 2020, notification was given that the Group would redeem the 5.9021% £500 million DCI and the instrument was reclassified as a financial liability. See note 37 for further information.
Balance at 1 January 975 200 1,214 44 6,438 120 4,026 724 13,741 Profit for the year — — — — — — 1,048 — 1,048 Other comprehensive income — — — — — — (1) — (1) Total comprehensive income for the year — — — — — — 1,047 — 1,047 Dividends and appropriations 16 — — — — — — (1,244) — (1,244) Reserves credit for equity compensation plans 34 — — — — — 62 — — 62 Shares issued under equity compensation plans 33 5 — 25 — — (62) 55 — 23 Reclassification of DCI to financial liabilities 37,L — — — — — — — — — Reclassification of tier 1 notes to financial liabilities2 37,L — — — — — — 14 (224) (210) Forfeited dividend income H — — — — — — 4 — 4 Aggregate tax effect D — — — — — — 8 — 8
Assets Non-current assets Investments in subsidiaries E 31,788 31,788 Investment in joint venture E 123 123 Receivables and other financial assets F 3,791 5,025 Deferred tax assets G 9 9 Current tax assets G 108 85 35,819 37,030 Current assets Receivables and other financial assets F 812 241 Prepayments and accrued income 20 13 Cash and cash equivalents 191 74 Total assets 36,842 37,358
Dividends received from subsidiaries O(iii) 101 1,590 Dividends received from joint venture O(iii) 6 5 Interest receivable from group loans held at amortised cost O(i) 89 92 Other income — 1 Unrealised loss on FX forward contracts (4) —
Current tax For this year (108) (90) Prior year adjustments (9) (2) Total current tax (117) (92)
(ii) Tax credited to other comprehensive income Tax credited to other comprehensive income in the year amounted to £1 million (2019: £nil) in respect of obligations under pension and postretirement benefit schemes.
D – Tax continued (iv) Tax reconciliation The tax on the Company’s (loss)/profit before tax differs from the theoretical amount that would arise using the tax rate of the home country of the Company as follows: £m
(Loss)/profit before tax (562) 956 Tax calculated at standard UK corporation tax rate of 19.00% (2019: 19.00%) (107) 182 Reconciling items
During 2020, the reduction in the UK corporation tax rate that was due to take effect from 1 April 2020 was cancelled and as a result, the rate has remained at 19%. This results in an increase in the Company’s deferred tax assets of £1 million. The resulting credit of £1 million is recognised in other comprehensive income.
Loans due from subsidiaries held at amortised cost O(i) 4,346 5,025 Amounts due from subsidiaries held at amortised cost O(iii) 257 241 Total 4,603 5,266
Expected to be recovered in less than one year 812 241 Expected to be recovered in more than one year 3,791 5,025
Fair value of these assets is approximate to their carrying amounts.
G – Tax assets and liabilities (i) Current tax Current tax assets recoverable in more than one year are £108 million (2019: £85 million).
(b) The movement on the net deferred tax asset was as follows: £m
Net asset at 1 January 9 9 Amounts charged to profit (1) — Amounts credited to other comprehensive income 1 —
Total contractual undiscounted cash flows 7,608 7,652 15,260 6,810 7,009 13,819
Where subordinated debt is undated, the interest payments have not been included beyond 15 years. Annual interest payments in future years for these borrowings are £49 million (2019: £49 million).
The fair value of the subordinated debt at 31 December 2020 was £7,514 million (2019: £6,446 million), calculated with reference to quoted prices. The fair value of the senior debt at 31 December 2020 was £1,217 million (2019: £1,134 million), calculated with reference to quoted prices. The fair value of the commercial paper is considered to be the same as its carrying value.
Total 16,886 17,019 Expected to be recovered in less than one year 4,456 4,344 Expected to be recovered in more than one year 12,430 12,675
L – Direct capital instrument and tier 1 notes The 6.875% £210 million tier 1 notes were redeemed on 21 November 2019 at a cost of £210 million, see details in note 37. These were reflected in the Company financial statements at a value of £224 million following the transfer at fair value from Friends Life Holdings plc on 1 October 2015. The resulting difference of £14 million between their carrying amount of £224 million and fair value of £210 million has been charged to the Company retained earnings.
The £500 million direct capital instrument was redeemed on 27 July 2020 at a cost of £500 million, see details in note 37. These were reflected in the Company financial statements at a value of £499 million following the reclassification to financial liability on the notification date. The resulting difference of £1 million has been charged to the Company retained earnings.
