How we’re doing – and how we’re going to do better million customers What’s important and how we help them every step of the way 33Our
14.05p Final dividend, a 15% increase £30.7bn Paid out in benefits and claims to our customers in 2015 320 years Protecting our customers since 1696 587,000+ Number of people who have benefited from our corporate responsibility programmes in 2015
Creating a bright and sustainable future for our customers, investors, employees and communities
Our investment thesis of cash flow plus growth sets out why investors should choose us: Our businesses We have businesses across 16 markets in: UK, Europe, Asia and Canada We offer: Life insurance Retirement income, Savings & Pensions, Life cover, Protection
Combined operating ratio improved by 1.1pp £1,507m Cash remittances up 5%1
Operating expense ratio improved by 1.1pp1,2 £1,192m Value of new business up 19%1
Read more on pages 12-13 1 2015 numbers include Friends Life from 10 April 2015, the acquisition completion date. 2014 numbers are Aviva stand-alone as previously reported (i.e. do not include Friends Life). Further details can be found on pages 58-61.
Kill complexity We are obsessed with making things simpler for our customers and each other
Never rest We are driven to think bigger and do better for our customers and each other
Create legacy We strive to create a sustainable future for our customers and each other
Strategic report 02 Chairman’s statement 06 Group Chief Executive Officer’s interview 12 Performance indicators 14 The horizon 18 Business model 20 Our strategy 30 Market reviews 48 Our people 52 Corporate responsibility 58 Chief Financial Officer’s review 62 Risk and risk management
Governance 68 Chairman’s governance letter 70 Board of Directors: Biographies 74 Group Executive: Biographies 76 Directors’ and corporate governance report 102 Directors’ remuneration report
Other information 279 Performance review 317 Shareholder information 351 Shareholder services
Our people It is thanks to our people and their dedication, loyalty and hard work that we’ve been able to achieve the progress we have. In the past three years they’ve had to absorb many changes. But they have faced the challenge professionally, recognised the rationale behind the direction we are taking and focused on seizing the opportunities that are opening up for the Group. They live our values every day (Care More; Kill Complexity; Never Rest; and Create Legacy) and support us in building a highperformance and collaborative culture.
It’s a measure of our people that they care, not just in the workplace but outside it too. The Aviva Community Fund, which started in 2008, is now active in six of our global markets and supports inspirational local community projects, not only with grants but also with the hard work of committed volunteers from the staff.
Our community Aviva has become a leading contributor to the role of business in society, speaking out on the impact and costs associated with climate change, the creation of sustainable capital markets and promoting responsible investment. For example, in October 2015 Mark Wilson had the opportunity to address the United Nations General Assembly to call for the UN to agree a resolution on sustainable finance.
Board composition and governance The membership of the Board changed during the course of the year. I was appointed Chairman, taking over from John McFarlane, and Sir Malcolm Williamson and Andy Briggs joined the Board following the acquisition of Friends Life, with Sir Malcolm becoming Senior Independent Director. Gay Huey Evans retired from the Board after serving diligently since October 2011 and we wish her well for the future. In June 2015, Belén Romana García was appointed as an Independent Non-Executive Director and we will benefit from her wide experiences in insurance, financial services and European and global regulation. And, since the year end, we have appointed Claudia Arney as an Independent Non-Executive Director, whose experience of the digital world will be of great value to the Board.
During the year, we have continued our focus on reviewing and improving our governance, conduct and risk management processes, with customers always central to everything we do. Further details are contained in the directors’ and corporate governance report in the annual report and accounts.
Operating profit on an IFRS basis was up 20% to £2,665 million, including a £554 million contribution from Friends Life and adverse foreign exchange of £117 million. Net asset value increased to 389 pence per share and total shareholder return was 10.4%.
The Board is proposing a final dividend of 14.05 pence per share (2014: 12.25 pence per share), taking the full year dividend to 20.80 pence per share (2014: 18.10 pence per share). This is a 15% increase and reflects the Board’s progressive dividend policy and continuing confidence in the Group’s medium-term growth prospects.
Our future 2015 was a milestone year for Aviva. In 2016 we will continue to exercise the same drive and determination we have shown in the turnaround to achieve our strategic goals.
Sir Adrian Montague Chairman 1 For the avoidance of doubt, 2015 numbers include Friends Life from 10 April 2015, the acquisition completion date. 2014 numbers are Aviva stand-alone as previously reported (i.e. do not include Friends Life). Further details can be found on pages 58-61.
We launched our new “You, Me, We” package in Poland in 2015. It’s tailored to meet different people’s needs at different times in their lives.
We can offer this to customers because we’re a True Customer Composite. And we think it means simplicity and convenience for our customers, delivered digitally.
“Me” provides the full spectrum of insurance to single people – with additional benefits like pet care and even housekeeping. And “We” is for young families. It’s not just insurance but offers things like child care and tutoring – and even someone to call when you want advice on caring for your baby.
Anna loves our “Me” package. In addition to the protection and accident cover, she knows her much-loved dog will be cared for if she has to go into hospital. As someone who looks after herself, she also appreciates the healthy eating recipes we send her every week.
Anna thinks “You, Me, We” shows that “Aviva has thought about absolutely everything”. She describes herself as someone who smiles a lot. We hope Aviva has made her smile that much wider.
Aviva has thought about absolutely everything 04 | Aviva plc Annual report and accounts 2015
How would you describe 2015? 2015 saw us complete the fix phase of Aviva’s transformation, progress the integration of Friends Life and move to a different phase, offering stability and predictability in performance with sustainable growth. Against the backdrop of market volatility, our diversity and strong balance sheet position us well.
Let’s look back three years. Then Aviva was complex, sprawling and volatile, with high levels of debt and a lack of clear strategy.
Now we have a clear strategy for investors, anchored in our investment thesis of cash flow plus growth. We have financial strength and we focus on markets where we can deliver good financial returns.
That’s not bad for three years’ work. But we have hardly begun to make the most of our significant competitive advantages. One of our Aviva values is “never rest” – and we are certainly not doing that in any shape or form.
In life insurance, despite the focus on the integration of Friends Life and numerous regulatory developments, we achieved a 19% increase in the Value of New Business. We’ve now achieved 12 consecutive quarters of VNB growth. That speaks for itself.
I used to call some of our turnaround markets my problem children. Now Ireland and Italy are among our star performers, while Poland and Turkey have shown why we believe they have a big future.
At our investment arm, Aviva Investors, we grew operating profits by 33% to £105 million and the flagship AIMS range of products has continued to deliver, in challenging market conditions. Hitting a three figure profit for Aviva Investors is an important milestone – but it is now in the past. Now our focus is on building on the momentum.
I should also mention the huge amount of effort that’s gone into preparing for the new Solvency II capital regime. We have taken a cautious approach to managing our capital and have been proactive in reducing risk – so we took this in our stride and have made a smooth transition to the new regime. Our Solvency II capital ratio of 180% is strong and certainly one of the strongest and most resilient in the UK market.
As a result of this sustained performance and financial strength, we have increased the final dividend by 15% to 14.05p.
What will you be focusing on in 2016? With our strong financial position, we will continue to focus on providing customers with the very best of life, general and health insurance and asset management, through the convenience of our digital channels.
I am crystal clear there is no room for complacency – and this is not something you see in the new Aviva. Yes, we have come a long way. But we have much still to do – whether that’s becoming more efficient or getting better at allocating our capital where it’s going to deliver the best returns or making the most of the composite model as a digital insurer.
Operating profit up 20% on an IFRS basis to £2,665m Cash remittances increase of 5% to £1,507m Value of new business up 19% to £1,192m General insurance combined operating ratio improved 1.1 percentage points to
Final dividend per share 14.05p Mark Wilson Group Chief Executive Officer
Integration of friends life We completed the acquisition of Friends Life in 2015 to create the largest life insurer in the UK. As a result we are in a strong position to look after our customers’ entire savings, pensions and retirement needs. For example, we offer the full range of pension freedoms; we are the number one corporate pension provider and have recently launched our new combined Group protection proposition. The integration is progressing well and we’re focused on delivering the benefits of the acquisition.
I should also say that we will continue to focus on being Not Everywhere. That’s not just a matter of geographies. It’s also about making choices about optimising our business mix and which business we will focus on – markets like accident and health. This is a market where we have historically been underweight. It’s a big opportunity – and we can make a real difference for our customers. We’ve launched our new UK Essentials range – but it is only just the start.
So my message is that we have done a lot in three years – but we will always seek to exceed expectations of what we can achieve. And we’ll do this by always being guided by our strategy and values – they are the cornerstones of how we do business.
To our 33 million customers, I say you are our greatest asset. We put you at the heart of everything we do – whether that’s in the quality of the products and services we offer or the success we’ve had in campaigning in your interests such as slamming the brakes on the UK’s culture of fraudulent whiplash claims. But we know we can do a lot more for you in 2016 and beyond.
} Value of New Business (VNB) – up 19% to £1,192 million
} General insurance Combined Operating Ratio (COR) improved by 1.1 percentage points to 94.6%
The acquisition of friends life has: } Delivered £168 million run rate synergies
} Added c.£45 billion of funds to Aviva Investors as planned, we achieved: } Smooth transition to new Solvency II reporting with a solvency capital ratio of 180%1
} Reduced internal loan to £1.5 billion2 financial Cash flow plus growth
} Make life easier for customers by offering more products digitally through MyAviva
} Extend our Accident & Health offer with simple, accessible products
In Digital, we have: } Opened a second digital garage in Singapore
} Invested in digital and made strong senior management appointments into the business
} Developed the MyAgent cloud-based tool globally for our 30,000 direct sales force agents not everywhere: } Strengthened distribution in the UK, with the acquisition of Friends Life and deals with TSB and Homeserve, reinforcing our home market position
} Diversified distribution in existing markets with deals in Poland and Canada3 strategy True Customer Composite
} Further develop leaders across Aviva through greater agility, innovation and accountability
} Continue to lead the debate and take action on sustainable finance and the risk of climate change
2 This was achieved by the end of February 2016. 3 We announced the proposed acquisition of RBC’s General Insurance Company operations in Canada on 21 January 2016.
Your Aviva Ricky’s story 10 | Aviva plc Annual report and accounts 2015
Life was good for Ricky, his wife, Sarah, and their daughter, Isabella.
He enjoyed his job as a teacher and they’d just bought a family home with space for brothers and sisters for Isabella.
Everything was thrown up in the air. They didn’t know what treatment he’d need, what the prognosis was or how they’d pay the mortgage if he was too ill to work.
Their financial adviser told them to check whether they had critical illness cover as part of their life insurance with Aviva. They did – and it would clear their mortgage if either of them fell seriously ill or died.
Ricky talked to us and we paid out on their policy. It was a huge weight off their minds.
Ricky encourages people to go to the doctor so illness can be caught early – and he’s a convert to insurance: “I was amazed by how many people aren’t covered – I’ve told all my friends they must think about it.”
Sustainable cash remittances from our businesses are a key financial priority. The improvement in cash remittances was driven by our UK businesses and includes £101 million from Friends Life. This was partly offset by lower remittances from Canada, where cash generated was largely retained to part fund the proposed acquisition of RBC General Insurance Company, and Europe which mainly reflects adverse foreign exchange movements.
This is a key measure of underwriting profitability of our general insurance business.
Our COR improved by 1.1 percentage points with improvements in Canada, Europe and Ireland primarily driven by higher positive prior year development and better weather experience. The UK result was broadly stable despite the adverse impact of the December storms.
We use both financial and non-financial metrics to measure our performance, efficiency, customer advocacy, employee engagement and impact on society 1 Restated to include interest remitted on internal loans. 2 Dividend from UKGI remitted to Group in January 2014, February 2015 and February 2016 respectively.
In 2015 we successfully navigated regulatory change and turbulent external conditions to deliver a stronger, cleaner balance sheet and continued operating momentum
We are focused on creating an environment in which our people can thrive through collaboration and recognition. We measure this through our annual global ‘Voice of Aviva’ survey.
Our Relationship Net Promoter Score® (RNPS) measures the likelihood of a customer recommending Aviva.
6 Restated to exclude amortisation and impairment of acquired value of in-force business which is now shown as a non-operating item.
Climate We pay close attention to weather patterns and climate change. There is growing evidence that a gradual long-term change in the Earth’s weather patterns and average temperatures is occurring due to increased quantities of greenhouse gas in the atmosphere and other man-made causes.
Our business is about helping people prepare for the future, which is why we’re helping society respond to the challenges of climate change.
For more information on our response to climate change see pages 52-55
We also face increased scrutiny as a Global Systemically Important Insurer, and as a result of the Solvency II regime, which is intended to harmonise solvency rules across the European Union.
5 Organisation for Economic Co-operation and Development, population data and projections, December 2015. 6 Swiss Re, Sigma insurance research, May 2015.
% of population aged over 65 in 2050 versus today5 2x Insurance premium growth from emerging economies 2005-20156
That’s especially apt for one of our customers in Changsha, in the province of Hunan, China, known to her friends as Rainbow.
Rainbow has been with us since 2008 to meet her financial and insurance needs – from savings to health cover. And she even goes shopping and eats out with our agent, Ms Liu. Rainbow isn’t just a customer, she’s a friend.
Rainbow told us about an ancient Chinese saying which roughly translates as “save something for a rainy day” – so you feel safe and can enjoy your life. That’s our philosophy too.
G en er a l in su r a n c e – M arcu s’s sto ry page 28 life insurance – Ricky’s story page 10 acc id en t
...offering simple and convenient products and services to meet customers’ insurance, protection, health, savings, retirement and investment needs...
We aim to deliver the investment outcomes that matter most to our customers; whether that’s capital growth, securing reliable income or meeting future liabilities.
Customers buy accident insurance products to provide benefit in the event of an accident, injury or disability, health insurance products to protect their health, supplementing any healthcare provision they receive from the state, and use wellness services to motivate and reward healthier living.
Customers buy life insurance products to save for the future, to provide reassurance their savings will last through retirement, and to protect against the risks to their family income after illness or death.
Risk management Our scale enables us to manage risk optimally, pooling different risks, maintaining capital strength and working with reinsurance specialists so we will be there for our customers when they need us.
Big Data & analytics Our analytics capability enables us to use Big Data to better serve our customers through accurate risk assessment and to present relevant opportunities to customers at every stage of their lives.
Brand strength The strength of our brand gives customers confidence when they do business with us. Our new brand strategy, “Good Thinking”, places the customer firmly at the heart of our business.
Customers Customers benefit from a range of solutions to meet their needs, with easy access when and how they want it.
Not Everywhere We focus our resources where we can be most competitive. We are not interested in planting flags or being in 100 countries. We will focus on a select number of markets and business lines where we have scale and profitability or a distinct competitive advantage – where we can win.
Aviva is the only composite of scale in the UK that can offer life, general, accident & health insurance and asset management, and one of only a few international insurers that can do this.
We are a True Customer Composite, offering customers life, general, accident & health insurance and asset management. We will provide our customers with tailored offerings to recognise, reward and delight them, in return for their trust and loyalty.
Why it’s important Operating as a True Customer Composite enables us to deliver more effectively our purpose of ‘freeing people from fear of uncertainty’. We understand that customers have a wide range of insurance, protection and savings needs, and can find it challenging to manage all of these.
Why now? In a digital world, the advantages of being a True Customer Composite become more tangible. We have a much greater opportunity to deal directly with customers, and digital enables us to provide a wide range of products that meet their needs.
In 2015, we started to roll-out MyAviva across other Aviva markets. In France, Aviva et Moi was launched in July and most recently, our business in Italy has launched MyAviva. We will extend MyAviva to other markets in 2016.
In Singapore, we have an existing life insurance scheme with the Singapore Armed Forces and have now extended a general insurance discount and upgrade scheme to policyholders and their families.
in upper quartile below market average at or above market average
Our Relationship Net Promoter Score® measures the likelihood of a customer recommending Aviva. In 2015 the majority of markets were at upper quartile or market average. Each market develops its own Customer Action Plan in order to improve the customer experience further.
In Italy, we developed a composite life and general insurance proposition tailored specifically for female customers, with over 13,000 policies sold in 2015. We also launched other combinations of life and protection products, including with-profit, unit-linked and protection, with more than £345 million (€450 million) of premiums in that market in 2015.
Good thinking In 2015, we launched a new global brand strategy which supports our True Customer Composite and Digital First ambition by placing the customer firmly at the heart of our business. The essence of the idea is “everything we do is full of good thinking for you”, summarised in the brand line “Good thinking”.
We are developing low cost, digital products, such as Essentials in the UK and
Integral to Aviva Accident & Health is a key component of being a True Customer Composite. It completes and differentiates our insurance package and has the potential to drive deeper customer engagement.
Our customers’ number one concern is their health1. People are living longer and chronic conditions are more common, but in many countries state funding is under pressure, leaving people with a gap in their healthcare provision. By offering products which are easy to understand, affordable and accessible, we feel we can make a real difference to our customers’ wellbeing and peace of mind.
Accident & Health has not previously been a focus for us and as a result we are currently subscale. But that’s now changing. The Accident & Health market is large and fast
Personal accident Benefit in the event of an accident, injury or disability.
Private medical insurance Domestic and international comprehensive covers which pay for medical treatments.
Our products Supplemental health Fixed benefits in the event of sickness; to supplement state health provision.
Putting Digital First means putting digital at the forefront of all change and development activity across Aviva. This includes working to maintain and improve our IT security and data encryption, because in the evolving digital environment, cyber security is increasingly important to reassure our customers that they can deal with us digitally with confidence.
We will also seek out and apply new ways of doing business, and we are working in partnership with a range of new and existing players in the digital space, including active involvement with Fintech start-ups.
How we’ve progressed In 2015, we continued to develop our digital infrastructure across our key markets. Our second Digital Garage opened in Singapore in December 2015, building on the successful operation of our first Digital Garage in Hoxton, London. The Digital Garages act as catalysts for our digital innovation effort, where creative minds from across Aviva and the industry come together to turn innovative ideas into real products and services for our customers.
We are seeing encouraging growth in the volume of customer interactions online, for example, logins to MyAviva in December 2015 were 37% higher than the same month the previous year, and visits to Aviva.co.uk through mobile and tablet devices increased by 79% in 2015. We continue to develop our suite of digital propositions to be used across our business units.
UK Digital and Direct We have established a new business, based in the UK Digital Garage, to take the lead on Digital First in the UK, and we are making good progress as we continue to develop our digital service and capability. For more information on UK Digital see Spotlight on page 26.
Digital talent Digital First is crucial to our future success and we’ve been working hard to find world class talent to complement the great people we have already. We’ve made a number of senior appointments in our digital business, who bring expertise from a range of sectors, including retail, media and technology. However, the shortage of digital skills in the current marketplace is unprecedented, and alongside recruitment, we are using more innovative approaches to access the skills we need, such as collaborating with and investing in start-ups, and working with universities. For example in 2015, we held an innovation event, DigitalOn, with the Politecnico university in Milan, and continued to work with start-ups in our Digital Garage.
Greater digital support for our partners Digital is also a key part of improving our support to our intermediaries. For example, we have developed MyAgent, a cloud-based sales tool for our 30,000 direct sales force agents. This work has
Through MyAviva we can present our full range of Aviva products and services, including distinctive composite propositions
Beware Hazard! Simple and accessible – that’s what our customers want. Aviva France’s Aviva Risques Meteo (Aviva Weather Hazards) app is exactly that – and it’s free for our customers. It’s simplicity itself: in the event of a major weather hazard such as flooding, the user receives a smartphone alert, giving them time to take preventive action before the event. It’s a great example of Digital First – and Aviva putting prevention first.
been led by sales and IT teams from Poland and China, alongside colleagues from France, Turkey, Italy, Singapore and the UK. This will change the life of an agent. Instead of traditional paper-based tools, new applications will be available on tablets, smartphones and laptops making their life easier and much more efficient. This launched first in Poland and China and will be reused in the future by up to nine markets across the globe.
In Ireland, we pioneered a life protection product without the need for a customer signature, a first for the Irish market. This builds on our existing digital platform for brokers – WriteNow – and is an important step in our simplification process to make us the easiest insurance company to do business with.
Aviva Ventures In December we announced the launch of our venture capital business, Aviva Ventures, which will look to commit around £20 million per year over five years. It’s a wholly owned business which will provide early-stage investment to back entrepreneurs with high growth businesses.
Housed at the Digital Garage in London, Aviva Ventures will target investments in digital and technology companies operating in four areas: ‘the internet of things’, for example in connected homes, health and cars; data and analytics; innovative customer experiences; and distribution, for example new ‘sharing economy’ platforms.
UK Digital is currently focused on designing innovative composite propositions which meet customer needs across our different business lines, and supporting the UK
The focus in the second half of 2015 was on working with the UK business units to improve the experience for customers, for example easier registrations, an enhanced MyRetirement planner, a single view of products held and improved self-service online capability. We now have good foundations for the further development of MyAviva and Aviva. co.uk in 2016, which will enhance navigation and connectivity for customers. This will support our composite proposition and put customers’ needs first.
Looking forward, once it has all the necessary regulatory approvals, UK Digital will take on full responsibility for the distribution of a range of digital products in the UK. We will increase the range of products available via MyAviva and we will continue to develop innovative products and composite propositions. This will be supported by incentives and offers for existing individual and business customers.
Aviva’s ambition is to create an outstanding experience for customers – whenever and however they want to contact us
We have a dedicated team working to revamp and improve the customer experience. In an increasingly digital world, we need to be agile and respond to our customers’ needs
The average number of visits to MyAviva per customer in 2015
The total number of registrations on MyAviva 11 The average number of visits to MyAviva per pension customer in 2015
UK Digital Spotlight on... Our strategy continued 26 | Aviva plc Annual report and accounts 2015
What does Not Everywhere mean to you? Not Everywhere is about focusing on where we can make a difference. It goes without saying that for insurance companies diversification both in products and geography is a good thing. That is the whole premise behind insurance. But we don’t want to be too broad or complicated, or we will lose focus.
And being the largest player in the UK brings economies of scale which gives us a competitive advantage and enables us to invest in new services and technology, and in our other businesses.
Our strength in our home market also provides reassurance and security that is valued in many of our other markets.
One of our Aviva values is to “Kill complexity”. That is exactly what Not Everywhere is all about. It is about focus. It is about working out where you can best create value – and then delivering.
Can you give an example of what Aviva has stopped doing? Given the strength of our relationship with DBS, we would have liked to renew our bancassurance agreement in Singapore, which concluded at the end of 2015.
We focus our efforts on delivering our strategic ambitions and providing our customers with propositions that they value.
How does Not Everywhere support other parts of Aviva’s strategy? It is integral. We will only deliver the full benefits of the composite model by putting Digital First if we focus our resources where we can be most competitive. This is underpinned by our core strengths in areas such as underwriting, risk management, asset and liability management, and understanding and using Big Data.
It’s about being clear what not to do, so we can focus on what we do best
Your Aviva Marcus’s story 28 | Aviva plc Annual report and accounts 2015
We’re also helping to build market share in protection, accident and health, focusing on products which require less capital backing. And in line with our strategic goal of being Not Everywhere, we’re reinvesting capital from the UK in selected international markets.
In Ireland our primary focus is to increase our operating profit and value of new business (VNB).
how is the life business helping to deliver the true Customer Composite model? We’re bringing together the products we offer customers, to make their lives easier. We seek to build deep and enduring relationships which support our customers through different stages of their lives.
UK & Ireland Life insurance Aviva is a leading insurer in the UK and Ireland life insurance markets, with a 13%1 share of the UK life and pensions market 1 Association of British Insurers (ABI) statistics published Q3, 2015.
I’d say we’re showing strong progress and good growth – and that’s before our digital innovations come on stream. Once they do, I’m looking for our growth to accelerate.
what about the challenges and risks? For us to achieve the full potential of the True Customer Composite, we will need to deepen our relationship with our customers and increase the average number of products they buy from us. But to do this, we will need to respond to and anticipate the rapid pace of technological change and changing customer expectations.
Here in the UK, we’ve had the challenge of the biggest reform to the pensions market for a generation. But we’ve managed it well and still grew as a result of our strength, breadth and expertise.
I’ve been in insurance for 28 years and I’ve not seen an insurer with Aviva’s potential.
As a leading insurer in the UK, we bring to market a number of advantages: • Our size means we benefit from economies of scale, and so can offer products and services to customers more efficiently than some smaller insurers.
} Supported our customers in taking advantage of the UK Government’s reforms to the pensions market by providing the full range of retirement products
} We won the Gold Standard for Group Pensions, Pension Provider of the Year at the European Pension Awards, Best Equity Release Lender and Best Lifetime Mortgage Provider at the What Mortgage Awards, and Best Protection Provider Service
We’ve developed an interactive retirement tool, My Retirement Planner, to help them better understand a complex issue and compare what’s on offer, and we are also offering additional access to financial advice. Our new online consumer savings platform gives access to the full range of the new freedoms.
This is a new world for UK pensions. The breadth of our product offering means we are uniquely placed to support our customers as they make one of the biggest choices of their lives.
• Services for companies, both large and small – including workplace pensions, group protection, and bulk annuities.
We deliver our products and services through multiple distribution channels – building on and maintaining our strong existing relationships with intermediaries including independent financial advisers, employee benefit consultants, banks and estate agents. Increasingly we are offering customers the option of dealing with Aviva directly.
• Our diversity of business means that (under the new Solvency II regime) we benefit from lower capital requirements than insurers who just offer one product line.
• The breadth of our business means that we understand the range of needs of our customers better than others, and can bring them connected propositions and rewards for loyalty that other insurers simply can’t, for instance by offering pension customers a discount on their home or motor insurance.
what’s your final message? I want our customers to know we’re good at three things: we deliver what they want; we’re easy to do business with; and we’re the natural choice – the insurance company customers can trust and turn to first.
For investors, my message is we’ve got the right strategy, we’re ahead of schedule on the integration and we’re delivering cash flow plus growth. Aviva’s British heartland is in good health.
We are also one of the UK’s leading providers of protection insurance. Aviva’s UK Life business has around £214 billion of assets under management.
Overall UK & Ireland Life operating expenses were £815 million (2014: £565 million). In the UK, operating expenses of £788 million (2014: £529 million) included £286 million of post-acquisition expenses from Friends Life. Excluding Friends Life, UK operating expenses decreased by 5% to £502 million (2014: £529 million) reflecting cost savings as a result of process automation and simplification. In Ireland, operating expenses reduced to £27 million (2014: £36 million).
Maurice tulloch, Chief executive Officer, UK&I GI and Chairman, Global GI what’s your strategy? Our strategy positions Aviva for future profitable growth by meeting our customers’ changing needs. We are building an increasingly digital global General Insurance (GI) business, through our strong direct brand and our partnership with brokers and banks.
We will grow our business by focusing on our distribution through UK direct and partners, and also through tailoring the range of products we offer to meet customers’ needs.
We will continue to be a customer champion by taking an industry lead on issues that increase costs for our customers, such as our “Road to Reform” campaign which highlights the issues of fraudulent claims. And also help provide industry solutions to meet pressing needs, such as Flood Re securing affordable insurance for properties at risk of flooding.
how are you helping to deliver the true Customer Composite Model? We start with the customer and understand their needs and habits at different stages of their lives. As a composite, what Aviva can offer customers is unique in many parts of the world. Take the UK, where we have 16 million GI and Life customers. We already make the lives of our GI customers easier by meeting their insurance needs but we
UK floods In December 2015, the UK suffered the wettest month ever recorded, with almost double the average rainfall. Our people were with flooded customers right from the start with command centres set up in the worst hit areas to support customers and communities. We received excellent customer feedback. Gary Byrne tweeted “Aviva again goes above and beyond #amazing customer service”.
Our progress and future plans what we achieved in 2015 what we plan to do in 2016
} Achieved our best ever Customer Satisfaction scores for household claims (Transaction Net Promoter Score® +57)
} Returned to growth, securing significant new distribution deals, notably TSB (4.7 million UK customers) and Homeserve (Home Emergency Cover – two million UK customers)
} Implemented Guidewire, our new policy and claims system, across our commercial lines business
} In Ireland we won three Irish Broker Association awards for most improved service to small medium-sized enterprises and large corporate brokers and for most improved non-life service ranking
} Working with the industry as a whole to launch Flood Re in April 2016, securing affordable insurance for millions of properties in England
} Continue to campaign on issues that are important to our customers, such as motor reforms and tackling insurance fraud can also engage with our Life customers who might not have GI products with us, especially through the MyAviva app. That’s a huge number of customers who already have long-term relationships with Aviva. We can better understand their needs by using our existing knowledge. Understanding more about our customers using the vast amount of data already available, without having to ask them more questions, allows us to offer them the right products at the right price, in the best way possible. That’s what the composite model could look like – this will change insurance.
how are you putting Digital First? It’s how we’ll deliver the composite model, especially through MyAviva. But we’re also putting Digital First in how we deal with our brokers and partners – especially through the major investments we’ve made in Fast Trade, our online tool for brokers and Guidewire, which brings together underwriting, administration and claims into a single system.
what have been the highlights of 2015? We delivered a satisfactory underwriting result. We’re also growing the business – premiums are up. And we’ve seen some great deals for Aviva and our customers – for example, through our agreements with Homeserve and TSB in the UK.
That’s a great result – for us and for honest customers.
But one of our Aviva values is to “Never rest” – and we’re certainly not resting. We need to continue to exceed customer expectations and to grow our business.
what about the challenges and risks? The challenge of delivering what our customers want is always there – and we’re in a highly competitive market. We’ve got to be more efficient and competitive year on year, delivering what our customers want and how they want it – not least because disrupters will enter the market and beat us if we don’t. I’m the Chair of Climatewise – the insurance industry’s body on climate change. The risks of unmitigated global warming are pretty stark, for individuals, for business and for communities. We need to do all we can to address this challenge. For insurers, a temperature increase of four degrees effectively means insurers will have to bow out. Insurers will not be able to cover the risks. Climate change would be the greatest market failure of all time, the greatest inequality of all time, and it will represent a social catastrophe.
Our “road to reform” campaign We have long championed the need to tackle the fraud pandemic in the UK motor insurance market. We applauded the UK Government’s bold announcement in the Autumn Statement to implement measures to stop people claiming fraudulently for neck injuries in motor insurance. When it’s implemented we expect average motor premiums to go down by around £40 to £50 and have committed to pass on this benefit to customers – and challenge other insurers to do the same. It’s a victory for the honest customer against the fraudster – and we will continue to campaign on behalf of our customers.
what’s your final message? I believe passionately that our customers have made the right choice by protecting what matters most to them with Aviva. Our promises are not made lightly.
Overview We provide a wide range of products to personal and business customers, including motor, home, travel and pet insurance, commercial property, liability and specialty covers such as classic car and boiler breakdown.
In Ireland we won the Irish Broker Association awards for most improved service.
UK and Ireland general insurance (GI) and health operating profit was £430 million (2014: £499 million).
In the UK, GI operating profit was £368 million (2014: £455 million). Within this, investment return reduced mainly as a result of reductions in the internal loan. The underwriting result was £154 million (2014: £199 million) with adverse weather experience due to the December floods being partly offset by the benefit of expense savings and more favourable prior year claims development. In UK Health, operating profit increased to £21 million (2014: £11 million).
Market context and challenges Market conditions for personal motor and home insurance have remained competitive, and whilst motor premiums are rising, we expect conditions in both markets to remain highly competitive. We have responded to this challenge by developing increasingly sophisticated pricing, market-leading products and services, and investing in digital to sharpen our competitive edge.
(SME) sector has remained challenging as increased insurance capacity has heightened competition. Aviva is uniquely well-placed to be a trusted advisor and offer a complete one-stop-shop for SMEs, and we have continued to succeed in this market because of the quality of our service and relationship management for SMEs.
Our customers have made the right choice by protecting what matters most to them with Aviva. Our promises are not made lightly
Canada General insurance We are Canada’s second largest general insurer1 providing a range of personal and commercial lines products to over 2.8 million customers
} Broadened our distribution reach by launching Aviva Direct for Home and Auto
} Made the most of telematics to develop a usage based insurance product for young drivers
} Continue to invest in Guidewire technology to make it easier to do business with us
We also continue to support our broker partners to help them integrate digital technology, to better serve our customers and stay competitive.
We were the first in Canada to launch an Overland Water Coverage Option for home insurance, providing water damage coverage for fresh water flooding due to storms and run-off, demonstrating our commitment to our customers.
Combined operating ratio improved by 2.3 percentage points to 93.8% (2014: 96.1%) reflecting improved underwriting performance. 1 Market Security Analysis & Research Inc, 2014 online database
In our opinion, further regulatory and product reforms are necessary in the Ontario auto market to drive both costs and fraud out of the system. We support the steps taken by the Government so far and will continue to work with them to help customers.
Poland and Turkey are our growth markets, with relatively low levels of insurance penetration. We are focused on securing leadership positions in these markets, by deepening and diversifying distribution and building innovative digital solutions for our customers.
how are you helping to deliver the true Customer Composite model? Our focus is on deepening our relationship with customers by offering them the whole range of our products.
The approach has varied by market. For example, in France and Italy, where we have strong agency businesses, we have implemented multi-access capabilities, allowing customers to choose how they europe is a big part of Aviva. we have strong positions in europe and we are well-placed for further profitable growth europe we offer a wide range of life, general insurance, health and asset management products to more than ten million customers in five markets – France, Italy, Poland1, turkey and Spain. we operate a composite model in France, Italy and Poland 1 Aviva Poland also has management responsibility for Aviva’s operation in Lithuania.
} Launched MyAviva in France and Italy, delivering digital services for customers, distributors and agents, utilising new technologies
} Strengthened and diversified our distribution networks by increasing our agency network in France, acquiring Expander in Poland and securing a new bancassurance agreement in Turkey
} Improved the profitability of our new business, focusing on protection in all markets and launching new unit-linked funds in France and Italy, capitalising on Aviva Investors experience
} Completed the turnaround in Italy and refocused our distribution agreements
} Capitalise on our composite potential in France, Italy, Ireland and Poland by offering integrated and innovative solutions
I’m excited by the “You, Me and We” composite product packages we have launched in Poland. These propositions combine life, general and health insurance components and are focused on the needs of customers at different stages of their lives. Anna took out a policy recently and you can read her story on page 4.
how are you putting Digital First? Digital is the future of insurance, and our customers and agents are increasingly looking for more direct interactions and customised digital services.
We made some big strides in 2015. We successfully launched MyAviva in France and Italy so customers can access all their contract details in a single place and self-serve on policy administration.
what about challenges and risks? In the mature savings markets, we continue to face a low interest rate environment but benefit from the early and proactive actions we have taken to reduce product guarantees and shift our mix towards protection, A&H and unit-linked.
In Poland and Turkey, we have had to adapt to a more volatile regulatory environment, with significant changes in the pension system in both countries.
The focus moving forward is to capitalise on our strong brand and market position and build a leadership position across the composite product range.
Cash remittances were £431 million, up 1% in constant currency terms.
We have a well-diversified distribution model, with half of our profits generated from channels we own or control. We enjoy a long-standing relationship with Association Française d’Epargne et de Retraite (AFER), the largest retirement and savings association in France.
Our tied agency network is growing with over 920 agents. In 2015, we started to build multi-access capabilities, enabling customers to interact with us when and where they want, through our existing face to face channels, online or via call centres.
Financial performance France continued to deliver cash flow and growth, with a robust performance across most metrics, despite low interest rates. The weakening of the euro affected all metrics from a group perspective.
VNB was £198 million (2014: £205 million), up 7% in constant currency, due to increased volumes and an improved margin on protection business.
Market context and challenges France is a mature and stable market with a large and well-developed insurance sector. Although GDP growth has been weak at 1.1% in 20156, the life insurance market continued to grow at 4.7%7. We expect demand for savings, protection and retirement products to continue to grow ahead of GDP.
In general insurance, regulatory changes ended the tacit renewal practice, transforming the landscape for personal lines and creating new opportunities and challenges. In this context, we strengthened our motor direct business (9% premium growth vs. motor market average of 1.5%)7.
Overview We are a composite insurer, offering life, general and health insurance to 2.2 million customers.
We operate through strong bancassurance partnerships with three of the five top banks in Italy – Banco Popolare, UBI Banca and UniCredit. We are focused on protection and are in the top four in the market with c.11% market share8. In 2016, we will continue to increase our distribution footprint in specific segments and geographical areas.
We have completed our turnaround actions, including lowering the cost of guarantees on with-profit products, improving margins in general insurance and exiting unprofitable distribution agreements.
Financial performance Our turnaround strategy delivered continued improvements in profits and cash.
We’ve got you covered It’s part of our job to prevent bad things happening. That’s why Aviva Italia offers customers a special white box for their home. It alerts them if there’s gas or smoke or if a burst pipe is causing water damage. Your home is monitored and you can access the experts you need through MyAviva. So relax and enjoy your life – we’ve got you covered.