M – Contingent liabilities Details of the Company’s contingent liabilities are given in the Group consolidated financial statements, note 55.
The business of the Company is managing its investments in subsidiaries and joint venture operations. Its risks are considered to be the same as those in the operations themselves, and full details of the major risks and the Group’s approach to managing these are given in the Group consolidated financial statements, note 59. Such investments are held by the Company at cost in accordance with accounting policy D.
Currency risk The Company’s direct subsidiaries are exposed to foreign currency risk arising from fluctuations in exchange rates during the course of providing insurance and asset management services around the world. The exposure of the subsidiaries to currency risk is considered from a Group perspective in the Group consolidated financial statements, note 59(c)(v).
Within 1 year 555 — 1 – 5 years 3,311 3,792 Over 5 years 480 1,233
The interest received on these loans is £89 million (2019: £92 million). See note A.
On 27 June 2016, the Company provided an unsecured loan of C$446 million to Aviva Group Holdings Limited, its subsidiary, with a maturity date of 27 June 2046. The loan accrues interest at 348 basis points above 6 month CDOR. As at the statement of financial position date, the total amount drawn was £256 million (2019: £259 million).
On 30 September 2016, the Company provided the following loans to Aviva Group Holdings Limited, its subsidiary: • An unsecured loan of €850 million with a maturity date of 30 September 2021. The loan accrues interest at 115 basis points above 12 month
• An unsecured loan of €650 million with a maturity date of 5 July 2023. The loan accrues interest at a fixed rate of 1.54% with settlement to be paid at maturity. As at the statement of financial position date, the total amount drawn down on the facility was £582 million (2019: £551 million).
• An unsecured loan of €700 million with a maturity date of 3 July 2024. The loan accrues interest at a fixed rate of 1.64% with settlement to be paid at maturity. As at the statement of financial position date, the total amount drawn down on the facility was £627 million (2019: £593 million).
On 3 September 2013 Aviva Group Holdings Limited, its subsidiary, provided an unsecured rolling credit facility of £5,000 million to the Company, accruing interest at 75 basis points above 6 month LIBOR and with an initial maturity date of 3 September 2018, which was subsequently extended to 31 December 2023. The total amount drawn down on the facility at 31 December 2020 was £2,900 million (2019: £3,045 million).
In this section Page Alternative Performance Measures 275 Shareholder services 284
Throughout, the symbol ‘#’ denotes an APM that is also a key performance indicator used as a base to determine or modify remuneration.
The APMs utilised by Aviva may not be the same as those used by other insurers and may change over time. The calculation of APMs is consistent with previous periods unless otherwise stated.
Following the announcement of our strategic priorities on 6 August 2020, the financial performance of our ‘Core markets’ are presented as UK & Ireland Life, General Insurance (which brings together our UK & Ireland general insurance businesses and Canada) and Aviva Investors. Our ‘Manage-for-value’ markets consist of our remaining international businesses: France, Italy, Poland, Asia and Other. The 2019 comparative results for our APMs have been restated from those previously published to reclassify operations on this basis.
At 31 December 2020, the estimated Solvency II shareholder cover ratio APM has been amended to no longer make adjustments for planned acquisitions and disposals when deriving the shareholder view. This change in approach is considered more relevant because prior to completion there is uncertainty in relation to the progression and final terms of such transactions. Comparative amounts have not been restated for this change as the impacts were not material at 31 December 2019.
Changes due to market value movements and interest rate changes, which give rise to variances between actual and expected investment returns, are disclosed separately outside Group adjusted operating profit. The impact of changes in the discount rate applied to claims provisions is also disclosed outside Group adjusted operating profit.
Impairment, amortisation and profit or loss on disposal Group adjusted operating profit also excludes impairment of goodwill, associates and joint ventures; amortisation and impairment of other intangible assets acquired in business combinations; amortisation and impairment of acquired value of inforce business; and the profit or loss on disposal and remeasurement of subsidiaries, joint ventures and associates. These items principally relate to merger, acquisition and disposal activity which we view as strategic in nature, hence they are excluded from the Group adjusted operating profit APM as this is principally used to manage the performance of our operating segments when reporting to the Group chief operating decision maker.