VNB9 improved to £79 million (2014: £63 million), despite low interest rates, due to improved margins on all product lines and management actions to reduce the cost of guarantees on with-profit products.
Market context and challenges The Italian economy showed signs of recovery. Although GDP growth remains limited, the life insurance market grew by 5.8%10.
In general insurance, we mitigated competitive pricing in motor and increased claims frequency through rigorous agent and portfolio selection and improved pricing capabilities.
Overview We are a leading life insurer, also providing health and general insurance products, to more than 1.5 million customers.
We have particular strengths in distribution and own the largest life insurance direct sales network with more than 2,100 advisers. In 2015, we diversified our distribution model through the acquisition and integration of Expander, the second largest financial adviser network. We also have a bancassurance agreement with BZ WBK, the third largest bank in Poland which is part of the Santander Group.
We will continue to build on our existing distribution strengths and diversify our channels, while developing our digital and multi-access capabilities to make all products available online and to capitalise on the potential of our composite model.
We also operate a subsidiary in Lithuania, where we are the largest life insurer11.
Financial performance VNB of £65 million (2014: £64 million) remained stable despite the weakening of the zloty. VNB grew in Poland by 29% in constant currency due to increased sales of higher margin protection but fell by 33% in Lithuania as the prior year result included a one-off benefit from regulatory pension changes.
on a constant currency basis largely due to a £39 million one-off regulatory pension change which benefitted the prior period.
Operating expenses remained stable12 at £65 million and our combined operating ratio improved to 94.7% (2014: 96.0%).
Market context and challenges Despite political and economic uncertainties, the relatively low insurance penetration continues to represent a significant opportunity for further growth, driven in life insurance by favourable demographics and growing disposable incomes. In general insurance, competitive pricing on motor continues.
Overview Our joint venture with Sabancı Group, one of Turkey’s leading conglomerates, offers pension and life insurance to two million customers. In 2015, we became the largest pension provider with 19%13 market share in assets under management.
We also employ the largest direct sales force and have a fast growing agency channel with over 300 agencies.
Financial performance Life operating profit of £11 million (2014: £13 million) was broadly stable in constant currency. VNB was £27 million (2014: £30 million) up 4% in constant currency despite a lower ownership share of the business following the partial IPO in the second half of 2014. Excluding the effect of this dilution, VNB in Turkey grew 24%12 mainly driven by higher sales of pension products.
Market context and challenges Despite uncertainties and new regulations on pension pricing, Turkey offers strong long-term potential for profitable growth. It is the second largest population in Europe with a young demographic and we anticipate an increasing demand for financial products. The introduction of auto-enrolment pension reform anticipated in mid-2016 may accelerate further growth in the market and offer additional opportunities.
We have made some progress in the turnaround actions and in improving our operating efficiencies, but we still have more to do. Our objective is to continue the recovery of our protection business, which benefits from improving economic conditions, and to secure the perimeter of our distribution franchises following previous market consolidation.
Financial performance VNB14 was stable at £31 million (2014: £30 million) but up 17% in constant currency, mainly driven by a shift towards higher margin protection business, partly offset by lower sales and reduced margins on with-profits products.
11 Bank of Lithuania. 12 On a constant currency basis. 13 Pension Monitoring Center, Turkey. 14 Excluding CxG.
what’s your strategy? Our strategy is about recognising our customers as individuals, giving them a seamless experience with solutions tailored to their needs and reflecting what’s important to them. In Asia, we’re in different markets in different stages of maturity.
In markets where we meet the needs of a rapidly ageing population, such as
China, Hong Kong and Singapore, we’re focused on savings, protection, healthcare and planning for customers’ retirement. In Vietnam and Indonesia – markets with low insurance penetration and young populations – we can help customers with saving for things like their first home or paying for their child’s education, and protecting them against life’s uncertainties.
FPI complements Aviva’s existing propositions, broadening our reach into the high net worth segment.
I’m confident we’re going to carry on doing well for our shareholders and customers
} Achieved VNB growth from key distribution channels across priority markets, with strong increases in Protection business
} Generate value by strengthening our distribution platforms and building affinity models.
} Strengthen capabilities across the region focusing on digital, analytics and customer insights
General insurance and health operating profit £6m loss (2014: £2m loss)
Value of new business1, a key measure of growth, increased to £151 million (2014: £122 million) mainly reflecting higher sales of protection in Singapore and a continued shift towards higher margin protection products in China.
Life operating profits were £244 million (2014: £87 million), which includes £151 million from FPI post-acquisition. Net of amortisation of AVIF, FPI’s contribution to Asia operating profits was £15 million. Excluding FPI, life profits were up to £93 million (2014: £87 million) reflecting higher profits in Singapore and China.
Operating expenses increased to £141 million (2014: £80 million), principally due to £46 million of FPI expenses and investment to support business growth across Asia. The general insurance COR was 101.6% (2014: 97.8%), mainly as a result of higher expenses.
Market context and challenges Our markets in Asia are expected to continue to deliver moderate GDP growth and interest rate conditions are expected to remain challenging in 2016.
Favourable demographic trends, large protection gaps and low insurance penetration provide us with an opportunity to continue to develop health, retirement and protection propositions for customers. The implementation of C-ROSS (China Risk Oriented Solvency System) in 2016 is expected to promote better industry discipline in product pricing and risk management in China.
Our challenge in this competitive environment is to differentiate ourselves by delighting our customers and delivering an excellent customer experience.
So our focus is on creating solutions based on our understanding of our clients’ goals and the challenges they face – and we have significantly improved our investment, distribution and operational capabilities to deliver these solutions.
One good example is the discussions we are having with our institutional clients, particularly pension funds. One of their common challenges is how to secure reliable cash flows. Our heritage as part of an insurance company gives us real credibility in these conversations –
why is Aviva Investors important to the Group? We provide a competitive advantage for the Group as an asset manager that delivers tailored investment solutions to meet the needs of customers; whether they are customers of
We are also a global asset manager, with expertise across the full range of asset classes.
In 2016 we’re going to take further steps with new products that share the same underlying objective – meeting the core financial needs of our customers. Our partnership with Virtus in the United States is a good example of how we’re interacting with retail investors.
Aviva Investors we are Aviva’s investment management business, with £290 billion assets under management
what we achieved in 2015 what we plan to do in 2016
} We redefined our client proposition around outcome-oriented solutions, spearheaded by our AIMS funds
} We improved our investment organisational structure, establishing Global Investment Solutions and Liquid Market teams
} We made significant investment to strengthen our risk management and controls systems, including comprehensive conduct risk and compliance training for all employees
} Grow and protect our asset base by investing in distribution and through True Customer Composite initiatives with the rest of the Group
} Look at further opportunities to form strategic partnerships in key overseas markets
} Continue to invest in our risk and compliance teams to protect customers, shareholders and our reputation hIGhlIGhts
We’re benefiting – and so are our customers – by being able to distribute our range of investment solutions through Aviva channels. That can only help us grow our business.
We want to be a market leader, providing new solutions, backed by cutting edge technology, to make our customers’ lives easier. To do this, we are simplifying our processes and personalising the service we offer customers.
what’s your final message? We are only two years into our transformation so there is a lot further for us to go in terms of our long-term potential. We have transformed our senior leadership team and invested heavily in risk management and controls to ensure that the interests of shareholders and our customers are safeguarded. Our ambition remains to be the global leader in outcome-oriented solutions. It will require a lot of hard work to get there, but we are making good progress.
We often work with strong partners who complement our business and in the United States we’ve found one such partner – Virtus Investment Partners, which provides Aviva Investors’ strategies to US customers in US open-ended mutual funds.
And Aviva benefits from Virtus’s success in articulating sophisticated investment strategies to financial advisers and clients.
The first fruit of our promising partnership is a mutual fund available to US investors which employs the AIMS investment approach. The fund is managed by a great team – like Ian Pizer, the Head of Investment Strategy, who helps develop the ideas for our partnership with Virtus.
We must make Aviva the most attractive choice for talented, committed, entrepreneurial people. We need the best people from diverse backgrounds and with an evolving range of skills, expertise and insight, especially as we put Digital First.
Our goal is to give our people the tools and the freedom to flourish, do the best work of their lives, and successfully compete in a fast-changing marketplace. This is how they can make a real and positive difference to the lives of our customers.
Our culture is anchored in connecting our people with our purpose and in a common commitment to being guided by our values in every decision we take. It demands that our people think and act differently, and can lead and develop through change and uncertainty.
Learning and development In 2015, we maintained our commitment to our people and achieved: • A focus on learning – learning from our mistakes, learning how to serve our customers better and learning new skills to improve customers’ experience. In 2015 alone, over 2,000 of our people experienced our “Moving to Great” programme, more than 250 managers were trained to apply Systems Thinking, to develop better ways of working and simpler processes for our customers, and to their jobs and 500 trained in Agile methodology, which helps them to think differently, kill complexity and deliver solutions quickly.
• A fresh approach to helping new colleagues understand the business and their role within it, through our “Explore Our Strategy” course, with the pre-joining work winning the Employee Engagement Award at the Rad Awards for recruitment communications.
To provide the best possible products and service for our customers today and in the future, Aviva must disrupt, lead and transform the industry. And it is our people who will achieve this
them with the skills they need to lead their teams today and our company tomorrow, especially through our signature leadership programme, “Leading@Aviva”.
However, in 2015 78% believed Aviva will achieve its priorities and 75% thought their manager does a good job of recognising individuals who go the extra mile, improvements against the 2014 figures of 75% and 67% respectively.
Our senior leaders are focused on significantly improving these scores in 2016.
Broadening our perspective Becoming a more diverse and inclusive business is integral to Aviva’s future. Our ambition is that our workforce reflects our increasingly diverse customers around the world. Diversity of thought, experience and backgrounds are critical ingredients as we strive to innovate and make the best decisions. Our people are happier and more successful when they feel they are able to be themselves at work.
We are obsessed with making things simpler for our customers and each other.
recognise this bar is rising fast – and our LGBT employee network, “Aviva Pride”, with nearly 600 members, has been highly commended by Stonewall. We are committed to developing our LGBT leaders and allies and, in partnership with OUTstanding (the professional network for LGBT and ally senior executives), will enable their development and connect them to peers across other industries.
In 2015, we expanded our Women’s Network to include networks in Italy, Spain, Scotland, Ireland, India and Canada. While 52% of our workforce are women, women are under-represented on the Board, on the Group Executive and in senior management. At Aviva we believe firmly that diversity at every level improves innovation, decision making and our customer focus. We will therefore strengthen our focus on improving the gender balance across the Group by supporting and developing the next generations of female leaders.
We are also contributing to the UK Government’s work on retaining, retraining and recruiting workers aged 50 and over. Underlining our commitment, Andy Briggs, Chief Executive Officer of Aviva UK Life and Chairman of Global Life, is Chair of Business in the Community’s Age at Work Campaign.
Diversity At 31 December 2015, we had the following gender split: Board membership1
Women’s network 2015 was a milestone year for our Women’s Network – with new networks set up in Italy, Spain, Scotland, Ireland, India and Canada and deeper collaboration between our UK networks. In 2016 all the networks are going to share common aims and objectives. To innovate and succeed, Aviva must be inclusive and diverse, stay relevant to our customers and reflect their rich diversity. Our global Women’s Network has a big part to play in achieving this!
environment where we can and offer flexible working practices to take into account their personal circumstances. We are also continuing to focus on attracting and keeping the talent we need to deliver the services our customers want and create value for our shareholders. We are focusing in particular on attracting the talented people we need in digital, predictive analytics and actuarial.
Safety and wellbeing We want our people to achieve a healthy balance between their working life and life outside work. We therefore offer our people initiatives such as flexible working hours, career breaks and employee assistance programmes. All colleagues take part in our Essential Learning programme.
Taking forward our transformation Our People Strategy for 2016 and beyond sets out how our people will deliver our purpose of freeing customers from the fear of uncertainty by transforming and growing the business. It puts our people and customers at the heart of everything we do.
We are committed to: • Developing leaders with greater courage to think independently, innovate and lead in times of uncertainty.
• Evolving our culture so we are absolutely focused on the role we play in our customers’ lives and letting our values guide every decision we make.
• Helping our people to build their careers by improving how we highlight global opportunities and supporting them in thinking through their goals for their careers.
• Providing the opportunities for our people to learn and develop so they are better able to deliver the True Customer Composite model, put Digital First and drive growth.
We are proud to be a Living Wage Foundation partner and a fully accredited Living Wage employer in the UK
Business ethics We aim to uphold the highest ethical standards in the way that we do business. This commitment is set out in our business ethics code which ensures that we operate responsibly and transparently. In 2015, 98% of Aviva employees confirmed they had read, understood and accepted the code (2014: 96%1).
Our global malpractice helpline ‘Right Call’ enables employees to report any
What we achieved in 2015 What we plan to do in 2016
} Replicated the Aviva Community Fund in six markets (target five) around the world helping increase community investment by 71%
} Continue progress towards our long-term CO2e reduction target of 50% by 2030
} Design simple products and services that meet our customers’ needs, help people take control of their finances and also benefit society and the environment
volunteering leave each year, and matched giving and fundraising enable our people to make a difference for the causes they are passionate about. This helps us attract, engage and develop talented people. Our Voice of Aviva results show 80% of employees believe that Aviva is a good corporate citizen (the equivalent Financial Services Benchmark for social responsibility is 75%).
In 2015 we agreed a new global disaster response and resilience partnership with the British Red Cross. We are bringing our experience of managing risks to the partnership and we are working together to build community resilience at a local level. Additionally, during 2015 Aviva matched employee donations to global disasters such as the Nepal Earthquake and the European refugee crisis. Together we contributed over £135,000.
Acting now for a sustainable future Climate change is one of society’s biggest and most complex challenges. Protecting the environment today is the only way to make sure we can enjoy a bright and sustainable future. We have assessed our potential environmental risks and have focused our strategy on the issues with the greatest impact on our customers, our business and our stakeholder community.
malpractice issues in confidence. All reported cases are referred for independent investigation. In 2015, 25 cases were reported through Right Call (2014: 393). 20 cases reached conclusion, and five remain under investigation. There has been no material litigation arising from any cases reported in 2015.
Protecting the things that matter Our products and services help to make sure that the people and things our customers love are protected if the worst happens. In 2015, we paid out more than £30 billion in benefits and claims to customers. We were also the first insurer in the UK to publish transparent customer reviews of our products and services. (December 2015: overall rating for home: 4.6 out of 5, overall rating for motor: 4.5 out of 5).
We want to make the benefits of insurance more accessible to more people. This way, we can help boost financial resilience across every part of society. For example in the UK, we are the largest provider of social housing tenants’ contents insurance and in India, we are one of the largest providers of life micro insurance2. Aviva was also the first to offer overland water protection for private domestic insurance in Canada.
We also want our products and services to bring environmental benefits. In the UK, we are working to improve our claims processes to reduce our environmental impact whilst improving customer service and reducing costs.
In 2015, our community investment increased by 71% and totalled £10.8 million (2014: £6.3 million3). Across our community development activity, we helped 587,203 people. 12% of our employees contributed 40,828 hours of volunteering. They also gave and fundraised £1.5 million. As part of our new strategy, we aim to deliver 250,000 hours of volunteering and help 2.5 million people between 2015 and 2020.
We are working hard to understand the long-term impact of our investments and to ensure that assets do not become uninsurable due to environmental risks. We also know that extreme weather events can lead to variations in the claims we receive and potentially impact the pricing of our products. We use our expertise as an insurer – such as our knowledge of historical weather events, flood mapping and predictive modelling – to advise customers on risk reduction and prevention.
Reducing our environmental impact We are reducing our own environmental impact by improving energy efficiency, investing in onsite renewable electricity generation and through working with our suppliers to manage environmental impacts in our supply chain. In 2015, having achieved our long-term carbon reduction target ahead of schedule and with the acquisition of Friends Life, we restated our 2010 baseline and agreed new and ambitious emission reduction targets of 40% by 2020 and 50% by
Christina Aviva employee 54 | Aviva plc Annual report and accounts 2015
Aviva plc – Global greenhouse gas emissions data boundaries Tonnes CO2e 2015* 2014 2013
Scope 1 – operational emissions from owned sources e.g. gas, vehicle fleet as part of product/service.
Scope 3 – business activity emissions from non-owned sources – e.g. business travel.
*** Carbon offsetting through the acquisition and surrender of emissions units on the voluntary market.
on a carbon dioxide emissions equivalents basis (CO2e) as required under the Companies Act 2006 (Strategic Report and Directors’ Reports) 2013 Regulations.
As well as reporting in line with the 2013 Regulations, we also report on business travel and other scope three emissions (see table above). 62%
We offset 100% of unavoidable carbon emissions through the acquisition and surrender of emission units on the voluntary carbon market (VERs).
Everyone knows that life is full of surprises – some of them unwelcome. And Michael, an employee management consultant from Yorkshire, had a very unwelcome surprise in 2012. He was involved in a multi-car accident, leaving him with physical and psychological injuries.
As part of his rehabilitation he joined a gym, and has seen his fitness levels soar. So now it’s a healthier, happier Michael who drives to work every day.
We were with him every step of the way. He told us that “the way Aviva treated me throughout the process and the way they dealt with the claim – not just the legal aspects but the health side of things as well – was very personal. It will be a long time before I leave Aviva – it doesn’t feel like Aviva is just an insurance company.”
It doesn’t feel like Aviva is just an insurance company insurance with Aviva.” We’re delighted to have a long-term relationship with him which allows us to show him the benefits of our True Customer Composite model.
Overview In 2015 we successfully navigated regulatory change and turbulent external conditions to deliver a stronger, cleaner balance sheet and continued operating momentum.
Our financial discipline and careful management have paid off in 2015: lots of good news and no bad news surprises
during the year, which has moderated the impact of recent market volatility on our capital position.
4 Excludes the impact from an outward quota share reinsurance agreement completed in 2015 in Aviva Insurance Limited (AIL).
Capital generation In 2015, operating capital generation (OCG) was £2.5 billion (FY14: £1.9 billion) under the former regulatory capital regime. This no longer drives our capital management policies, and we will not report this figure in the future. It is also not directly comparable to our economic surplus generation (ESG) under the new Solvency II capital rules.
Although Solvency II did not apply during 2015, we estimate, based on unaudited figures, that Aviva generated approximately £2.7 billion of economic surplus in 2015, primarily from management actions and operating activity, partly offset by adverse economic variances. This figure is before dividends paid, centre costs and external interest paid, and excludes the impact of both hybrid debt financing in 2015 and the impact of the Friends Life acquisition.
We expect to realise a further £0.8 billion of capital benefits in UK Life, with liquidity benefits to follow. This should enable UK Life to remit an extra £1 billion of cash, over and above its normal level of remittances, to the Group centre over the next three years. We expect to reallocate and reinvest some of this cash to support growth in other business units. The actions to achieve these capital benefits include Part VII transfers to combine our UK Life business (subject to PRA and court approvals), moving Friends Life to an internal model, Solvency II optimisation and hedging of the Friends Life business.
Since our Solvency II model application was approved in December, we have turned our attention to optimising our business. We start with a Solvency II cover ratio1 of 180% to begin the year. Additional management actions and operating activities should enable us to add 5 to 10 points to this ratio in 2016 after paying a progressive dividend and before the impact of economic variances.
ifRS net asset value The table below shows the movement in IFRS net asset value (NAV) during 2015, which increased to 389 pence per share.
2015 results were also adversely affected by foreign exchange, mainly due to the euro weakening against sterling by 11%. The NAV impact of foreign exchange was a reduction of 8 pence.
IFRS profit for the year6 was £918 million (2014: £1,569 million). Within this, operating profit, one of our key financial metrics, was £2,665 million (2014: £2,213 million3). Details of operating performance in our markets can be found on pages 30-45.
Acquisition of Friends Life 5,975 55p Dividends and appropriations (709) (18)p Foreign exchange movements (325) (8)p Other net equity movements (113) (4)p the coming years, this cover ratio should move towards our target of approximately 2:1 coverage.
We aim to reduce operational and asset management risks to as low a level as is commercially sensible, on the basis that taking operational risk will rarely provide us with an upside.
While actively seeking some market risks as part of our investment and product strategy, we have a limited appetite for interest rate, foreign exchange and inflation risks as we do not believe that these are adequately rewarded.
Accident & Health insurance risk covers healthcare costs and loss of earnings arising from customers falling ill.
Life insurance risk includes longevity risk (annuitants living longer than we expect), mortality risk (customers with life protection dying), critical illness risk, expense risk (the amount it costs us to administer policies) and persistency risk (customers lapsing or surrendering their policies).
Some of our life and savings contracts provide guaranteed minimum investment returns to customers and as a result we accept from them investment type risks such as credit and market risk in order to offer upside potential but provide protection against the downside.
Such operational failures may impact our customers or our reputation with the public, customers, agents and the regulator, and impair our ability to attract new business.
Rigorous and consistent risk management 62 | Aviva plc Annual report and accounts 2015
How we manage our risks Our core expertise is in understanding and managing risks, so that we can competitively price our products, deliver on our promises to customers and provide sustainable earnings growth to our shareholders.
Rigorous and consistent risk management is embedded across the group through our Risk Management Framework and is underpinned by: } Our risk appetite: The risks that we select in pursuit of return, the risks we accept but seek to minimise and the risks we seek to avoid or transfer, including quantitative expressions of the level of risk we can support (e.g. the amount of capital we are prepared to put at risk)
} Our risk governance: Includes risk policies and business standards, risk oversight committees and roles and responsibilities. Line management in the business is accountable for risk management which, together with the risk function and internal audit, form our ‘three lines of defence’ of risk management.
} Our processes: The processes we use to identify, measure, manage, monitor and report risks, including the use of our risk models and stress and scenario testing. Having identified and measured the risks of our business, depending on our risk appetite, we either accept these risks or take action to reduce, transfer or mitigate them.
Principal risk types While the types of risk to which the Group is exposed, set out on the previous page, have not changed significantly over the year, the successful completion of the acquisition of Friends Life has increased our relative exposure to equity price risk and UK life insurance risks, in particular persistency risk. Our top three risks assessed on the basis of their potential impact on our economic balance sheet are credit risk, longevity risk and persistency risk.1
We also assess risks on the basis of their potential impact on the value of our franchise, which is supported by our reputation, brand and good customer relationships. Conduct and operational risks, such as cyber security breaches, data loss and IT systems failure, in particular have the potential to significantly impact our franchise value.
• setting underwriting and investment limits to our underwriting exposures to single risks and classes of business and investment exposures by asset class, counterparty, geography, sector and other pre-established risk criteria, such as credit rating
Kirstie Caneparo Group Compliance Officer 1 Research quoted by UK Government’s Department for Culture, Media and Sport 64 | Aviva plc Annual report and accounts 2015
This Strategic Report (on pages 1 – 65) was approved by the Board of Directors on 9 March 2016 and signed on its behalf by
We also engage in key public policy debates, for example, the risks and impacts of climate change to our business and customers.
} Business Continuity Plans – to ensure we can continue to operate and serve our customers in the event of terrorism, a pandemic, a cyber-attack or other events disrupting our operations } Major Incident Response Plans – to ensure we can maintain our level of customer service in response to a spike in demand resulting from a major weather event (e.g. floods, windstorms) or other loss events.
We use ‘war-gaming’ to test the effectiveness of our plans in the event these risks crystallise.
Governance in 2015 During the year, we have sought to ensure that our governance structures at Board, committee and subsidiary company levels continue to be appropriate for the businesses and the markets in which we operate around the world, while supporting our overall strategy and culture. It is important that our approach to governance matches our values: Care More; Kill Complexity; Never Rest; and Create Legacy.
In other areas of the business, we have announced our desire to maximise our competitive advantage as a composite insurer and asset manager by launching UK Digital, a new business structure to develop our digital service and capability. UK Digital has required an evolution in our governance processes. An example of how our governance structure has adapted over the year to support our work on UK Digital is contained within this report. Other areas of business focus which have featured on our governance agenda have included Solvency II readiness, IT infrastructure, conduct risk and the integration of Friends Life.
Communication with shareholders is extremely important to the Board and I very much look forward to discussing the Group’s progress with you at our forthcoming Annual General Meeting.
Law >10 yrs 5–10 yrs 4 years 3 years 2 years 1 year
Board of directors: Biographies 70 | Aviva plc Annual report and accounts 2015
Skills and Experience: Sir Adrian’s previous experience as a Board member and as Senior Independent Director brings continuity to the Board and a deep knowledge of the Company and its businesses.
Skills and Experience: Tom brings to his position as Chief Financial Officer diverse experience, having held senior positions in highly respected US firms including his role as head of Global Financial Institutions Advisory at the investment and advisory firm Blackstone Advisory Partners LP.
Tom has played a fundamental role in our strategic decision making and has continued to drive forward our investment thesis of cash flow plus growth. Tom’s considerable experience and financial expertise has also been invaluable in the Board’s deliberations concerning the acquisition of the Friends Life business and in our preparations for Solvency II.
Prior to joining the Company, Tom worked primarily as an investment banker, which included advising Aviva. He also has experience as a corporate lawyer and as an asset based lender. His other senior positions were at Credit Suisse; Donaldson, Lufkin & Jenrette; and Cravath, Swaine & Moore LLP.
Skills and Experience: Andy joined the Board to lead Aviva’s enlarged UK Life business following the acquisition of Friends Life where he was group chief executive.
Andy was formerly chief executive officer of Scottish Widows plc, the life insurance business of Lloyds Banking Group plc and the Prudential Group’s retirement income business.
Skills and Experience: Sir Malcolm brings to the Board more than 50 years’ leadership experience in the insurance and banking sectors and has extensive knowledge of the UK life insurance market. Sir Malcolm also brings a detailed knowledge of Friends Life, providing vital continuity during the integration of the businesses.
Sir Malcolm gained extensive experience while fulfilling a number of senior positions including his role as chairman of Clydesdale Bank plc, group chief executive of Standard Chartered plc and deputy chairman of Resolution plc.
Skills and Experience: Glyn has extensive experience as a business leader and a trusted adviser to FTSE100 companies and their boards on a wide variety of corporate and finance issues. He possesses a deep understanding of accounting and regulatory issues together with in-depth transactional and financial services experience.
Glyn was formerly vice chairman, UK of PricewaterhouseCoopers LLP with responsibility for leading the executive team for the Europe, Middle East, Africa and India regions.
As a former Spanish civil servant, Belén has held senior positions at the Spanish Treasury, the International Monetary Fund, the European Central Bank, the Organisation for Economic Co-operation and Development and the European Commission.
External Appointments: Belén is currently an independent non-executive director of Banco Santander.
Skills and Experience: Michael brings to the Board a wealth of knowledge and experience gained over a long career in the banking and insurance industries, in both executive and non-executive roles in Europe, Asia and Australia.
He was formerly chief executive and managing director of Insurance Australia Group, group chief executive of business and consumer banking at Westpac Banking Corporation and chairman of the Insurance Council of Australia.
Michael also gained governmental experience at the Central Policy Review Staff (now the Number 10 Policy Unit).
Skills and Experience: Bob brings significant accounting and financial services experience to the Board from his roles in actuarial, insurance and financial services practices.
Bob is a certified public accountant and a fellow of the Society of Actuaries. He is a member of the American Institute of Certified Public Accountants and a member of the American Academy of Actuaries.
Skills and Experience: Scott has a wealth of business experience in the retail sector and a good understanding of customer priorities. He brings expertise in driving excellence in customer service within the business.
Scott has served on the Board for more than eight years giving him extensive historical knowledge of the Company and providing valuable continuity to the Board.
He was former chief executive officer of Best Buy Europe, director of The Boots Company plc (now known as The Boots Company Ltd), managing director and retail director of Boots the Chemist at Alliance Boots plc, and director of the British Retail Consortium. He formerly held a number of senior executive positions at Tesco plc, including chief executive of Tesco in Japan.
Skills and Experience: Kirstine joined Aviva in 1991 and is the Group General Counsel and Company Secretary for Aviva plc and heads the Office of the Chairman.
She established the legal and secretarial function as a global team and is responsible for the provision of legal services to the Group, legal risk management, regulatory compliance, public policy and corporate responsibility. She also supports the Chairman and the Board in the discharge of their responsibilities.
Joined Aviva in 2002 David is responsible for Aviva’s European, Indian and health business across the Group. David was previously group transformation director with responsibility for managing the implementation of Aviva’s strategic plan across the Group.
Group Executive The Group Executive focuses on our strategy, business model, financial and business performance and ensures that the Group remains committed to being a True Customer Composite
This report sets out the role and activities of the Board and explains how the Group is governed
The Board believes that a strong system of governance throughout the Group is essential in ensuring that the business runs smoothly
The UK Corporate Governance Code As a UK premium listed company, Aviva has adopted a governance structure based on the principles of the UK Corporate Governance Code 2014 (the Code). Further details of how the Company has applied the Code principles and complied with its provisions, are set out in this report and the directors’ remuneration report.
The Board The Board’s role is to provide entrepreneurial leadership within a framework of prudent and effective controls which enable risk to be assessed and managed. The Board believes that a strong system of governance throughout the Group is essential in ensuring that the business runs smoothly. This aids effective decision-making and supports the achievement of the Group’s objectives for the benefit of customers and shareholders.
The duties of the Board are set out in its terms of reference which address a wide range of corporate governance matters and list those items that are specifically reserved for decision by the Board. They also set out those matters that must be reported to the Board, such as senior leadership changes, significant litigation or material regulatory breaches and explain how matters that arise between scheduled meetings should be dealt with. The Board delegates clearly defined responsibilities to various committees and reports from the Audit, Governance, Nomination and Risk Committees are contained in this report. A report from the Remuneration Committee is included in the directors’ remuneration report.
The terms of reference for each of the committees can be found on the Company’s website at www.aviva.com/committees and are also available from the Group Company Secretary.
We have included a number of case studies in the report this year to highlight areas of interest. For example, later in this report you will find an interview with Sir Malcolm Williamson who joined the Aviva Board in April 2015 following the completion of the Friends Life acquisition and opposite, details of the governance oversight we are applying to the digital business.
We are applying the same logic to our governance. Previously different areas of the business would operate separate risk and governance arrangements. This would not work for UK Digital (UKD) which incorporates different business lines and product segments and as a composite insurer requires a different governance model.
UKD has its own board of directors, drawn from the senior management across the Group, which is responsible for making all strategic and governance decisions together with an executive committee and executive risk committee. The Group Governance Committee oversees and advises UKD on regulatory and conduct risks. The ability to escalate governance issues directly to Group provides speed and agility in decision-making and the required oversight, in a fast developing area. Other risks such as finance and IT are dealt with through the normal reporting arrangements to the Group Risk Committee and Group Audit Committee. This is a good example of using Aviva’s robust and mature governance structure and adapting it to business needs.
Group strategy and business plans – 30% Set the Group’s strategic aims and approve the Group Plan; monitor the performance of the Group and its management against its strategic aims; receive reports on changes in senior management; regulatory developments; and the control environment.
Group risk appetite and framework – 10% Set the Group’s risk appetite and monitor the Group’s significant risks; the Group’s capital and liquidity position; and compliance with business standards and controls.
Apply Solvency II (SII) principles to manage risk and capital. Define risk management practices and measure progress.
 The Board received reports from the Chief Risk Officer on the Group’s significant risks and regulatory issues; monitored the Group’s risk appetite; ensured compliance with business standards and controls; and received updates on the Group’s capital and liquidity position
 The Board received regular updates from its committees and management on legislation and proposed consultations that may affect the Company’s legal and regulatory obligations
 Regular updates regarding the progress of the Friends Life integration were made to the Board  Consideration and recommendation of the proposed acquisition of RBC General Insurance Company by Aviva Canada, which was announced on 21 January 2016
 The Board approved the IMAP and received tailored training on SII including Pillar 3 with Risk Committee members receiving more detailed training on specific areas
The directors 2015 Board changes As at the date of this report the Board comprises the Chairman, three Executive Directors and nine Independent NonExecutive Directors (NEDs).
In addition, following the acquisition of Friends Life, Sir Malcolm Williamson and Andy Briggs joined the Board on 29 April 2015. Sir Malcolm replaced Sir Adrian as the Company’s Senior Independent Director and Andy Briggs became Chief Executive Officer of the enlarged UK Life business. Gay Huey Evans retired from the Board on 29 April 2015 and Belén Romana García was appointed as a NED on 26 June 2015. Since the year end, the Company has announced the appointment of Claudia Arney as a NED with effect from 8 February 2016.
NED appointments The Board’s policy is to appoint and retain NEDs who can apply their wider business knowledge and experiences to their oversight of the Group and to review and progressively refresh the skills on the Board. The report of the Nomination Committee sets out the work carried out during the year on succession planning for the Board. Committee membership is also regularly refreshed.
Appointments of NEDs are made by the Board subject to the usual regulatory approvals and continued satisfactory performance following the Board’s annual performance evaluation. Their appointment is also subject to the Company’s articles of association which prescribe that all serving directors will retire and stand for re-election at each AGM.
NEDs are required to be able to present objective, rigorous and constructive challenge to management, drawing on their wider experiences to question assumptions and viewpoints. The NEDs should also assist management in the development of the Company’s strategy. To be effective, it is the Board’s view that the majority of our NEDs should have a sound understanding of the financial services industry so as to be able to evaluate properly the information provided.
Time commitment In considering the time commitment required from directors the Board takes into account the number of other external commitments that each director has. The time commitments of the NEDs are assessed as part of the annual review of their effectiveness and each director has demonstrated that they have sufficient time to devote to their present role with Aviva. Under the Board’s policy on this matter, executive directors may hold one external directorship and must obtain the prior consent of the Board before accepting a non-executive directorship in any other company. Executive directors may retain the fees from any such directorship. Details of any external nonexecutive directorships held by executive directors during 2015 are shown in the directors’ remuneration report.
Independent advice All directors have access to the advice and services of the Group Company Secretary and the Board has established a procedure whereby directors wishing to do so in furtherance of their duties may take independent professional advice at the Company’s expense. No such requests were made during 2015.
The Company arranges appropriate insurance cover in respect of legal actions against its directors. The Company has also entered into indemnities with its directors as described on page 99.
The Chairman and Group CEO Role profiles are in place for the Chairman and the Group Chief Executive Officer (Group CEO), which clearly set out the duties of each role. The Chairman’s priority is to lead the Board and ensure its effectiveness; the Group CEO’s priority is the management of the Group. The Board has delegated the day-to-day running of the Group to the Group CEO within certain limits, above which matters must be escalated to the Board for determination.
Senior Independent Director The Senior Independent Director’s (SID) role is to act as a sounding board for the Chairman, to serve as an intermediary for the other directors where necessary and to be available to shareholders should they have concerns that they have been unable to resolve through normal channels, or when such channels would be inappropriate. During the year the NEDs, led by Sir Adrian Montague prior to 29 April 2015, and following this date, by Sir Malcolm Williamson, met several times without the Chairman present. An interview with Sir Malcolm follows on the next page.
Sir Malcolm discusses his initial impressions of Aviva and the importance of the Board induction process
You have joined the Aviva Board and have significant leadership experience in the financial services sector. What are your first impressions of Aviva? Moving to Aviva has meant moving from a life insurer to a composite and the opportunities for Aviva are exciting. Some challenges are common to all insurers – sustainability, a revolution in how customers want to deal with us and issues like Solvency II.
I strongly believe in effective corporate governance and see this as a definite strength in Aviva and key to its success going forward. Good succession planning, both at Board level and throughout the organisation, is also essential – these areas I am pleased to say are a focus at Aviva.
Since the acquisition I have chaired meetings of my fellow NEDs as part of the ongoing effectiveness process and reviewed the workings of the Board and of the Chairman and this is something I will continue.
Finally I bring a great enthusiasm to continue the journey we have started together!
My experience, along with Andy Briggs’, has been slightly different from the induction a member of the Board would normally receive as I had already met with Aviva’s directors and senior executives and received a lot of information about the Group as part of the due diligence undertaken on the transaction.
Nevertheless, I have received a comprehensive induction with a series of meetings with individual Board members and senior management to gain a more detailed and tailored understanding of Aviva’s business. This has included visits to several business unit operations such as Canada and Poland and meetings with the Company’s major shareholders and advisors.
What do you look forward to at Aviva in 2016? I look forward to continuing to build the enlarged Group. As a business Aviva is well placed to seize the opportunities out there, especially as a composite insurer. I’m looking forward to working to deliver even more for our customers and shareholders.
Board membership and attendance at Board and Committee meetings The Company requires directors to attend all meetings of the Board and the committees on which they serve and to devote sufficient time to the Company in order to effectively perform their duties. All meetings were attended unless stated in the footnotes below the table. Fuller details on the operation of each committee are contained in the committee reports.
In March 2015, interviews were conducted with every then Board member. All participants were interviewed by Ffion Hague, a director of Independent Board Evaluation, according to a set agenda tailored for the Aviva Board, which had been agreed with the Chairman and the Group Company Secretary. In addition, interviews were held with senior managers and advisers together with former Board members and also Andy Briggs and Sir Malcolm Williamson to gain additional feedback. The main actions that we have taken from the evaluation in 2015 are shown in the table on the next page.