• A charge of £18 million relating to the estimated additional liability arising in the UK defined benefit pension schemes as a result of the requirement to equalise members’ benefits for the effects of Guaranteed Minimum Pension (GMP) for former members. This was disclosed outside of Group adjusted operating profit as the additional liability arose as a consequence of a further High Court judgement in November 2020 in the case involving Lloyds Banking Group, and does not reflect the financial performance of the Group for the year.
Other items in 2019 comprised: • A charge of £45 million relating to a change in the discount rate used for estimating lump sum payments in settlement of bodily injury claims. Consistent with the presentation of the change in the Ogden discount rate in 2016 and 2018, this was disclosed outside of Group adjusted operating profit; and
The Group adjusted operating profit APM should be viewed as complementary to IFRS measures. It is important to consider Group adjusted operating profit and profit for the year together to understand the performance of the business in the period.
Group adjusted operating profit before tax attributable to shareholders’ profits 3,161 3,184
Adjusted for the following: Life business: Investment variances and economic assumption changes 174 654 Non-life business: Short-term fluctuation in return on investments (64) 167 General insurance and health business: Economic assumption changes (104) (54) Impairment of goodwill, associates and joint ventures and other amounts expensed (30) (15) Amortisation and impairment of intangibles acquired in business combinations (76) (87) Amortisation and impairment of acquired value of inforce business (278) (406) Profit/(loss) on the disposal and re-measurement of subsidiaries, joint ventures and associates 725 (22) Other (34) (47) Adjusting items before tax 313 190 Profit before tax attributable to shareholders’
profits 3,474 3,374 Tax on Group adjusted operating profit (634) (668) Tax on other activities 70 (43) (564) (711)
The difference between the Group adjusted operating profit before tax attributable to shareholders’ profit from discontinued operations of £312 million (2019: £251 million) and profit before tax attributable to shareholders’ profits from discontinued operations of £904 million (2019: £54 million) is a net profit of £592 million (2019: £197 million loss). This is included in the total adjustments in the table above of £313 million (2019: £190 million) and comprises a net gain of £713 million (2019: £28 million loss) relating to profit on the disposal and re-measurement of subsidiaries, joint ventures and associates; offset by losses of £50 million (2019: £29 million loss) relating to investment return variances and economic assumption changes on long-term business; losses of £1 million (2019: £4 million loss) relating to impairment of goodwill, associates and joint ventures; losses of £6 million (2019: £10 million loss) in relation to amortisation and impairment of intangibles acquired in business combinations; and losses of £64 million (2019: £126 million loss) relating to amortisation and impairment of acquired in-force business.
Combined operating ratio (COR) COR is a useful financial measure of general insurance underwriting profitability calculated as total underwriting costs in our insurance entities expressed as a percentage of net earned premiums. It is used to monitor the profitability of lines of business. A COR below 100% indicates profitable underwriting.
Continuing operations Incurred claims – GI & Health (as per note 5)1 (6,267) (6,448) Adjusted for the following: Incurred claims – Health 423 491 Change in discount rate assumptions 104 54 Impact of change in the discount rate used in settlement of bodily injury claims — 45 Total Incurred claims (included in COR)2 (5,740) (5,858)
Commission and expenses – GI & Health (as per note 5) (3,545) (3,275) Adjusted for the following: Amortisation and impairment of intangibles acquired in business combinations 23 19
Net earned premiums – GI & Health 9,914 9,805 Adjusted for: Net earned premiums – Health (638) (700)
Net earned premiums (included in COR) from continuing operations 9,276 9,105
Combined operating ratio 96.2% 97.5% 1 Corresponds to the sum of claims and benefits paid, net of recoveries from reinsurers and the change in insurance liabilities, net of reinsurance per note 5. 2 Includes Aviva Re. 3 Commission and expenses (included in COR) is comprised of £2,031 million earned commission
(2019: £1,900 million) and £1,157 million earned expenses (2019: £1,116 million). It includes Aviva Re.
Following a review of the presentation of claims handling costs, to achieve consistency in our reporting, comparative amounts have been restated by £83 million for the year ended 31 December 2019 to include previously excluded claims handling costs attributable to the Life & Health businesses from the UK, Ireland and Poland in controllable costs.
A reconciliation of other expenses in the IFRS consolidated income statement to controllable costs is set out below: £m £m
Controllable costs 3,935 4,022 1 Following a review of the presentation of claims handling costs, to achieve consistency in our reporting, comparative amounts have been restated by £83 million for the year ended 31 December 2019 to include previously excluded claims handling costs attributable to the Life & Health businesses from the UK, Ireland and Poland in controllable costs.