The review recognised that Sir Adrian Montague would be appointed as the
The then Chairman and SID assessed the performance of the other NEDs and the Executive Directors in their capacity as directors. The Chairman concluded that each director had contributed effectively and demonstrated full commitment to their duties. To assess the Group CEO in respect of his executive duties a separate process was carried out by the Chairman and in respect of the Chief Financial Officer (CFO), by the Group CEO. The process involved measuring performance against each Executive Director’s objectives.
Board and committee evaluation and effectiveness 0BOutcomes and steps taken in 2015 1BBoard debate  The evaluation indicated that open and productive debate was widespread across the Board and its committees. Overall, the Board and its committees were found to be functioning well with a collaborative and professional atmosphere around the Board table 2BBoardroom information  The evaluation highlighted the significant level of agenda time and Boardroom discussion spent on the changing regulatory environment.
In order to allow more strategic debate, efforts were made during the year to streamline agendas and enable deeper discussion on strategy, for example through separate off-agenda business unit reviews. Seven such sessions are currently planned for 2016
 The Subsidiary Governance Principles were developed and launched during the year to strengthen and provide further clarity on the relationship between Aviva plc and the subsidiary boards. Further details can be found in the Governance Committee report 4BSuccession planning  The response to the evaluation indicated that succession planning at both Board and executive level should remain a priority. During 2015, succession plans were further developed and discussed at the Board and Nomination Committee. This succession programme resulted in a number of appointments to the Board, including that of the Chairman
The Chairman ensures that all new directors receive a comprehensive induction programme tailored to their particular needs and which consists of several separate training sessions over a number of months. Induction programmes were put in place for Andy Briggs, Sir Malcolm Williamson and Belén Romana García on their new appointment to the Board in 2015. This comprehensive induction included meetings with Board members, presentations from key members of senior management, and visits to the Group’s main operating businesses and functions to gain a more detailed and tailored understanding of our business. In addition meetings with the External Auditor and some of the Company’s advisors were held. The SID also met with a number of the Company’s major shareholders.
Further meetings are arranged where a director requires a deeper understanding of a particular issue. All new directors also receive induction materials, which include the current strategic and operational plan; recent Board and committee minutes and meeting packs; organisation structure charts; role profiles; a history of the
Group; and relevant policies, procedures and governance material. Any knowledge or skills gaps identified during the director’s approved person application process are also addressed through their induction programme.
The Group Company Secretary assisted the Chairman of the Board and the Chair of each committee in planning the work for each meeting and ensuring
In-depth monitoring of the establishment and operation of prudent and effective controls in order to assess and manage risks associated with the Group’s operations is delegated to the Audit, Governance and Risk Committees which report regularly to the Board. However, the Board retains ultimate responsibility for the Group’s systems of internal control and risk management and has reviewed their effectiveness for the year.
The frameworks for risk management and internal control play a key role in the management of risks that may impact the fulfilment of the Board’s objectives. They are designed to identify and manage, rather than eliminate, the risk of Aviva failing to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or losses. These frameworks are regularly reviewed and comply with the Financial Reporting Council’s updated guidance on Risk Management, Internal Controls and related financial and business reporting.
Risk Management Framework The Risk Management Framework (RMF) is designed to identify, measure, manage, monitor and report the principal risks to the achievement of the Group’s business objectives and is embedded throughout the Group. The RMF has been in place for the year under review and up to the date of the approval of the annual report and accounts. It is codified through risk policies and business standards which set out the risk strategy, appetite, framework and minimum requirements for the Group’s worldwide operations. Further detail is set out in note 57.
A Group reporting manual including International Financial Reporting Standards (IFRS) requirements and a Financial Reporting Control Framework (FRCF) are in place across the Group. FRCF relates to the preparation of reliable financial reporting and preparation of local and consolidated financial statements in accordance with applicable accounting standards and with the requirements of the Sarbanes-Oxley Act of 2002. The FRCF process follows a risk-based approach, with management identification, assessment (documentation and testing), remediation (as required), reporting and certification over key financial reportingrelated controls. Management regularly undertakes quality assurance procedures over the application of the FRCF process and FRCF controls. The Friends Life Group had an established framework of financial reporting controls in place at the time of acquisition and work is now underway to align this with the Aviva Group’s FRCF methodology. This work will be completed in 2016.
The Operational Risk Committee is also chaired by the CRO. It supports the first line owners of key operations and franchise risks in the discharge of their responsibilities in relation to operational risk management.
The Disclosure Committee is chaired by the CFO and reports to the Audit Committee. It oversees the design and effectiveness of the Group’s disclosure controls, for both financial and nonfinancial information, evaluates the Group’s disclosure controls and reviews and endorses the Group’s key periodic external reports, including the consolidated financial statements. The results of the FRCF process are signed off by business unit chief executive officers and chief financial officers and compliance with the FRCF is reported to the Disclosure and the Audit Committees.
The second line Risk function as a whole also includes the Compliance and Actuarial functions. The Actuarial function is accountable for Group wide actuarial methodology, reporting to the relevant governing body on the adequacy of reserves and capital requirements, as well as underwriting and reinsurance arrangements. The Compliance function supports and advises the business on the identification, measurement and management of its regulatory, financial crime and conduct risks. It is accountable for maintaining the compliance standards and framework within which the Group operates, and monitoring and reporting on its compliance risk profile.
Third line The Internal Audit function provides independent and objective assessment on the robustness of the RMF and the appropriateness and effectiveness of internal control to the Audit, Governance and Risk Committees, business unit audit committees and the Board. Further information on the activities of the Internal Audit function is contained within the Audit Committee report.
Board oversight The Board has established and delegated responsibilities to various committees to assist in its oversight of risk management and the approach to internal controls. There is a good working practice between each committee and they make regular reports to the Board. The responsibilities and activities of each Board committee are set out in the committee reports that follow. The principal committees that oversee risk management are as follows: (i) The Audit Committee, working closely with the Risk Committee, is responsible for assisting the Board in discharging its responsibilities for the integrity of the Company’s financial statements, the effectiveness of the system of internal financial controls and for monitoring the effectiveness, performance and objectivity of the internal and external auditor.
(ii) The Governance Committee also works closely with the Risk Committee and is responsible for assisting the Board in its oversight of operational risk across the Group, particularly in respect of the risk of not delivering good customer outcomes.
(iii) The Risk Committee assists the Board in its oversight of risk and risk management across the Group and makes recommendations on risk appetite to the Board.
Further details on procedures for the management of risk operated by the Group are given in note 57.
Assessment of effectiveness To support an assessment of the effectiveness of the Group’s governance, internal control and risk management requirements, the chief executive officer of each business unit is required to certify that: • there are sound risk management and internal control systems that are effective and fit for purpose in place across the business; and
The chief risk officer of each business unit must certify that: • the risk function has reviewed and challenged the process supporting the business unit chief executive officer’s certification and is satisfied that it can provide reasonable assurance of the material accuracy and completeness of the business unit chief executive officer’s assessment; and
• no material gaps exist in the RMF as it applies to their business unit
Any material risks not previously identified, control weaknesses or non-compliance with the Group’s risk policies and business standards or local delegations of authority, must be highlighted as part of this process. This is then supplemented by investigations carried out at Group level and ultimately a Group CEO and CRO certification for Aviva plc.
The Audit Committee, working closely with the Risk Committee, on behalf of the Board, last carried out a full review of the effectiveness of the systems of internal control and risk management in March 2016, covering all material controls, including financial, operational and compliance controls and the RMF and processes. The review identified a number of areas for improvement and the necessary actions have been or are being taken.
The risk management framework of a small number of our joint ventures and strategic equity holdings differs from the Aviva framework outlined in this report. We work with these entities to understand how their risks are managed and to align them, where possible, with Aviva’s framework.
The directors have an ongoing dialogue and a programme of meetings with institutional investors, fund managers and analysts which are managed by the Company’s Investor Relations function. At these meetings a wide range of issues are discussed including strategy, financial performance, management, remuneration and governance, within the constraints of information already made public, to understand any issues of concern to investors. Shareholders’ views are regularly shared with the Board through the Group CEO’s and CFO’s reports and the Company’s corporate brokers also periodically brief the Board on investor views.
Prior to his retirement in April 2015, John McFarlane, as Chairman, met with the Company’s major institutional investors. This included consultation on the appointment of Sir Adrian Montague as Chairman and in respect of the proposed Friends Life acquisition. Since his appointment, Sir Adrian Montague has also met with the Company’s major shareholders. In addition, the SID was available to meet with major investors to discuss any areas of concern that could not be resolved through normal channels of investor communication.
Interim Management Statements In November 2014, the Financial Conduct Authority removed the requirement in the Disclosure and Transparency Rules to publish quarterly interim management statements (IMS). After careful consideration, the Board has determined that Aviva should no longer provide IMS disclosures for quarter one and quarter three, with immediate effect.
2016 AGM The 2016 AGM will be held on Wednesday 4 May 2016 and the Notice of the AGM and related papers will, unless otherwise noted, be sent to shareholders at least 20 working days before the meeting. The AGM provides a valuable opportunity for the Board to communicate with private shareholders. All directors normally attend the Company’s AGM, however, Patricia Cross was unable to attend the 2015 AGM due to illness and being unable to travel. All serving directors plan to attend the 2016 AGM.
There is a dedicated email address which shareholders can use to ask questions on the business of the AGM at aviva.shareholders@aviva.com and this address is included in the shareholder information section of the Notice of AGM.
Shareholders are invited to ask questions related to the business of the meeting at the AGM and have an opportunity to meet with the directors following the conclusion of the meeting. Further details on the AGM are provided in the Shareholder services pages later in the Annual report and accounts.
This year the Committee has continued to review the composition of the Board and the succession plans for executive management.
During 2015, we welcomed Sir Malcolm Williamson and Belén Romana García to the Committee and on 8 February 2016, Claudia Arney was appointed to the Committee. John McFarlane and Gay Huey Evans retired from the Committee on 29 April 2015. I am grateful to all members for their support and dedication.
What have been the main challenges faced in 2015? 2015 has been a period of significant activity and the Committee held seven meetings during the year. Its main priority was to oversee the smooth succession of the Chairman and to consider the proposed changes to the Board following the acquisition of Friends Life. The process to appoint the Chairman was led by Scott Wheway, Chairman of the Governance Committee, and I withdrew from all discussions regarding the appointment process.
Subsequent to the year-end we have also appointed Claudia Arney who brings extensive digital experience to the Board. Further information on each director can be found in their biographies and on the Company’s website at www.aviva.com/board.
How does the Group consider the issue of succession planning? The Group has a history of developing talent from within. The transition of Angela Darlington, our Chief Risk Officer whose case study is featured later in this report, is a good example of the benefits this policy can bring.
The Board takes succession planning very seriously and following the changes that were made at Board level we increased our focus to ensure that both the Board and the Committee conducted a detailed review and debate on the subject. It was agreed that further attention to executive succession planning and contingency plans for a range of situations, including key personnel loss, was required and we have developed longer-term plans that we are now implementing. The initial work we embarked upon in 2015 in relation to succession planning and development will continue to remain a focus for the Committee in 2016.
What prompted the changes to the composition of the Board committees in May 2015? We review the membership of each Board committee annually and, following the 2015 review, recommended a number of changes for approval by the Board. This was with the intention of refreshing and strengthening the performance of each committee. Details of the members of each committee and their attendance at meetings are shown in the table in the directors’ and corporate governance report.
Having said that, diversity at Aviva includes but is not limited to gender. Within the topic of diversity there are a variety of different aspects, including professional and industry experience, understanding of different geographical regions and ethnic background as well as different perspectives and skills. Each of these components is equally important and ensuring that we have the right mix of each is also vital. In making new appointments, the Board will have regard to gender but will remain focused on recruiting, on merit, the best candidate for any future roles.
During the year the Committee expressed the desire to appoint an additional NED to the Board with financial services experience and engaged the global executive headhunting firm, JCA Group, which has no other connection to the Aviva Group and is a signatory to the Voluntary Code of Conduct for Executive Search Firms.
Following several meetings with them and after reviewing our skills matrix, we agreed a detailed candidate brief which included consideration for candidates with different backgrounds and they undertook the search process to identify a list of suitable candidates. From the initial interviews, a shortlist was submitted to the Committee for consideration.
For selected candidates further interviews were held and, for the preferred candidate, interviews with the Chairman, Group Chief Executive Officer (CEO), Chief Financial Officer (CFO) and all NEDs were held. Interviews focused on testing whether the candidates had the required skills, experience and competencies for the role as well as assessing whether candidates would be a good fit for the Board.
A similar process, also supported by JCA Group, was followed in the appointment of Claudia Arney.
The Committee has in place a skills matrix which it uses to review and reflect on the skills that individual directors currently possess. During 2016, the skills matrix will be integral to the Committee’s planning and discussions for developing further the Board’s succession plans.
 The Committee reviewed the composition of the Board and in particular, whether the Board required additional skills and experience which would complement those of the existing Board members. It also managed the transition of the Chairman and the induction process for three new directors
 Succession planning at both Board level and at executive level has been an area of focus for the Committee during the year  In 2015 a number of senior management changes were made to strengthen the Group Executive team including the appointments of Andy Briggs and Angela Darlington
 During the year, the effectiveness review of the Board, its committees, the Chairman and individual directors was conducted through an external evaluation process
Ensure the Audit Committee has members with recent and relevant financial experience who meet SEC requirements.
Board composition – 18% Evaluate and review the composition of the Board including the balance of skills, knowledge, experience and diversity taking into account the Company’s risk appetite and strategy.
The Committee reviews the risks inherent in our investment portfolios and in the insurance products we offer our clients, as well as the operational risks present in the business
As Chairman of the Committee, I am pleased to present the Risk Committee’s report for the year ended 31 December 2015 The Company’s approach to risk and risk management together with the principal risk types that face the Group are explained on pages 62 to 65.
What is the main function of the Risk Committee? The Committee oversees all aspects of risk management in the Group, save for conduct, financial crime, brand and reputation risk oversight, responsibility for which lies with the Governance Committee.
The principal purpose of the Committee is to assist the Board in its oversight of risk within the Group, with particular focus on the Group’s risk appetite, risk profile and the effectiveness of the Group’s risk management framework including the risk management function itself.
We consider the effectiveness of the ways in which the risks are managed, the strength of contingency planning and the adequacy of our capital and liquidity resources in the context of the residual risks facing the Group and recommend risk appetites to the Board.
The Committee oversees due diligence appraisals carried out on strategic or material transactions, such as the Friends Life acquisition, and also works with the Remuneration Committee to ensure that risk management is properly considered in setting the Group’s remuneration policy.
Who attends meetings of the Committee? During 2015, the Committee met on eight occasions. The Chairman of the Company, the Group Chief Executive Officer, Chief Audit Officer (CAO), Chief Financial Officer and Chief Risk Officer (CRO) regularly attended Committee meetings. Other members of senior management were also invited to attend as appropriate to present reports, and the Committee had access to the services of regular attendees as well as external professional advisers.
How would you assess the Company’s approach and readiness for SII? SII has been many years in the making and the Company has operated a structured, Group-wide SII programme throughout this time and the Committee has provided oversight. The approach has generally been to build on our existing, effective risk management framework and model, rather than start from scratch. This has had the benefit of leveraging several years of experience of using risk-based economic capital models to support decision-making. The outcome has been that our partial internal model has been approved by the regulators and that we are well placed to succeed in a SII world.
In addition, as Chairman of the Committee, I received all of management’s Integration Steering Committee papers in connection with the integration of Friends Life.
As Chairman of the Committee, I reported to subsequent meetings of the Board on the Committee’s work and the Board received a copy of the CRO’s report, the meeting agenda and the minutes of each meeting of the Committee.
The Committee is satisfied that it has the resources and expertise necessary to fulfil its responsibilities.
Throughout the year both Glyn Barker and I were members of the Audit Committee (Glyn as Chairman of the Audit Committee), ensuring that there was efficient and complete coverage of the effectiveness of the systems of internal control and risk management across the two committees.
In addition, attendance by Committee members is encouraged at subsidiary risk committee meetings and there is a schedule of attendance maintained centrally to ensure equal distribution and oversight. In support of this, I annually speak to the chairs of each subsidiary risk committee and local CROs to maintain linkage to the matters being considered at subsidiary level.
We have seen the benefits of these initiatives with an increased understanding of the work of each committee and improved communication and reporting both at Group and subsidiary company level. This was also evidenced once again in November 2015 when I, together with the Chairman of the Board and the Chairmen of the Audit and Governance Committees co-hosted a two-day conference for the chairmen of the boards and audit, conduct and risk committees of the Group’s principal subsidiaries, their chief audit officers, chief financial officers and chief risk officers. Further details can be found in the case study opposite.
Finally, the Committee’s focus on SII did not end with it coming into force in January 2016 and the Committee will spend time reviewing plans to expand the perimeter of the Group’s approved partial internal model and ensuring that changes to the risk management framework made in response to SII are embedded within the business.
Subsidiary Independent Non-Executive Directors’ Conference In December 2015 the Chairmen of the Aviva plc Board, Audit, Governance and Risk Committees co-hosted a conference for 32 independent nonexecutive directors of our principal subsidiaries. The topics discussed included the Group’s strategy, the implementation of Solvency II, our approach to managing operational risk and controls, our digital developments and the Group’s control environment and culture. The conference has become an annual event building upon the successful risk and audit conferences previously held. In 2016, it is intended that the conference will extend to include all independent non-executive directors of our subsidiary companies, to ensure a consistent understanding of Group strategy, customer philosophy, regulatory developments and risk and control processes.
 The Committee reviewed and monitored how potential risks connected with increased cost efficiency were being managed; considered the risks associated with the 2016-2018 Group Plan and how management was proposing to mitigate them
 The Committee reviewed and approved changes to the Group-wide risk policies and selected business standards to reflect changes to the risk target operating model for SII and reflecting Financial Stability Board guidance. The Committee selected the extreme stress scenarios to be used in the Group’s recovery plan and liquidity risk management plan and reviewed and recommended those plans and the systemic risk management plan to the Board for approval
 The Committee reviewed proposed hybrid debt issuance and redemption  The Committee also reviewed capital and liquidity projections on a quarterly basis and the results of the Group’s stress and scenario testing
 The Committee also provided oversight of the SII programme’s preparations for the implementation of SII including Pillar 2 and Pillar 3 and confirmed that the Own Risk and Solvency Assessment (ORSA) requirements had been met
 The Committee received regular updates on the external economic environment and considered the implications for the Group’s asset portfolio
 The Committee monitored closely the developments of the more detailed SII requirements and proposals for higher loss absorbency capital requirements for Global Systemically Important Insurers as well as progress made by the International Association of Insurance Supervisors towards a Global Insurance Capital Standard
 The Committee reviewed the effectiveness of the risk management function and approved the appointment of the CRO and the appointment of a number of subsidiary board risk committee members
Ensure due diligence appraisals are carried out on strategic or significant transactions.
Ensure that risk management is considered in setting the Company’s overall remuneration policy.
Solvency II – 41% Satisfy itself that the SII partial internal model is fit for purpose and meets all required regulations.
The challenges of adopting Solvency II were a major focus area during the year
This year we welcomed Sir Malcolm Williamson and Bob Stein to the Committee and I am grateful to all members of the Committee for their support and dedication in 2015. Sir Adrian Montague and Scott Wheway retired from the Committee on 14 May 2015. The members of the Committee are shown in the table above and details of members’ attendance at Committee meetings during the year are shown earlier in the directors’ and corporate governance report.
What is the purpose of the Committee and what is its role? The Committee’s principal role is to assist the Board in discharging its responsibilities for monitoring the integrity of the Company’s financial statements; the oversight of internal controls and the performance of internal and external audit.
• recommending to the Board that the annual report and accounts are fair, balanced and understandable
• agreeing the Group’s approach to the Longer-Term Viability Statement (LTVS) as required under the UK Corporate Governance Code (the Code). Further details on the LTVS are contained in Other Statutory Information
• the Major Control Improvement Topics (MCITs) identified by management. The MCITs that were allocated to the Committee related to control issues in Aviva UK Commercial Finance and Turkey Life. The Committee tracked the progress that has been made in connection with these issues and the remedial actions implemented by management. These included the documentation of loan management activity in the UK Commercial Finance business, and actions to enhance the core operating systems for the Turkey Life business and develop its risk and control framework. Both topics have now been closed and removed from the list of MCITs.
How does the Committee satisfy itself that its members meet the requirements of the UK Corporate Governance Code, the Disclosure and Transparency Rules and the US requirements for financial expertise? As part of the annual review of the effectiveness of the Committee, the expertise of the members is considered and reviewed based on their recent and relevant experience against each of the criteria as set out in the Code, the Disclosure and Transparency Rules and the US requirements.
The Committee also receives quarterly control reports from Internal Audit and reviews and challenges management on the actions being taken to improve the quality of the overall control environment and the control culture across the Group.
The Committee reviews and approves the semi-annual Internal Audit Plan and conducts an annual review of the Internal Audit function. The Committee concluded that for 2015 the function was performing well and it continued to deliver an objective and independent service.
The Company has complied during the financial year under review and up to the date of this report with the Statutory Audit Services for Large Companies Market Investigation (Mandatory Uses of Competitive Tender Process and Audit Committee Responsibilities) Order 2014.
• review of the formal announcements on the Group’s financial performance to ensure significant issues are appropriately disclosed
• the review of the services provided by the Auditor, the ongoing independence of the Auditor, legal and regulatory developments relating to external audit services and the application and appropriateness of the External Auditor Business Standard
• the 2016 Internal Audit Plan • the review of management’s progress in addressing the MCITs, in particular the Fraud Management MCIT which has been allocated to the Committee
• the inclusion of the heritage-Friends Life entities in the scope of Aviva’s attestation for 2016 to meet the financial control requirements for the 2002 Sarbanes-Oxley (SOx) Act for its US Listing
• in line with the focus by the regulator on increasing the level of challenge that an audit committee should pose in its review of risk management and internal controls; the Committee will consider how best it can look to improve this area of activity during 2016.
 The provisions relating to commercial mortgages, in particular relating to credit default, and corporate bonds were fully reviewed together with the sale of a portfolio of higher risk mortgages in the second half of 2015
 The reserving position relating to the Group’s life assurance and general insurance operations were reviewed  The Committee reviewed goodwill and other intangible assets  The Committee reviewed the going concern assumptions for 2015 and the principles underpinning the LTVS
 The Committee reviewed PwC’s compliance with the independence criteria and the steps taken by PwC to ensure that it was able to act for the larger Group following the acquisition of Friends Life
 The Committee monitored compliance with the External Auditor Business Standard on a quarterly basis and three minor breaches of our Internal Standard were identified during the year relating to pre-approvals and an employment screening. In each case the processes were reviewed and improved to prevent reoccurrence. These were not breaches of the SEC independence rules and did not impact PwC’s formal independence of the Group
 The Committee reviewed the Group’s External Auditor Business Standard and refreshed it in November 2015 to align the presentation with the requirements of its Group-wide operational risks and control programme
 The Committee received quarterly updates on the effectiveness of the FRCF framework and rectification of controls  The Committee monitored progress to address the MCITs allocated to the Committee  The Committee reviewed the Internal Audit function report and the Internal Audit Plan for 2015 and 2016 to ensure adequacy of the systems of control  The Committee undertook a benchmarking exercise of the Group’s IT controls and assessed the impact of the integration of the heritage-
Internal Controls, including the financial reporting control framework and financial reporting developments – 36% Assess the effectiveness of the Group’s system of internal control and risk management.
Assess the effectiveness of the Internal Audit function, review the performance of the CAO, and agree his remuneration.
External Audit, auditor engagement and policy – 16% Consider and make recommendations to the Board on the appointment, reappointment, dismissal or resignation, effectiveness, independence and objectivity of the External Auditor and agree their remuneration.
Consider and monitor the application and appropriateness of the External Auditor Business Standard.
I am pleased to present the Governance Committee’s report for the year ended 31 December 2015 The Board strongly believes that good governance and strong, responsible leadership is critical to creating long-term shareholder value and business success. During the year the Committee continued its oversight of conduct risk throughout the Group and also focused on the development of the Subsidiary Governance Principles and the governance of the Company’s digital business.
This year we welcomed Sir Malcolm Williamson and Belén Romana García to the Committee and I am grateful to all members for their support and dedication in 2015. Sir Adrian Montague retired from the Committee on 14 May 2015. The members of the Committee are shown in the table above and details of members’ attendance at Committee meetings during the year are shown in the table in the directors’ and corporate governance report.
Principles which provide a framework for the governance standards expected of subsidiary companies within the Group. They cover a range of topics including strategy and planning, remuneration, shareholder interaction and governance accountability. Our case study later in the report provides further information on the development of the Principles and their implementation.
How has the Committee reviewed and challenged the Group’s delivery of good outcomes for customers during the year? During the year the treatment of customers has continued to be a significant focus for the Committee. Core to this has been the quarterly review by the Committee on the performance of a series of key risk indicators in relation to customer outcomes and experience in each of the Group’s business units. The Committee also receives a report from the Group Regulatory Director at each meeting in relation to any material concerns regarding the treatment of customers that may have arisen within the Group, and the adequacy of management’s response in addressing these issues.
The Group’s business units continually reassess and reappraise their performance in delivering good customer outcomes. As part of reinforcing this discipline, the Committee has reviewed the action plans developed to further embed the Conduct Risk Management Framework into each business and address any issues regarding the treatment of customers. During the
We believe good governance is a two way process, and we have drawn up a set of Subsidiary Governance Principles which provide clarity on the relationship of Aviva plc, as the ultimate shareholder, and subsidiary boards to articulate expectations in respect of governance.
year the Committee has discussed with the chief executive officers of our UK life business, UK & Ireland general insurance business, Aviva Investors business, Canada, France, Poland and Turkey their plans for further enhancing and embedding conduct risk management within their businesses.
With the development of the Group’s digital strategy and the decision to establish UK Digital to drive forward the strategy in the UK, the Committee has taken a central role in overseeing the development of UK Digital as a legal entity and monitoring the customer risks that the new business will encounter. To ensure this is achieved in a robust way the Committee has reviewed and challenged the business’s plans and progress on a regular basis. Further detail can be seen in the digital governance case study earlier in the directors’ and corporate governance report.
The Committee is responsible for the oversight of talent development within the Group. How do you view progress? The Nomination Committee is responsible for Board and executive level recruitment and succession planning and the Governance Committee has responsibility for developing talent below this level.
We recognise that further work in this area remains to be done, especially around developing a robust talent pipeline for critical senior leadership roles. A new programme to assess and develop potential successors to these senior roles will be a focus for 2016. We believe that Aviva has a very talented pool of people from which it can develop leaders and the Committee will continue to provide appropriate oversight and guidance in this area.
The Committee agreed the refreshed Aviva Group Corporate Responsibility (CR) strategy during 2015. Why was this important? As the Group heads into a new phase of transformation we need a CR strategy that supports our strategic anchor and helps us deliver on our purpose. We can use CR in digital channels and communications to help build life long relationships with customers, and we can use our influence to help tackle the big issues in our industry and our world such as sustainability and climate change. The new strategy, which is outlined earlier in the Strategic Report, builds on our historic strengths, ensures we have a strong governance foundation and focuses our attention on where we can make the biggest difference for our customers and communities.
Customer, Conduct and Reputational Risk  The Committee received reports on conduct risk management at each meeting to enable it to monitor compliance with regulatory standards and to ensure good customer outcomes  Under the Group-wide framework for the consistent management and reporting of conduct risk, different business units were invited to attend meetings to discuss their progress in ensuring good customer outcomes. In 2015 this included the UK life, UK & Ireland general insurance, Aviva Investors, Aviva Canada, Aviva France, Aviva Poland and Aviva Turkey
 Reports detailing ongoing and possible reputational risks and brand and franchise risks were considered by the Committee. These also included any media or public policy issues
 The Committee received regular updates on the customer outcome metrics relating to sales, retention, claims experience and complaints
 Monitored certain Major Control Improvement Topics – data governance/protection, fraud management and conduct risk, including the significant enhancement of the Group’s Business Protection Business Standard in 2015, the progress to improve fraud and conduct control awareness and training and the Group-wide rollout of a consistent sanction screening tool
Regulatory and Financial Crime – 24% Review relationships with the conduct regulatory and competition authorities and the actions taken in respect of regulatory developments.
Review the reporting process in respect of any material regulatory breaches.
Customer, Conduct and Reputational Risk – 22% Review and monitor strategy, the Group’s risk profile and the effectiveness of the risk management control framework as it relates to customer outcomes, franchise value and reputation.
Review the Group’s overall culture and values as they influence risk to reputation.
Corporate Responsibility – 11% Recommend and review the Group’s CR strategy and monitor external developments and environmental regulations.
Work with the Risk Committee to monitor any CR risk exposures.
Other statutory information The directors submit their annual report and accounts for Aviva plc, together with the consolidated financial statements of the Aviva group of companies, for the year ended 31 December 2015.
The directors’ report required under the Companies Act 2006 comprises this directors’ and corporate governance report; the directors’ remuneration report and the following disclosures in the strategic report: • Environment and climate change for disclosure of our greenhouse gas emissions
Results The Group’s results for the year are shown in the consolidated income statement.
Related Party Transactions Related party transactions are disclosed in note 60 which is incorporated into this report by reference.
Post balance sheet events that occurred subsequent to 31 December 2015 Details of significant events that have occurred subsequent to 31 December 2015 are disclosed in notes 3, 24 and 63.
• Proposed final dividend of 14.05 pence per ordinary share (2014: 12.25 pence)
• Total ordinary dividend of 20.80 pence per ordinary share (2014: 18.1 pence),
Share class and listing All the Company’s shares in issue are fully paid up and the ordinary and preference shares have a Premium and Standard listing respectively on the London Stock Exchange. The Company is listed on the New York Stock Exchange (NYSE) in the form of American Depositary Shares, referenced to ordinary shares, under a depositary agreement with Citibank. Details of the Company’s share capital and shares under option at 31 December 2015 and shares issued during the year are given in notes 30 to 33.
Share capital The issued ordinary share capital of the Company was increased by 1,097,977,833 ordinary shares during the year which were allotted in respect of the acquisition of Friends Life and to satisfy amounts under the Group’s employee share and incentive plans. At 31 December 2015 the: • issued ordinary share capital totalled 4,048,465,173 shares of 25 pence each
Restrictions on transfer of securities With the exception of restrictions on the transfer of ordinary shares under the Company’s employee share incentive plans, whilst the shares are subject to the rules of the plans, there are no restrictions on the transfer rights attaching to the Company’s ordinary shares or the transfer of securities in the Company.
Authority to purchase own shares At the Company’s 2015 AGM, shareholders renewed the Company’s authorities to make market purchases of up to 295 million ordinary shares, up to 100 million 8¾% preference shares and up to 100 million 83/8% preference shares. These authorities were not used during the year or up to the date of this report. At the 2016 AGM, shareholders will be asked to renew these authorities for another year and the resolution will once again propose a maximum aggregate number of ordinary shares which the Company can purchase of less than 10%
G o vern an ce of the issued ordinary share capital. Details are contained in the Notice of AGM. The Company held no treasury shares during the year or up to the date of this report.
Disclosure and Transparency Rule 5 – major shareholders The table below shows the holdings of major shareholders in the Company’s issued ordinary share capital in accordance with the Disclosure and Transparency Rules as at 31 December 2015 and 8 March 2016.
Directors The directors as at the date of this report are shown together with their biographical details earlier in the report. During the year and up to the date of this report, the following Board appointments, resignations and retirements occurred: Appointments: Director Position Effective Date
At no time during the year did any director hold a material interest in any contract of significance with the Company or any of its subsidiary undertakings other than an indemnity provision between each director and the Company and employment contracts between each executive director and a Group company. The Company has purchased and maintained throughout the year directors’ and officers’ liability insurance in respect of itself and its directors. The Company has also executed deeds of indemnity for the benefit of each director of the Company, and each person who was a director of the Company during the year, in respect of liabilities that may attach to them in their capacity as directors of the Company or of associated companies. The articles of association allow such indemnities to be granted.
These indemnities were granted at different times according to the law in place at the time and where relevant are qualifying third-party indemnity provisions as defined by section 234 of the Companies Act 2006. These indemnities were in force throughout the year and are currently in force. Details of directors’ remuneration, service contracts, employment contracts and interests in the shares of the Company are set out in the directors’ remuneration report. The Company has also granted indemnities by way of a deed poll to the directors of the Group’s subsidiary companies, including former directors who retired during the year.
Annual general meeting The 2016 AGM of the Company will be held on Wednesday, 4 May 2016 at the Queen Elizabeth II Centre, Broad Sanctuary, Westminster, London SW1P 3EE at 11am. The Notice of AGM convening the meeting describes the business to be conducted thereat. Further details can be found in the shareholder information section of the Notice of AGM.
Articles of association Unless expressly stated to the contrary in the articles, the Company’s articles may only be amended by special resolution of the shareholders. The Company’s current articles were adopted on 29 April 2015.
Going concern The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the strategic report. The performance review includes the risk and capital management section. In addition, the financial statements sections include notes on the Group’s borrowings (note 49); its contingent liabilities and other risk factors (note 52); its capital structure and position (note 54); management of its risks including market, credit and liquidity risk
The Group has considerable financial resources together with a diversified business model, with a spread of businesses and geographical reach. As a consequence, the directors believe that the Group is well placed to manage its business risks successfully.
Longer-term viability statement It is fundamental to the Group’s longerterm strategy that the directors manage and monitor risk taking into account all key risks the Group faces, including longer-term insurance risks, so that it can continue to meet its obligations to policyholders. The Group is also subject to extensive regulation and supervision including, from 1 January 2016, Solvency II and as a result of being designated a Global Systemically Important Insurer by the Financial Stability Board.
The assessment of the Group’s prospects by the directors covers the three years to 2018 and is underpinned by management’s 2016-2018 business plan which includes projections of the Group’s capital, liquidity and solvency.
The Group’s stress and scenario testing considers the Group’s capacity to respond to a series of relevant financial, insurance (e.g. catastrophe) or operational shocks should future circumstances or events differ from these current assumptions. The Group also addresses the impacts of contingent management actions designed to maintain or restore key capital, liquidity and solvency metrics to within the Group’s approved risk appetites over the planning period.
• comprehensive reviews of drafts of the Annual report and accounts are undertaken by members of the Group Executive and, other members of senior management, and in relation to certain parts of the report external legal advisers and the External Auditor
Directors’ responsibilities The directors are responsible for preparing the Annual report, the directors’ remuneration report and the financial statements in accordance with applicable law and regulations.
• state whether applicable IFRSs as adopted by the EU and IFRSs issued by IASB have been followed, subject to any material departures disclosed and explained in the financial statements
New York Stock Exchange listing requirements The Company’s ordinary shares are admitted to the NYSE and are traded as American Depositary Shares. As a foreign company listed on the NYSE, the Company is required to comply with the NYSE corporate governance rules to the extent that these rules apply to foreign private issuers. As a foreign private issuer, the Company is therefore required to comply with NYSE Rule 303A.11 by making a disclosure of the significant differences between the Company’s corporate governance practices and NYSE corporate governance rules applicable to US companies listed on NYSE. The Company complied with the UK Corporate Governance Code 2014 (the Code) in respect of its 2015 financial year and other relevant best practice principles and guidelines. The significant differences between UK and US requirements are summarised below together with Aviva’s approach to compliance: NYSE Listing Rules UK Corporate Governance Code Aviva approach Independence criteria for directors
The majority of the Board comprises independent Non-Executive Directors (NEDs) who are deemed independent under the Code and meet the independence criteria in the NYSE rules.
The Chairman should hold meetings with the NEDs without the Executive Directors present.
The NEDs meet without Executive Directors present at least once annually.
US companies are required to have a Nominating/Corporate Governance Committee comprised of independent directors. In addition to identifying individuals qualified to become Board members, this committee must develop and recommend to the Board a set of corporate governance principles and oversee the evaluation of the Board and management.
The Company has an Audit Committee comprised of independent NEDs and at least one member meets both the NYSE and Code requirements on financial experience. The Audit Committee does not review risk management as this is covered by the Risk and Governance Committees.
Shareholders must be given the opportunity to vote on all equity-compensation plans and ‘material revisions’ to those plans, with limited exceptions. Detailed definitions of ‘material revisions’ are provided by NYSE.
We will continue to focus on the alignment between the remuneration framework and the Group’s strategy
New Executive Director Andy Briggs, who had been Chief Executive Officer at FLG, was appointed to the Board of Aviva in April 2015 when he took on the role of CEO of the enlarged UK Life business (CEO UK Life). Andy did not receive an increase to his basic salary on appointment and his incentive awards granted in respect of his employment with Aviva in 2015 are in line with our Policy and pro-rated to reflect his period of employment.