2 Product governance and mis-selling costs, previously included within other costs, have been presented as a discrete item in the reconciliation in order to improve transparency.
At 30 June 2020, we have removed the operating expenses APM, having disclosed this metric alongside controllable costs at 31 December 2019. The controllable costs metric aligns to our target announced in 2019 and excludes premium based taxes, fees and levies that vary directly with premium volumes. Therefore, controllable costs is considered more representative of operational expenses that are controllable by management and is considered more useful and relevant than the operating expenses metric.
IFRS Return on Equity (RoE)# The IFRS RoE calculation is based on Group adjusted operating profit after tax attributable to ordinary shareholders expressed as a percentage of weighted average ordinary shareholders’ equity (excluding non-controlling interests, preference share capital and direct capital instrument and tier 1 notes).
IFRS net asset value (NAV) per share IFRS NAV per share is calculated as the equity attributable to shareholders of Aviva plc, less preference share capital (both within the consolidated statement of financial position), divided by the actual number of shares in issue at the balance sheet date. IFRS NAV per share is meaningful as a measure of the value generated by the Group in terms of the equity shareholders’ face value per share investment.
Assets Under Management (AUM) and Assets Under Administration (AUA) AUM represent all assets managed or administered by or on behalf of the Group, including those assets managed by Aviva Investors and by third parties. AUM include assets that are reported within the Group’s statement of financial position and those assets belonging to external clients outside the Aviva Group which are therefore not included in the Group’s statement of financial position.
A reconciliation of amounts appearing in the Group’s statement of financial position to AUM is shown below: Assets managed on behalf of Group companies Assets included in statement of financial position1 Financial investments 369 351 Investment properties 11 11 Loans 44 39 Cash and cash equivalents 17 20 Other 5 1
Less: third party funds and UK Platform included above (26) (17)
420 405 Assets managed on behalf of third parties2 Aviva Investors 74 67 UK Platform3 34 29 Other 7 9
In previous periods, this APM was labelled net fund flows and this has been updated for consistency.
APMs derived from Solvency II measures The Group is a regulated entity under the Solvency II regulatory framework and therefore uses a number of APMs that are derived from Solvency II measures in addition to those that are derived from IFRS based measures.
The reconciliation from total Group equity on an IFRS basis to Solvency II regulatory own funds is presented below. The key differences between the two bases are as follows: • Elimination of goodwill and other intangible assets • Valuation adjustments to reflect insurance assets and liabilities valued on a best estimate basis using market-implied assumptions • Valuation adjustments and the impact of the difference between consolidation methodologies under Solvency II and IFRS • Tax effect of all other reconciling items in the table above which are shown gross of tax • Recognition of subordinated debt capital, non-controlling interests and adjustments for ring-fenced funds restrictions.
Total Group equity on an IFRS basis 20,560 18,685 Elimination of goodwill and other intangible assets
Difference between Solvency II net assets and own funds 5,248 3,679
Solvency II shareholder cover ratio# The estimated Solvency II shareholder cover ratio, which is derived from own funds divided by the SCR using a ‘shareholder view’, is one of the indicators of the Group’s balance sheet strength. The shareholder view is considered by management to be more representative of the shareholders’ risk-exposure and the Group’s ability to cover the SCR with eligible own funds and aligns with management’s approach to dynamically manage its capital position. In arriving at the shareholder position, the following adjustments are typically made to the regulatory Solvency II position: • The contribution to the Group’s SCR and own funds of the most material fully ring fenced with-profits funds and staff pension schemes in surplus are excluded. These exclusions have no impact on Solvency II surplus as these funds are self-supporting on a Solvency II capital basis with any surplus capital above SCR not recognised.
• A change in regulations announced in December 2019 allows French insurers to place a part of the Provision pour Participation aux Excédents (PPE) into Solvency II own funds. At December 2019 PPE was included in the France local regulatory own funds but was excluded from the estimated Group regulatory and shareholder own funds, subject to confirmation of the appropriate treatment at Group level. The treatment has since been confirmed and PPE is now included within Group regulatory own funds but remains excluded from the shareholder position.
• Pro forma adjustments are made if the Solvency II shareholder cover ratio does not fully reflect the effect of future regulatory changes that are known as at each reporting date. These adjustments are made in order to show a more representative view of the Group’s solvency position.