Key decisions on remuneration in respect of 2015 2015 Long Term Incentive Plan (LTIP) Last year, in line with our Remuneration Policy, we proposed awards of 350% of salary and 250% of salary to Mark Wilson, Group Chief Executive Officer (Group CEO) and Tom Stoddard, Chief Financial Officer (CFO), respectively, under the LTIP.
Following feedback from a shareholder proxy agency on the proposed awards, the Group CEO and CFO decided not to accept these awards.
Consequently, the Committee approved new LTIP awards to be granted at 300% of salary to the Group CEO and 225% of salary to the CFO, which both individuals accepted.
Adjustment of LTIP targets Following the acquisition of FLG in April 2015, we considered our LTIP targets for the outstanding 2013 and 2014 awards (50% based on Relative Total Shareholder Return (TSR); 50% based on Return on Equity (ROE)). After a process of shareholder consultation, we decided to
G o vern an ce re-calibrate them to reflect the enlarged Group and its increased capital base.
Shareholders indicated to us that they were satisfied with the approach of making mechanical adjustments to the ROE targets, so they would be no less challenging than those that were originally set.
Shareholders were also comfortable with the approach taken to adjusting the comparator group used for assessing relative TSR performance to take into account the de-listing of FLG. These adjustments to targets are as described on page 109.
2015 Bonus The annual bonus awards made to the Executive Directors (EDs) reflect a strong year for the Company under their leadership. The Group exceeded target performance overall for the financial measures (operating profit, cash remittances, value of new business (VNB), economic surplus generation, operating expense ratio and combined operating ratio (COR) ). The continued progress of the integration with FLG has strengthened and stabilised our position in terms of capital and liquidity.
2013 LTIP Given the dates of appointment of our EDs, only the Group CEO will receive shares under this award. Awards under the 2013 LTIP vested subject to Aviva’s ROE and relative TSR performance over the period 1 January 2013 to 31 December 2015. 53.0% of the maximum vested. Full details can be found on page 109.
Committee changes during the year Gay Huey Evans stepped down from the Board and the Committee in 2015 and I would like to thank Gay for her hard work and commitment since joining the Committee in 2011. I would also like to take this opportunity to welcome Michael Mire and Sir Malcolm Williamson to the Committee.
Committee priorities for 2016 The key priority of the Committee in 2016 is to direct the ongoing development of a remuneration system which is fair to executives and aligned to long term, sustainable growth in shareholder value. In light of a heightened international competition for talent, the Committee faces significant challenge in this endeavour.
Other priorities will include monitoring compliance with evolving regulatory requirements, including SII provisions.
Our core values provide a compelling foundation on which to continue to shape our Policy. We continue to: • Care More - we care about how our executives feel about our remuneration framework just as we care about how our broad community of stakeholders view this framework
• Kill Complexity - we have a constant task to remove undue complexity from our remuneration systems, not easy given continuing disclosure changes and regulatory requirements
We are committed to maintaining an open and transparent dialogue with our shareholders. The objective of this report is to communicate our approach to pay in light of the Group’s performance and regulatory landscape. As always, I welcome any comments that you may have and look forward to seeing shareholders at the 2016 AGM.
Remuneration philosophy The key principles of our approach to executive remuneration are: Align to Aviva’s purpose and strategy.
Recognise the leaders who achieve the required business results through living Aviva values and behaviours.
Directors’ remuneration report continued 17% of total package 11% of total package 23% of total package 49% of total package
2 year holding period – delivered in shares (100% of LTIP)
Overview of Policy (approved in 2015) Maximum of 200% of salary for CEO and 150% of salary for other EDs  Performance is assessed against a range of relevant financial, employee, customer and risk measures designed to incentivise the achievement of our strategy, as well as individual strategic objectives as set by the Committee
Overview of Policy (approved in 2015) Maximum of 350% of salary  Shares vest subject to performance over a three-year period. Once vested, shares are typically subject to an additional two-year holding period
Application of Policy in 2016 Group CEO: 300% of salary CFO: 225% of salary CEO UK Life: 225% of salary  Performance measured over 1 January 2016 to 31 December 2018  50% based on three-year cumulative ROE
This section of the report sets out how Aviva has implemented its Remuneration Policy for EDs during the course of 2015, and how the approved Policy will be implemented for 2016. This is in accordance with the requirements of the Large & Medium Sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended).
The full terms of reference for the Committee can be found on the Company’s website at www.aviva.com/terms-of-reference and are also available from the Group General Counsel and Company Secretary.
Deloitte LLP were paid fees totalling £112,500, during the year for the provision of advice to the Committee on senior executive remuneration matters, and views on shareholder perspectives. Fees were charged on a time plus expenses basis.
Committee performance and effectiveness In March 2015, the Committee undertook an annual review of its performance and effectiveness which concluded that; overall the Committee was effective in carrying out its duties with the areas of development identified being consistent with the outcomes of the Board evaluation process, as set out earlier in the report. The 2015 review was carried out by Independent Board Evaluation as described on page 80.
• in line with recent comments made in the external environment, it is recognised that simplicity is favoured to ensure that there is sufficient line of sight between performance and remuneration within the Group
 The Committee reviewed and agreed the Remuneration Policy, Principles and Framework Business Standard (the Framework). The Framework has been designed to take into account both the integrated assurance implementation programme framework and the SII regulations. Under SII, it is a requirement for the Group’s Remuneration Policy to be made available to all staff members, and therefore the Framework has been created as a separate document in a simple and understandable format
 The Committee received and considered a report from Internal Audit following an internal review of the adequacy and effectiveness of controls over the preparation, validation and evaluation of financial and non-financial bonus metrics and noted that no material issues had been identified
 The Committee approved the 2015 LTIP and considered annual bonus targets for 2016  The Committee reviewed and amended plan rules where necessary  The Committee considered the impact of the FLG acquisition on outstanding 2013 and 2014 LTIP targets and subsequently engaged with shareholders on adjustments to targets. Consideration was also given to the appropriateness of the 2015 bonus targets, in light of the acquisition
 The Committee benchmarked, reviewed and set salaries for the Group CEO, CFO and GE members from 1 April 2015  The Committee reviewed and approved the Group bonus pool for 2014, taking into account performance against financial KPIs and non-financial modifiers  The Committee reviewed and approved the key individual objectives for 2015 for each member of the GE  The Committee reviewed the detail and methodology for assessing the bonus pool for Aviva Investors, approving the maximum bonus pool and allocations. Remuneration proposals for 2015 were considered and approved, including formal approval of the bonus targets and consideration of a new Aviva Investors LTIP
 The Committee ensured that remuneration outcomes were aligned with delivery against the strategic anchor, long-term sustainable growth, shareholder experience and the risk profile of the Group
Senior management objectives and pay decisions – 44% Recommend to the Board the Group’s Policy in respect of remuneration of the Board Chairman, EDs, members of the Group Executive (GE) and members of senior management, taking account of all legal and regulatory requirements and provisions of best practice and remuneration trends across the Group.
Review the general principles applying to relevant employees under SII and oversee remuneration decisions relating to these employees to ensure they are aligned to the agreed Policy.
Select, appoint and determine the terms of reference for independent remuneration consultants, to advise on Remuneration Policy and levels of remuneration.
Review and determine the remuneration of the Board Chairman and the terms of employment and remuneration of individual EDs and GE members, including any specific recruitment or severance terms.
Notes 1 Bonus payable in respect of the financial year including any deferred element at face value at date of award. 2 The value of the LTIP for 2015 relates to the 2013 award, which had a three-year performance period ending 31 December 2015. 53.0% of the award will vest in April 2016. An assumed share price of 491.68p has been used to determine the value of the award based on the average share price over the final quarter of the 2015 financial year.
3 As disclosed in last year’s report, Tom was eligible to receive a buyout award on a strict “like for like” basis to replace deferred compensation he had forfeited on resignation from his previous employer. This award was made in 2015 once share dealing restrictions that applied during 2014 because of the FLG acquisition had lifted.
5 Remuneration in relation to services to Aviva from 29 April 2015.
Additional disclosures in respect of the single total figure of remuneration table (audited information) Benefits The benefits disclosure includes the cost, where relevant, of private medical insurance, life insurance, accommodation, travel and car benefits. In the case of Mark and Andy this also includes benefits resulting from the Save As You Earn (SAYE plan), in which they participate on the same basis as all eligible employees. All numbers disclosed include the tax charged on the benefits, where applicable. In line with previous disclosure, the benefits figure for Tom includes some expenditure in respect of his relocation from the US to the UK. (£200,000 limit inclusive of benefit in kind charges against appropriate receipts or other evidence of expenditure.)
2015 annual bonus outcome The Group’s financial performance, together with non-financial modifiers and personal performance have been used to determine ED bonuses paid in respect of 2015. As communicated to shareholders, the targets were reviewed and adjusted to take into account the impact of the FLG acquisition. The Committee is comfortable that the revised targets were no less difficult to achieve. Targets and our performance against them for 2015 will be disclosed in next year’s report when they are no longer considered commercially sensitive. The Committee believes that disclosing them so soon after the end of the relevant financial year may adversely impact the Group’s business.
Insurance (PMI) • Annual bonus - 100% of basic salary for target performance and 150% of basic salary for maximum performance. Two-thirds of any bonus awarded is deferred into Aviva shares for three years • LTIP - eligible for an LTIP grant with a face value (at grant) of up to 350% of basic salary. The LTIP is subject to performance conditions and vests after three years to the extent that those conditions have been met. Vested shares are subject to a two-year holding period post vesting. Andy received an LTIP grant in 2015 of 225% of basic salary
Under Aviva’s Annual Bonus Plan – this outcome can be modified by the performance on the Employee, Customer and Risk and Controls modifiers. Typically, adjustments (if made) would be in the range of +/- 15% but for major Risk or Controls or Customer issues (eg concerning Conduct) a considerably greater adjustment could be made.
Employee engagement improved by 1% during 2015, on a same population basis of employees who were with Aviva year-on-year, to 66%. It is recognised that there are challenges around employee engagement following the acquisition of FLG with significant change being experienced by some of our employees and the EDs recognise this is a critical area of focus.
Customer Performance against Relationship Net Promoter Score (RNPS) targets and, if these are met, against Average Product Holding (APH) targets reflecting progress against the True Customer Composite strategic goal.
In 2015, almost all business units were assessed as ‘on target’ against the goal of maintaining an appropriate and clearly effective risk management and control environment. Two business units have been identified as needing to make improvements and action has been taken within the relevant units to address this. The signal achievement in relation to risk in 2015 was the successful implementation of SII across the Group, including the approval of the internal model. This demonstrates the importance placed on how risk is managed and reported within the Group.
For the 2015, no adjustments were made in relation to the modifier factors. While the modified outcome against the Group Financial Scorecard provides a pool of funding for bonuses, actual bonus decisions are made based on individual contribution and achievements, how the person has assisted the Group achieve progress against its strategic objectives, the leadership they have exhibited and how the individual has demonstrated the Aviva values. Each individual has a target and maximum bonus opportunity against which this is assessed.
• The SII outcome and approval of the internal model was a major achievement and followed a long process of engagement with the regulator and the Government in which the CEO was prominently engaged.
Tom Stoddard provided outstanding leadership to the Finance function and drove many initiatives to ensure Aviva is making solid progress on its strategic ambitions, including: • Playing a key role in the acquisition of Friends Life and in Aviva getting ahead of schedule on the integration and benefits delivery; • Raising £1bn hybrid capital and protecting the Group’s capital position in volatile markets through additional hedging activity and divesting £2bn of non-core commercial property assets to Lone Star; • Strategic acquisitions in Canada and Poland; • Reducing claims volatility by reinsuring £800m of
Investor Relations team; and • Securing PRA approval of Aviva’s internal model for SII, which went live on 1 January 2016.
Bonus award : £673,014 Bonus as a % of basic salary: 135% Bonus as a % of max opportunity: 90%
Notes 1 Andy’s bonus has been pro-rated to reflect his period of employment with Aviva.
Financial KPI Threshold Maximum Outcome 2014 bonus as a % of basic salary 2014 bonus as a % of maximum
1 IFRS profit before tax is calculated as IFRS operating profit before tax attributable to shareholders’ profits (continuing and discontinued operations) after integration and restructuring costs, impairment of goodwill, joint ventures and associates and other amounts expensed and amortisation and impairment of intangibles.
2 MCEV value of new business is for both continuing and discontinued operations. 3 Total expenses include operating expenses and integration and restructuring costs for both continuing and discontinuing operations. 4 Commentary on performance against these components of assessment was included in last years report.
Aviva ordinary share on the three consecutive business days immediately preceding Tom’s start date. • A share price of 489.00 pence was used to calculate the LTIP award, being the average of the middle-market closing price of an
The table below therefore includes some awards made in respect of 2014, but granted in 2015.
ROE targets for awards made in 2015 ROE targets determine the vesting of 50% of the LTIP award and are set annually within the context of the Company’s three-year business plan. Vesting depends upon performance over the three-year period against a target return. The 2015 targets are provided below and have been set in the context of the enlarged Group.
The performance period for the TSR performance condition will be three years beginning 1 January 2015. For the purposes of measuring the TSR performance condition, the Company’s TSR and that of the comparator group will be based on the 90-day average TSR for the period immediately preceding the start and end of the performance period.
Payments to past directors (audited information) Trevor Matthews resigned from the Board with effect from 8 May 2013 and left the Company on 6 June 2013. • As disclosed in the 2013 Annual Report and Accounts, Trevor’s 2012 LTIP award was pro-rated to reflect his service during the performance period and vested to the extent that the performance conditions had been achieved at the end of the period • There was a maximum of 230,073 shares (not inclusive of shares awarded in lieu of dividends accrued) available to vest in March 2015. The vesting percentage was 50% which resulted in 128,891 shares, (inclusive of shares awarded in lieu of dividends accrued), vesting at a share price of 549.85 pence. The value realised was £708,708.56. This is the final payment made to Trevor
Services UK Limited and Aviva Life & Pensions UK Limited each of which are subsidiary companies of Aviva plc • The emoluments he received in respect of these directorships for the 2015 financial year were £107,105 and €64,058
Richard Karl Goeltz retired from the Board with effect from 8 May 2013 • Richard was appointed as Chairman and NED of Aviva Life Holdings UK Limited, a subsidiary company of Aviva plc on 14 May 2013. • He is a NED of Aviva Life & Pensions UK Limited, Aviva Annuity UK Limited and Aviva Life Services UK Limited, each of which are subsidiary companies of Aviva plc • Richard resigned from these positions on 13 April 2015 • The emoluments he received in respect of these directorships for the 2015 financial year were £29,481
In April 2015 Andy received an annual bonus paid by FLG in respect of services provided to FLG prior to the acquisition. It was pro-rated for the period 1 January 2015 to 10 April 2015 and amounted to £157,461 (50% of the maximum bonus available for that period taking into account achievement against performance measures).
Following the completion of the acquisition of FLG by Aviva, there were a number of long-term awards which vested as a result of the acquisition. • FLG Deferred Share Award Plan (DSAP) 116,362 shares - all awards vested in full (one-third of annual bonuses in respect of 2013 and 2014 were deferred into shares) • FLG Performance Share Plan (PSP) 82,598 shares - PSP awards vested on the acquisition. Performance was tested at the point of vesting, with 75% of the maximum paying out. The awards were subject to time pro-rating to take into account the period between grant and vesting, and therefore the number of vested shares was reduced by 70%
Whilst these awards were originally satisfied in FLG shares, they converted to Aviva shares at the point of acquisition given the structure of the transaction. As set out in the announcement to the London Stock Exchange, on 14 April 2015, Andy sold these shares in April 2015 on the open market. Andy retained a reportable interest in 222,903 Aviva shares post the acquisition and therefore met his shareholding requirement of 150% of salary at 31 December 2015. In addition, Andy retains an interest in the FLG Long Term Incentive Plan.
• FLG Long Term Incentive Plan (FLG LTIP) - the FLG LTIP was originally implemented by Resolution Ltd in 2009 and approved by Resolution Ltd shareholders in 2013 following modification. It was structured as a private equity type arrangement to support a strategy of consolidation within the Life sector and an IPO of the consolidated businesses and, was therefore not a conventional share plan. It was instead structured to reward growth in the value of the company if a stretching threshold level of performance was achieved, and was the only long-term incentive plan operated from 2009 to May 2014
Former non-executive directors 1 The prior year total has been recalculated to show the directors that continued in office during all or part of the current year and excludes remuneration of directors that left in the prior year.
2 Sir Adrian Montague was appointed Chairman at the 2015 AGM, when John McFarlane and Gay Huey Evans stepped down from the Board. Sir Malcolm Williamson was appointed on 29 April 2015. Subsequently, Belén Romana García was appointed to the Board on 26 June 2015.
The total amount paid to NEDs in 2015 was £1,645,000, which is within the limits set in the Company’s Articles of Association, as previously approved by shareholders.
Payments for loss of office (audited information) There were no payments for loss of office during the year.
Percentage change in remuneration of Group CEO The table below sets out the increase in the basic salary, bonus and benefits of the Group CEO and that of the wider workforce. The UK employee workforce was chosen as a suitable comparator group, as all EDs are based in the UK (albeit with global responsibilities), and pay changes across the Group vary widely depending on local market conditions.
Group CEO 0% 40% 24% All UK-based employees 5% -4% 12%
Notes Basic salary increase for the CEO was nil, whereas the average UK employee had an increase of 5%. Mark’s bonus level was increased, as approved by shareholders in 2015 and his outcome reflects strong performance across the Group. In comparison, for the major business units, performance during 2015 continued to be strong, but was not as strong as the outstanding results achieved in 2014, and the lower bonus outcomes for the individuals in these business units reflect that.
Historical TSR performance and Group CEO remuneration outcomes Table 10 compares the TSR performance of the Company over the past seven years with the TSR of the FTSE 100 Return Index. This index has been chosen because it is a recognised equity market index of which Aviva is a member. In addition, median TSR performance for the LTIP comparator group has been shown. The companies which comprise the current LTIP comparator group for TSR purposes are listed in the ‘TSR Targets’ section on page 110.
Notes 1 Mark joined the Board as an ED with effect from 1 December 2012, and became Group CEO on 1 January 2013. He received no emoluments in respect of 2012. 2 Andrew Moss resigned from the Board with effect from 8 May 2012 and left the Company on 31 May 2012.
There were no changes to the current directors’ interests in Aviva shares during the period 1 January 2016 to 8 March 2016.
Share awards and share options (audited information) Details of the EDs who were in office for any part of the 2015 financial year and hold or held outstanding share awards or options over ordinary shares of the Company pursuant to the Company’s share based incentive plans are set out in the below table. Savingsrelated share options refer to options granted under the HMRC tax advantaged Aviva 2007 SAYE Plan and are normally exercisable during the six month period following the end of the relevant (3, 5 or 7 year) savings contract.
Aviva Chief Financial Officer Award 2014 — 196,463 53,0338 — 145,383 564.50 523.00
Savings-related options 20157 — 2,368 — — 2,368 — 380.00 — Dec 18 -May
All employee share plans EDs are eligible to participate in two HMRC tax advantaged all employee share plans on the same basis as other eligible employees.
The Company monitors the number of shares issued under the Aviva employee share plans and their impact on dilution limits. The Company’s usage of shares compared to the relevant dilution limits set by the Investment Association in respect of all share plans (10% in any rolling ten-year period) and executive share plans (5% in any rolling ten-year period) was 2.16% and 1.32% respectively on 31 December 2015.
16 Result of the vote at 2015 AGM Percentage of Votes Cast
Following the 2015 AGM, the Committee Chairman continued dialogue with major institutional shareholders, including consulting on the proposed adjustment to LTIP targets.
Implementation of Remuneration Policy in 2016 The implementation of the policy will be consistent with that outlined in the Policy Report, with no significant changes from how the Policy was implemented during 2015.
Performance against a number of other non-financial measures will be considered when determining bonus payouts (employee engagement, customer and risk). In addition, each ED’s personal performance during the year will be taken into account.
LTIP LTIP grants in 2016 will be in line with the levels set out in the Policy report. The CEO will receive an award of 300% of salary and the other two EDs will receive an award of 225% of salary. The LTIP will vest subject to performance against two equally weighted performance measures, absolute ROE and relative TSR performance, which have been chosen to reflect shareholders’ long-term interests.
Additional fees are paid as follows: Senior Independent Director £35,000 £35,000
There is no maximum increase within the Policy. However, basic salary increases take account of the average basic salary increase awarded to UK employees. Different levels of increase may be agreed in certain circumstances at the Committee’s discretion, such as: • An increase in job scope and responsibility
Any movement in basic salary takes account of performance of the individual and the Group.
Performance below threshold on both targets would result in the award lapsing in its entirety.
If suitable employee contributions are made, employer contributes 28% of basic salary (into pension or as cash as applicable).
Benefits are provided on a market related basis. The Company reserves the right to deliver benefits to EDs depending on their individual circumstances, which may include a cash car allowance, life insurance and private medical insurance. In the case of non-UK executives, the Committee may consider additional allowances in line with standard relevant market practice.
Set at a level which the Committee considers appropriate against comparable roles in companies of a similar size and complexity to provide a reasonable level of benefit.
Costs would normally be limited to providing a cash car allowance, private medical insurance, life insurance, and reasonable travel benefits, including the tax cost where applicable. In addition, there may be one-off or exceptional items on a case by case basis, which would be disclosed in the DRR.
A requirement to build a shareholding in the Company equivalent to 300% of basic salary for the Group CEO and 150% of basic salary for other EDs.
Malus and Clawback The circumstances when malus and clawback may apply include (but are not limited to) where the Committee considers that the employee concerned has been involved in or partially or wholly responsible for: • A materially adverse misstatement of the Company’s financial statements, or a misleading representation of performance; or • A significant failure of risk management and/or controls; or • A scenario or event which causes material reputational damage to the Company; or • Misconduct which, in the opinion of the Committee, ought to result in the complete or partial lapse of an award
Discretions The discretions the Committee has in relation to the operation of the ABP and LTIP are set out in the plan rules. These include (but are not limited to) the ability to set additional conditions (and the discretion to change or waive those conditions) in exceptional circumstances. In relation to the LTIP, in accordance with its terms, the Committee has discretion in relation to vesting and in exceptional circumstances to waive or change a performance condition if anything happens which causes the Committee reasonably to consider it appropriate to do so. Any use of the discretions will be disclosed, where relevant, in the annual report and, where appropriate be subject to consultation with Aviva’s shareholders.
Approach to recruitment remuneration On hiring a new ED, the Committee would align the proposed remuneration package with our Remuneration Policy.
In determining the actual remuneration for a new ED, the Committee would consider the package in totality, taking into account elements such as the likely contribution of the individual, local market benchmarks, remuneration practice, and the existing remuneration of other senior executives. The Committee would ensure any arrangements agreed would be in the best interests of Aviva and its shareholders. It would seek not to pay more than necessary to secure the right candidate.
The Committee may make awards on hiring an external candidate to ‘buyout’ remuneration arrangements forfeited on leaving a previous employer. In doing so, the Committee would take account of relevant factors including any performance conditions attached to these awards, the form in which it was paid (e.g. cash or shares) and the timeframe of awards. The Committee considers that a buyout award is a significant investment in human capital by Aviva, and any buyout decision will involve careful consideration of the contribution that is expected from the individual. Buyout awards would be awarded on a “like for like“ basis compared to remuneration being forfeited, and would be capped to reflect the value being forfeited.
Should the Company have any prior commitments outside of this Policy in respect of an employee promoted internally to an ED position, the Committee may continue to honour these for a period of time. Where an ED is appointed from within the organisation, the normal policy of the Company is that any legacy arrangements would be honoured in line with the original terms and conditions. Similarly, if an ED is appointed following Aviva’s acquisition of, or merger with, another company, legacy terms and conditions may be honoured.
Notes to the charts • Fixed pay consists of basic salary, pension as described in table 18, and estimated value of benefits provided under the Remuneration Policy, excluding any one offs.
Expenses Reimbursement of expenses reasonably incurred in accordance with their duties.
• Its ongoing dialogue with shareholders. It seeks shareholder views and takes them into account when any significant changes are being proposed to remuneration arrangements and when formulating and implementing Remuneration Policy. For example, during 2014 and continuing in 2015, the Committee has had detailed engagement with our largest shareholders to discuss amendments to targets for existing LTIP awards and 2015 annual bonus plan following the acquisition of FLG
Non-Executive Directors The table below sets out details of our Remuneration Policy for NEDs.
To reimburse NEDs for appropriate business travel and accommodation, including attending Board and committee meetings.
Notes 1 The dates shown above reflect actual appointment dates where agreed following signature of the letter as all appointments are subject to regulatory approval.
Approval by the Board This Directors’ remuneration report was reviewed and approved by the Board on 9 March 2016.
Notes to the consolidated financial statements 1 Presentation changes 154 2 Exchange rates 154 3 Subsidiaries 154 4 Segmental information 157 5 Details of income 165 6 Details of expenses 166 7 Finance costs 167 8 Long-term business economic volatility 167 9 Longer-term investment return and economic assumption changes for non-long-term business 168 10 Employee information 170 11 Directors 170 12 Auditors’ remuneration 171 13 Tax 172 14 Earnings per share 174 15 Dividends and appropriations 175 16 Goodwill 176 17 Acquired value of in-force business
(AVIF) and intangible assets 178 18 Interests in, and loans to, joint ventures 179 19 Interests in, and loans to, associates 181 20 Property and equipment 182 21 Investment property 183 22 Fair value methodology 183 23 Loans 189 24 Securitised mortgages and related assets 190 25 Interest in structured entities 190 26 Financial investments 192 27 Receivables 196 28 Deferred acquisition costs, other assets, prepayments and accrued income 196 29 Assets held to cover linked liabilities 197 30 Ordinary share capital 197 31 Group’s share plans 198 32 Treasury shares 201 33 Preference share capital 201 34 Direct capital instrument and tier 1 notes 202 35 Merger reserve 202 36 Other reserves 203 37 Retained earnings 203 38 Non-controlling interests 204 39 Contract liabilities and associated reinsurance 204 40 Insurance liabilities 205 41 Liability for investment contracts 214 42 Financial guarantees and options 215 43 Reinsurance assets 217 44 Effect of changes in assumptions and estimates during the year 219 45 Unallocated divisible surplus 219 46 Tax assets and liabilities 220 47 Provisions 221 48 Pension obligations 221 49 Borrowings 227 50 Payables and other financial liabilities 230 51 Other liabilities 230 52 Contingent liabilities and other risk factors 230 53 Commitments 232 54 Group capital structure 233 55 Statement of cash flows 234 56 Capital statement 235 57 Risk management 238 58 Derivative financial instruments and hedging 249 59 Financial assets and liabilities subject to offsetting, enforceable master netting arrangements and similar agreements 251 60 Related party transactions 252 61 Organisational structure 253 62 Related undertakings 255 63 Subsequent events 269
What we have audited The financial statements, included within the Annual Report and Accounts (the ‘Annual Report’) comprise: • The Consolidated and Company statements of financial position as at 31 December 2015; • The Consolidated and Company income statements and statements of comprehensive income for the year then ended; • The Reconciliation of Group operating profit to profit for the year then ended; • The Consolidated and Company statements of changes in equity and statements of cash flows for the year then ended; • The principal accounting policies adopted in the preparation of the financial statements; and • The notes to the financial statements, which include other explanatory information.
Our audit approach Context This year’s audit continued to focus on the valuation of insurance contract liabilities and the valuation of hard to value investments. Developments in the year included a focus on the valuation of finite lived intangible assets and goodwill related to the acquisition of Friends Life Group Limited.
Group, and scoped our audit to include detailed testing of those account balances. • Further audit procedures were performed by the Group engagement team, including over the head office operations and the consolidation process, to ensure that sufficient coverage was obtained. • Our risk assessment analysis identified the following as areas of focus: - Valuation of life insurance contract liabilities. - Valuation of non-life insurance contract liabilities. - Valuation of hard to value investments. - Valuation of finite lived intangible assets and goodwill relating to the Friends Life Group Limited acquisition.
Area of focus How our audit addressed the area of focus
Valuation of life insurance contract liabilities Refer to page 91 (Audit Committee Report), page 138 (Accounting policies) and page 205 (notes) The Directors’ valuation of the provisions for the settlement of future claims involves complex and subjective judgements about future events, both internal and external to the business, for which small changes in assumptions can result in material impacts to the valuation of these liabilities.
The work to address the valuation of the UK Life (including Friends Life) insurance contract liabilities included the following procedures: • We tested the underlying company data to source documentation. • Using our actuarial specialist team members, we applied our industry knowledge and experience and we compared the methodology, models and assumptions used against recognised actuarial practices.
Based on the work performed, we considered the assumptions used to be in line with recognised market practices and, where appropriate, industry peers.
As part of our consideration of the entire set of assumptions we focused particularly on the following three within the UK Life market (including Friends Life) given their significance to the Group’s result and the level of judgement involved. Annuitant Mortality Assumptions Annuitant mortality assumptions require a high degree of judgement due to the number of factors which may influence mortality experience. The differing factors which affect the assumptions are underlying mortality experience (in the portfolio), industry and management views on the future rate of mortality improvements and external factors arising from developments in the annuity market.
In addition to the procedures above, in respect of the annuitant mortality assumptions: • We understood and tested the governance process in place to determine the annuitant mortality methodology and assumptions.
Credit Default Assumptions UK Life (including Friends Life) holds significant commercial mortgage, corporate bond and other loan asset portfolios to support the annuity liabilities. In line with relevant rules, the current yield on these assets less a prudent deduction for credit default and reinvestment risk is used to discount the annuity liabilities. Additional supplementary liabilities are held particularly in respect of the use of higher risk assets. These liabilities are to cover inter alia the risk of increased short-term default rates and in the event of default, the availability of assets yielding similar returns. The assumptions used require significant judgement.
In respect of the credit default assumptions: • We understood and tested the governance process in place to determine the credit default risk methodology and assumptions.
Based on the work performed, we considered the allowance for credit default risk to be appropriate.
• We validated assumptions used by management against past experience, market observable data and our experience of market practices.
The estimation of non-life insurance contract liabilities involves a significant degree of judgement. The liabilities are based on the best-estimate ultimate cost of all claims incurred but not settled at a given date, whether reported or not, together with the related claims handling costs. A range of methods, including stochastic projections, may be used to determine these provisions. Underlying these methods are a number of explicit or implicit assumptions relating to the expected settlement amount and settlement patterns of claims. Regulators across the globe continue to focus on reserving adequacy for non-life insurers, particularly in the current market.
In the UK General Insurance and Canada markets, we assessed the Directors’ calculation of the non-life insurance liabilities by performing the following procedures: • We tested the underlying company data to source documentation. • Using our actuarial specialist team members, we applied our industry knowledge and experience and we compared the methodology, models and assumptions used against recognised actuarial practices.
Valuation of hard to value investments Refer to page 183 (notes). Given the ongoing market volatility and macroeconomic uncertainty, investment valuation continues to be an area of inherent risk. The risk is not uniform for all investment types and is greatest for the following, where the investments are hard to value because quoted prices are not readily available: • Commercial mortgage loans (UK Life) • Equity release and UK securitised mortgage loans (UK Life) • Structured bond-type investments (France Life) • Collateralised loan obligations and non-recourse loans (UK
Life) • Private placements (UK Life) • Swaps for equity release and related Special Purpose
Valuation of finite intangible assets and goodwill in relation to the Friends Life Group Limited Acquisition Refer to page 91 (Audit Committee Report), page 140 (Accounting policies) and page 154 (notes). On acquisition of Friends Life Group Limited, Aviva recognised the Acquired Value of In Force Business ‘AVIF’ (£4,790 million) in respect of the insurance and investment contract portfolios. In addition, further intangible assets were recognised consisting of distributor and customer relationships (£484 million) and goodwill (£671 million). These intangible assets represent an area of significant judgement and therefore we performed work to assess the valuation of these assets, as well as any amortisation or impairments charged since the acquisition date.
Group Limited assets and liabilities at the date of acquisition; - Check the pre-existing intangible assets of Friends Life Group Limited were written off on acquisition; - Agree the alignment of accounting policies of Friends Life Group Limited with Aviva; and - Recalculate the value of goodwill recognised in the acquisition balance sheet.
• Challenged management’s judgements, through the engagement of PwC valuation experts to: - Test the completeness of identification of potential intangible assets recognised and valued; - Test the valuation methodologies and assumptions used to value each intangible asset on acquisition. • Examined the amortisation and impairment methodology to check it is in accordance with IFRS requirements • Tested management’s application of the methodology at year end by re-performing the amortisation and impairment calculation.
Based on our work and the evidence obtained, we found that the recognition of goodwill, AVIF and other intangible assets and management’s basis for the valuations as at 31 December were appropriate.
Using the outputs of a risk assessment, along with our understanding of the Aviva structure, we scoped our audit based on the significance of the results and financial position of individual markets relative to the Group result and financial position. In doing so, we also considered qualitative factors and checked that we obtained sufficient coverage across all financial statement line items in the Consolidated financial statements. This scope provided us with audit coverage in excess of 86% for Operating profit before tax and, after the deduction of integration and restructuring costs, 79% for Gross Written Premiums and 88% for Total Assets.
The Group’s primary reporting format is along market reporting lines with supplementary information being given by business activity. The operating segments of the Group are ‘United Kingdom & Ireland’ (Life and General Insurance), France, Poland, ‘Italy, Spain and Other’, Canada, Asia, Aviva Investors and ‘Other Group Activities’. The results of the Friends Life Group Limited businesses from the date of acquisition, have been included in the UK & Ireland Life (Friends Life UK), Asia (Friends Provident) and ‘Other Group activities’ segments.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £5 million (2014: £5 million) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Other required reporting Consistency of other information Companies Act 2006 opinion In our opinion, the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements.
(the ‘Code’), that they consider the Annual Report taken as a whole to be fair, balanced and understandable and provides the information necessary for members to assess the Group’s and parent company’s position and performance, business model and strategy is materially inconsistent with our knowledge of the Group and parent company acquired in the course of performing our audit.
• The section of the Annual Report on page 91, as required by provision C.3.8 of the Code, describing the work of the Audit
Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to: • The Directors’ confirmation on page 82 of the Annual Report, in accordance with provision C.2.1 of the Code, that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity.
We have nothing material to add or to draw attention to.
We primarily focus our work in these areas by assessing the Directors’ judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements.
Items included in the financial statements of each of the Group’s entities are measured in the currency of the primary economic environment in which that entity operates (the functional currency). The consolidated financial statements are stated in pounds sterling, which is the Company’s functional and presentational currency. Unless otherwise noted, the amounts shown in these financial statements are in millions of pounds sterling (£m). The separate financial statements of the Company are on pages 270 to 278.
There is a presentation change related to the definition of operating profit detailed in note 1 for which comparative figures have been restated. There is no impact on reported profit or equity as a result of this.
(ii) Annual Improvements to IFRSs 2011-2013 These improvements to IFRSs consist of amendments to four IFRSs including IFRS 3 Business Combinations and IFRS 13 Fair Value Measurement. The amendments clarify existing guidance and there is no impact on the Group’s consolidated financial statements.
(ii) Amendments to IAS 27, Equity Method in Separate Financial Statements
(v) Annual Improvements to IFRSs 2012-2014 These improvements consist of amendments to five IFRSs including IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, IFRS 7 Financial Instruments: Disclosures and IAS 19 Employee Benefits. The amendments clarify existing guidance. The adoption of these amendments is not expected to have a significant impact on the Group’s consolidated financial statements.
(vi) IFRS 15, Revenue from Contracts with Customers IFRS 15 will replace IAS 18 Revenue and establishes a principle based five-step model to be applied to all contracts with customers, except for insurance contracts, financial instruments and lease contracts. IFRS 15 also includes enhanced disclosure requirements. The impact of the adoption of the new standard has yet to be fully assessed by the Group. This standard applies to annual reporting periods beginning on or after 1 January 2018 and has not yet been endorsed by the EU.
Instruments which will replace IAS 39 Financial Instruments: Recognition and Measurement. The standard incorporates new classification and measurements requirements for financial assets, the introduction of an expected credit loss impairment model which will replace the incurred loss model of IAS 39, and new hedge accounting requirements. Under IFRS 9, all financial assets will be measured at either amortised cost or fair value. The basis of classification will depend on the business model and the contractual cash flow characteristics of the financial assets. The standard retains most of IAS 39’s requirements for financial liabilities except for those designated at fair value through profit or loss whereby that part of the fair value changes attributable to own credit is to be recognised in other comprehensive income instead of the income statement. The hedge accounting requirements are more closely aligned with risk management practices and follow a more principle based approach.
Until the forthcoming ED is finalised, and the interaction with the new insurance contracts standard is clear, it is not possible to fully assess the effect of the adoption of IFRS 9. IFRS 9 has not yet been endorsed by the EU.