A reconciliation of the Solvency II regulatory surplus to the Solvency II shareholder surplus is provided below: 2020 Own funds £m SCR £m
Estimated Solvency II regulatory surplus 29,262 (16,441) 12,821 Adjustments for: Fully ring-fenced with-profit funds (2,492) 2,492 — Staff pension schemes in surplus (1,179) 1,179 — Notional reset of TMTP 564 — 564 PPE (385) — (385) Pro forma adjustments — — — Estimated Solvency II shareholder 2019 Own funds £m
Estimated Solvency II shareholder surplus 24,548 (11,910) 12,638 1 The 31 December 2019 Solvency II position includes three pro forma adjustments that relate to the disposal of FPI (£nil impact on surplus), the disposal of Hong Kong (£nil impact on surplus) and the potential impact of an expected change to Solvency II regulations on the treatment of equity release mortgages (£0.2 billion decrease in surplus as a result of an increase in SCR). The 31 December 2020 Solvency II position does not include proforma adjustments. Note that from 31 December 2020 no pro forma adjustments will be made for planned disposals.
A summary of the shareholder view of the Group’s Solvency II position is shown in the table below: £m
VNB (gross of tax and non-controlling interests) 675 9 576 1,260
VNB (gross of tax and non-controlling interests) 600 12 612 1,224
Businesses which are not in the scope of Solvency II own funds (138) (12) (8) (158)
The operating assumptions are consistent with the Solvency II balance sheet, when these assumptions are updated, the year-to-date VNB will capture the impact of the assumption change on all business sold that year.
New business margin New business margin is calculated as value of new business on an adjusted Solvency II basis (VNB) divided by the present value of new business premiums (PVNBP) and expressed as a percentage.
Solvency II operating capital generation (OCG)# Solvency II OCG measures the amount of Solvency II capital the Group generates from operating activities and incorporates an expected return on investments supporting the life and non-life insurance businesses. The Group considers this measure meaningful to stakeholders as it enhances the understanding of the Group’s operating performance over time by separately identifying nonoperating items.
The expected investment returns assumed within Solvency II OCG are consistent with the returns used for Group adjusted operating profit.
Solvency II OCG includes the effect of variances in experience for noneconomic items, such as mortality, persistency and expenses, the effect of changes in non-economic assumptions (for example, longevity), model changes that are non-economic in nature and the impact of capital actions, for example, strategic changes in asset mix including changes in hedging exposure. Consistent with the Group adjusted operating profit APM, Solvency II OCG is determined on start of period economic assumptions and therefore excludes economic variances and economic assumption changes.
An analysis of the components of Solvency II OCG is presented below, including an analysis of Solvency II operating own funds generation which is the own funds component of Solvency II OCG (see the section below): Solvency II own funds impact of new business (net of tax and non-controlling interests)
Operating own funds generation from non-life 562 431 Operating own funds generation from other1 6 944 Group debt costs (296) (284)
Solvency II OCG 1,932 2,259 1 Other includes the impact of capital actions, non-economic assumption changes and other non-recurring items.
Opening restatements1 78 (202) (124) Operating capital generation 1,691 241 1,932 Non-operating capital generation (741) (963) (1,704) Dividends2 (549) — (549) Hybrid debt 257 — 257 Acquisitions and disposals 486 64 550 Estimated Solvency II shareholder surplus at 31 December 25,770 (12,770) 13,000 1 Opening restatements allows for adjustments to the estimated position presented in the preliminary announcement and the final position in the Solvency and Financial Condition Report (SFCR). 2 Dividends includes £17 million of Aviva plc preference dividends and £21 million of General Accident plc preference dividends, and £511 million for the interim dividends in respect of the 2019 and 2020 financial years.
(11,910) 12,638 1 Opening restatements allows for differences between the shareholder view presented in the 2018 preliminary announcement and the 2018 SFCR. 2 Dividends includes £17 million of Aviva plc preference dividends and £21 million of General Accident plc preference dividends.
Solvency II operating own funds generation Solvency II operating own funds generation measures the amount of Solvency II own funds generated from operating activities. Solvency II operating own funds generation is the own funds component of Solvency II OCG and follows the methodology and assumptions outlined in Solvency II OCG.
and tier 1 note coupons divided by; • Opening value of unrestricted tier 1 shareholder own funds
The tables below provide a summary of the Group’s regulatory Solvency II own funds by tier and a reconciliation between unrestricted tier 1 regulatory own funds and unrestricted tier 1 shareholder own funds: Regulatory view 2020 £m
Estimated Solvency II regulatory own funds 29,262 28,347 1 Tier 3 regulatory own funds at 31 December 2020 consists of £259 million subordinated debt
FPI (£0.1 billion reduction in own funds) and the disposal of Hong Kong (£nil impact on own funds). 2 Regulation was introduced in France that allows French insurers to place the Provision pour Participation aux
Excedents (PPE) into Solvency II own funds. The PPE has been included in the Group regulatory own funds in 2020 but it is not included in the Group shareholder own funds.
Solvency II return on capital Solvency II return on capital is calculated as Solvency II operating own funds generation excluding the costs of servicing external debt (including direct capital instrument coupons and preference share dividends) divided by opening shareholder Solvency II own funds. It is an unlevered economic value measure as it is used to assess growth and performance in our markets before taking debt into account.
UK & Ireland Life 1,057 14,241 7.4% UK & Ireland General Insurance2 329 2,509 13.1% Canada 287 1,442 19.9% Aviva Investors 67 488 13.7% Manage-for-value markets 497 8,010 6.2% Group centre costs and Other2 (250) (2,142) N/A
Solvency II return on equity at 31 December 1,626 16,578 9.8%
Less: Senior debt (12) — — Less: Subordinated debt (272) (6,979) — Solvency II operating own funds generation
Solvency II return on equity (excluding management actions) 1,241 15,296 8.1%
2 For UK general insurance only, capital held for internal risk appetite purposes is used instead of opening shareholder Solvency II own funds to ensure consistency in measuring performance across markets. This is only applicable to UK general insurance Solvency II return on capital and not to the aggregated Group Solvency II return on capital and Solvency II return on equity measures, with the reversal of the impact included in Group centre costs and Other opening own funds.
Solvency II debt leverage ratio Solvency II debt leverage ratio is calculated as total debt expressed as a percentage of Solvency II regulatory own funds plus senior debt and commercial paper. Where Solvency II debt includes subordinated debt, preference share capital and direct capital instrument. The Solvency II debt leverage ratio provides a measure of the Group’s financial strength.
Total debt 9,536 9,182 Estimated Solvency II regulatory own funds, senior debt and commercial paper 30,482 29,637
IFRS borrowings 9,727 9,067 Less borrowings not classified as Solvency II
regulatory debt Senior notes (1,112) (1,052) Commercial paper (108) (238) Operational borrowings (1,474) (1,571)
IFRS subordinated debt 7,033 6,206 Revaluation of subordinated liabilities 795 716 Other movements 38 20 Solvency II subordinated debt 7,866 6,942
Other APMs Cash remittances# Cash paid by our operating businesses to the Group, for the period between March and the end of the month preceding preliminary results announcements, comprised of dividends and interest on internal loans. Dividend payments by operating businesses may be subject to insurance regulations that restrict the amount that can be paid. The business monitors total cash remittances at a Group level and in each of its markets. Cash remittances are considered a useful measure as they support the payments of external dividends.
Cash remittances eliminate on consolidation and hence are not directly reconcilable to the Group’s IFRS consolidated statement of cash flows.
The table below shows a breakdown of total Group cash remittances by market.
UK & Ireland Life1,2,3 1,007 1,394 UK & Ireland General Insurance1,4 171 273 Canada1,5 131 156 Aviva Investors 50 86
2 UK & Ireland Life cash remittances in 2019 included a special remittance of £500 million from UK Life which was not repeated in 2020.
3 UK & Ireland Life cash remittances include £250 million (2019: £nil) received in February 2021 in respect of 2020 activity.
These amounts eliminate on consolidation and hence are not directly reconcilable to the Group’s IFRS consolidated statement of cash flows.
Annual Premium Equivalent (APE) APE is a measure of sales in our life insurance business. APE is calculated as the sum of new regular premiums plus 10% of new single premiums written in the period. This provides useful information on sales and new business when considered alongside VNB.
Dividend record date 9 April 2021 27 August 2021 Last day for Dividend Reinvestment
Other key dates: Annual General Meeting 2pm on 6 May 2021
Quarter one market update** 27 May 2021 2021 interim results announcement** 12 August 2021
The voting results of the 2021 AGM will be accessible on the Company’s website at www.aviva.com/agm shortly after the meeting.